Tencent may team up with private equity funds for Nexon bid

Business | 24 Jan 2019 1:52 pm

Tencent Holdings (0700) as well as private equity firms Hillhouse Capital and KKR & Co are considering bids to acquire a major stake in gaming company Nexon Co, people familiar with the matter said, Bloomberg reports.

Tencent is evaluating a possible bid and could team up with some investment funds, the people said. Other global companies as well as buyout funds have expressed interest in a potential deal for Nexon, the people said. Blackstone Group LP is also considering a bid, a person familiar said.

South Korean billionaire Kim Jung Ju, who controls Nexon through his NXC Corp., is looking to sell down his stake in the Tokyo-based gamemaker. That is opening up opportunities for companies such as Tencent to bolster their portfolios with popular titles such as MapleStory as a crackdown on new games in China continues to hit operators in its home country.

NXC is working with financial advisers Deutsche Bank and Morgan Stanley as it weighs options including selling part of its 47 percent stake or a full sale of the company, the people said. Considerations are at an early stage and the companies could still decide against pursuing any transaction, the people said.

Shenzhen-based Tencent is only focused on NXC’s game assets and is not interested in its cryptocurrency-related businesses, according to one person familiar with the Chinese company’s thinking. In October, NXC bought digital currency exchange Bitstamp and also owns South Korean exchange Korbit.

Representatives for Hillhouse, KKR, Tencent, Blackstone, Deutsche Bank, Morgan Stanley and Nexon declined to comment. The Maeil Business Newspaper reported earlier this month that Tencent and private equity firms are considering bids for NXC’s stake or the company itself.

Nexon shares reversed losses and rose as much as 7.6 percent in Tokyo trading.

China, the world’s biggest gaming market, has only recently resumed game approvals with last year’s freeze hitting profitability at companies from Tencent to NetEase Inc. In November, Nexon missed analyst estimates for quarterly earnings after saying revenue in the mainland will drop by about a fifth in the December quarter.

There are global sensitivities to any deal given ongoing tensions between China and South Korea and regulators may not want the company to fall into Chinese hands, people familiar with the deal said.

Kim founded Nexon in the mid-1990s and pioneered the use of "loot boxes,” where players purchase merchandise in a game, to help create South Korea’s largest online game publisher. In 2011, he listed Nexon in Japan, tapping a larger and more-liquid stock market.

While NXC had owned about 70 percent of Nexon after the initial public offering, it gradually lowered its stake as Kim shifted his wealth from games into new ventures like cryptocurrencies. Nexon is now run out of Tokyo by Chief Executive Owen Mahoney, who has more than doubled its market value since the IPO to about US$13 billion by building a portfolio of high-margin online games.

In response to media reports about NXC selling its stake, Nexon said in a January 4 statement it was looking at a "multi-faceted approach” to the "sale and management of assets.”

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