Tencent, co-investors pay $8.6B to take control of Supercell

The Deal
By Mariko Iwasaki
June 22, 2016


Chinese media and Internet company Tencent Holdings Ltd. and co-investors on Tuesday, June 21, have agreed to buy up to 84.3% in Finnish game maker Supercell Oy. The transaction is expected to be valued at $8.6 billion, according to Tencent.

Shenzhen-based Tencent and a consortium of unnamed investors will buy the shares in three installments from employee shareholders and former employees of Supercell, as well as Tokyo-based SoftBank Group Corp, which has a 72.2% stake. SoftBank will have no stake in Supercell upon completion of the deal, which is expected in the July to September quarter, according to SoftBank.

SoftBank will be selling its stake in Supercell for $7.3 billion, it said. Given the sale price and dividends received during the ownership, returns to SoftBank from the investment represent 2.9 times capital invested and a 93% internal rate of return. The implied valuation for 100% of Supercell’s equity is about $10.2 billion, it added.

Founded in 2010, Supercell develops games for tablets and smartphones, with titles including “Clash of Clans” and “Hay Day.”

“Over the past six years, we’ve created four top games that are now played by over 100 million people every single day,” Supercell CEO Ilkka Paananen said in a release. “This new partnership offers us exciting growth opportunities in China, where we will be able to reach hundreds of millions of new gamers via Tencent’s channels.”

In 2013, SoftBank, a Japanese telcom and the majority owner of Sprint Corp. (S), teamed up with Tokyo-based GungHo Online Entertainment Inc. to acquire a 50.5% stake in Supercell for ¥151 billion ($1.4 billion) before it bought GungHo’s shares the following year. In May 2015, SoftBank upped its holding to 73.3% for an undisclosed amount.

For SoftBank, the transaction follows a selling spree of assets in recent weeks aimed at reducing its $80 billion debt under its “2.0 transformation strategy.” On June 2, the company said it will sell a total $8.9 billion worth of securities in Alibaba, bringing down its holding in the company to around 28%. SoftBank also announced on June 6 that it would sell a majority of its stake in game publisher GungHo Online Entertainment.

Following the announcement on Supercell, SoftBank said that its chief operating officer Nikesh Arora will step down from the role to become an adviser to the company. During his tenure, SoftBank invested in e-commerce platform Snapdeal, on-demand transportation company Ola and online aggregator of hotels Oyo, all in India.

SoftBank CEO Masayoshi Son, 58, said that he had wanted to hand over the reins to Arora on his 60th birthday.

“But I feel my work is not done,” Son said in a statement. “I want to cement SoftBank 2.0, develop Sprint to its true potential and work on a few more crazy ideas. This will require me to be CEO for at least another five to 10 years.”

In the bidding for Supercell, there were “several” other interested parties from the telecom, media and technology sectors, according to Morrison & Foerster LLP’s Eric McCrath, who advised SoftBank on the transaction.

“The timing was right for SoftBank given the SoftBank 2.0… On the other hand, Tencent was very eager to get this deal done and get in line with their outside- of-China expansion and their ability to bring additional users in as well as content for their existing base of customers. This was the deal that timed out well for both parties,” McCrath said.

McCrath said that Sprint falls within SoftBank’s larger strategic goals.

Supercell sought advice from Morgan Stanley & Co. International plc and legal advice from Fenwick & West LLP and White & Case LLP.

Meanwhile, SoftBank was advised by a team led by John Salter at The Raine Group LLC on the financial side. In addition to McCrath SoftBank’s Morrison & Foerster legal team also includedKenneth Siegel, who led the team, Lauren Bellerjeau, Ivan Smallwood, Tom McQuail and Jeff Jaeckel.

Hannes Snellman also advised SoftBank on the legal side.

Tencent was advised by Bank of America Merrill Lynch and by law firms Covington & Burling LLP and Slaughter and May on the legal side.

The Covington team included Scott Anthony, Bradley Chernin, Dominique Perez, Norman Greenberg, Jonathan Browalski, Laura Torre, Keir Gumbs, Peter Schwartz, Stuart Irvin, Kate Wither, Marie Lavalleye Robert Heller, Michael Francese, Grace Chen, Michael Cole, Brady McDaniel, Kurt Wimmer, Mark Young, Philippe Bradley-Schmieg, David Bender, Ani Gevorkian, James O’Connell, Brian Castello, Ning Lu, and Christie Tang.

Tencent shares closed up 1.3% at HK$172.90 ($1.65) in Hong Kong. SoftBank closed up 1.4% in Tokyo at ¥5,842.