Tencent says could help Snapchat add games, boost ad sales

Above, a boy plays the smartphone game Honour of Kings published by Tencent, the world’s largest gaming company by revenue. (Reuters)
Updated 09 November 2017

Tencent says could help Snapchat add games, boost ad sales

SAN FRANCISCO/HONG KONG: Chinese Internet giant Tencent Holdings said on Thursday it could help Snapchat owner Snap publish video games and improve ad sales after acquiring a 12 percent stake in the US social media network.
Snap’s disclosure in a US regulatory filing that Tencent had recently bought 145.8 million of its shares on the open market set off a wave of speculation among investors about the relationship between the firms.
Shares in Snap closed at $12.91 on Wednesday, down 14.6 percent, as investors pummeled the company for slow user growth and treated Tencent’s move as an investment rather than the precursor to an acquisition.
Tencent’s shares do not have voting power and it will not have a board seat, but the two companies broadly believe in cooperation that goes beyond passive investing, according to Snap’s filing on Wednesday. Tencent on Thursday described a potentially close relationship.
“The investment enables Tencent to explore cooperation opportunities with the company on mobile games publishing and newsfeed as well as to share its financial returns from the growth of its businesses and monetization in the future,” it said in an emailed statement. It also referred to the potential for “newsfeed ads.”
Games and a newsfeed have not been a part of Snapchat, although the company on Tuesday said it was planning a redesign.
Analysts say Tencent, the world’s largest gaming company by revenue, has benefited from its social media apps for the phenomenal popularity of its smartphone games such as Honour of Kings, and will need the help of local social networks in promoting its games in overseas markets.
The Snapchat app, though, is banned in China, where non-Chinese social media networks are generally restricted, although some videos originating in China were visible on the network on Wednesday presumably because of technological workarounds.
US investment analysts said they did not expect a change in that regard.
It is unlikely that Snap “would ever be allowed to establish a foothold in China even if their relationship with Tencent were deeper,” Brian Wieser, senior analyst at Pivotal Research Group in New York, said in a report to clients.
The companies operate on different scales. Tencent’s holdings include messaging apps QQ and WeChat, both ubiquitous in China, and its market capitalization of $469 billion (SR1.75 billion) is among the largest in the world. Snap’s is $15 billion.
While Snapchat focuses on sharing pictures and video between friends, WeChat offers payment processing and more. Tencent said that it expected Snapchat to continue to grow, particularly in “affluent Western markets” such as the US and Europe.
“The China market is in some ways more advanced in social media and messaging than the US is,” said Rebecca Fannin, founder of Silicon Dragon, a website that writes about China and California’s Silicon Valley.
“Tencent might have teams come in and work with them,” Fannin said.
Snap declined to comment beyond a filing in which it said the California company was inspired by Tencent’s creativity and entrepreneurial spirit and grateful to continue a productive relationship.
Snap has an office in Shenzhen, China, where Tencent has its headquarters, to assist in the manufacture of Spectacles, Snap’s sunglasses that have a built-in camera.
Tencent has aspirations to assume a global role in technology and may be buying shares with that strategy in mind, said Lindsay Conner, a Los Angeles lawyer who has represented Chinese companies in the US.
“They often invest in companies to have a seat at the table, to understand businesses better, to see where the leading edge is between technology and content, and to have an insight into technology they should adopt or license,” he said.
Tencent first became an investor in Snap in 2013. The total size of its investment has not been disclosed. Although Snap’s shares began to trade publicly in March in the hottest debut of a US tech stock in years, results since then have sent Snap shares down below its IPO price of $17.


HP rejects Xerox takeover bid, says open to acquiring Xerox instead

Updated 48 sec ago

HP rejects Xerox takeover bid, says open to acquiring Xerox instead

  • In rejecting Xerox's $33.5 billion cash-and-stock acquisition offer, HP said the offer “significantly” undervalued the personal computer maker
  • Xerox made the offer for HP on Nov. 5 after resolving its dispute with its joint venture partner Fujifilm Holdings Corp.
NEW YORK: HP Inc. said on Sunday it was open to exploring a bid for US printer maker Xerox Corp. after rebuffing a $33.5 billion cash-and-stock acquisition offer from the latter as “significantly” undervaluing the personal computer maker.
Xerox made the offer for HP, a company more than three times its size, on Nov. 5, after it resolved a dispute with its joint venture partner Fujifilm Holdings Corp. that represented billions of dollars in potential liabilities.
Responding to Xerox’s offer on Sunday, HP said in a statement that it would saddle the combined company with “outsized debt” and was not in the best interest of its shareholders.
However, HP left the door open for a deal that would involve it becoming the acquirer of Xerox, stating that it recognized the potential benefits of consolidation.
“With substantive engagement from Xerox management and access to diligence information on Xerox, we believe that we can quickly evaluate the merits of a potential transaction,” HP said in its statement.
The move puts pressure on Xerox to open its books to HP. Xerox did not immediately respond on Sunday to a request for comment on whether it will engage with HP in negotiations as the potential acquisition target, rather than the acquirer.
HP on Sunday published Xerox CEO John Visentin’s Nov. 5 offer letter to HP, in which he stated that his company was “prepared to devote all necessary resources to finalize our due diligence on an accelerated basis.”
Activist investor Carl Icahn, who took over Xerox’s board last year together with fellow billionaire businessman Darwin Deason, said in an interview with the Wall Street Journal last week that he was not set on a particular structure for a deal with HP, as long as a combination is achieved. Icahn has also amassed a 4% stake in HP.
Xerox had offered HP shareholders $22 per share that included $17 in cash and 0.137 Xerox shares for each HP share, according to the Nov. 5 letter. The offer would have resulted in HP shareholders owning about 48% of the combined company. HP shares ended trading on Friday at $20.18.
Many analysts have said there is merit in the companies combining to better cope with a stagnating printing market, but some cited challenges to integration, given their different offerings and pricing models.
Xerox scrapped its $6.1 billion deal to merge with Fujifilm last year under pressure from Icahn and Deason.
Xerox announced earlier this month it would sell its 25% stake in the joint venture for $2.3 billion. Fujifilm also agreed to drop a lawsuit against Xerox, which it was pursuing following their failed merger.

Test for new HP CEO
In 2011 as the centerpiece of its unsuccessful pivot to software. Little over a year later, it wrote off $8.8 billion, $5 billion of which it put down to accounting improprieties, misrepresentation and disclosure failures.
More recently, HP has been struggling with its printer business segment recently, with the division’s third-quarter revenue dropping 5% on-year. It has announced a cost-saving program worth more than $1 billion that could result in its shedding about 16% of its workforce, or about 9,000 employees, over the next few years.
Xerox’s stock has rallied under Visentin, who took over last year as CEO. However, HP said on Sunday that a decline in Xerox’s revenue since June 2018 from $10.2 billion to $9.2 “raises significant questions” regarding the trajectory of Xerox’s business and future prospects.