Tencent (TCEHY) to Take Majority Stake in Supercell for ~$8.6B (SFTBY)

June 21, 2016 6:10 AM EDT

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Tencent (OTC: TCEHY) announced the following on Tuesday:

The Board is pleased to announce that on 21 June 2016, the Consortium, which is formed in consultation with Supercell and currently wholly owned by the Company, has agreed to acquire a majority equity interest in Supercell through Buyer, the Consortium’s wholly owned subsidiary. The terms of the Transaction are set out in the conditional Share Purchase Agreement entered into on 21 June 2016 among SoftBank Affiliates (OTC: SFTBY), certain Supercell Employee Shareholders and certain former employees of Supercell (collectively, as Sellers), Supercell, the Company (as guarantor) and Buyer. Under the terms of the conditional Share Purchase Agreement, Buyer will acquire from the Sellers their Supercell Vested Securities representing in total up to approximately 84.3% of Supercell’s Securities. The aggregate consideration, payable in three installments, is currently expected to be approximately US$8.6 billion.

Supercell is a private company incorporated in Finland and is a developer of mobile games for both tablets and smartphones on Apple’s iOS and Google’s Android operating systems. Since its founding in 2010, Supercell has brought four major games to market - Clash of Clans, Clash Royale, Boom Beach and Hay Day.

The Company, in consultation with Supercell, is currently in discussions with potential co-investors who have expressed interest in investing in the Consortium. Upon the potential co-investors joining the Consortium, the Company currently expects to maintain a 50% voting interest in the Consortium through financial instruments (some with redemption rights). In accordance with the provisions of the relevant International Accounting Standards, the Company would then account for dividend or distribution of profit, if any, from the Consortium as dividend income in its income statement. The Company’s investment in the Consortium would not be consolidated or equity-accounted for by the Company.

The Company has provided to the Sellers a guarantee of Buyer’s performance of all of its obligations under the Share Purchase Agreement including the payment of the full Purchase Price.

Terms of the Share Purchase Agreement provide that, among others:

  • Buyer will acquire the Supercell Sale Securities; and
  • Supercell’s current management will maintain their operational independence and Supercell will continue to be based in Finland.

The Company and Supercell have entered into certain marketing and co-operation arrangements regarding the distribution in the PRC of games developed by Supercell. The Company, Consortium, Buyer and Supercell have also entered into a Shareholders’ Agreement with Supercell Employee Shareholders.

The highest of the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the Company’s total commitment (taking into account its guarantee and its funding of Buyer’s obligations in relation to the Transaction) exceeds 5% and is lower than 25%. Accordingly, the Transaction constitutes a discloseable transaction of the Company and is subject to the notification and announcement requirements under Chapter 14 of the Listing Rules.

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