Tencent Holdings Ltd., Asia’s largest Internet company, agreed to buy a $736 million stake in a Craigslist-like site to bolster its online content as it seeks to compete with Alibaba Group Holding Ltd.
Tencent will buy a 19.9 percent stake, amounting to 36.8 million Class A and B ordinary shares in Chaoyang, China-based 58.com at $20 each, the company said in a statement distributed through PR Newswire late on June 27.
The investment in 58.com, which provides online classified ads, will expand the choice of local services and merchants available to Tencent users, according to the companies. The tie- up will help build Nasdaq-listed 58.com’s user base by capturing traffic from Tencent’s messaging services WeChat and QQ.
Tencent’s latest acquisition “can improve the user experience in its mobile platform and attract new customers,” Ricky Lai, a Hong Kong-based analyst at Guotai Junan Securities Co., said by phone.
Tencent fell 0.2 percent to HK$118.20 at the close of trade in Hong Kong. The stock has gained 19 percent this year while the benchmark Hang Seng Index is little changed.
Before this deal, Shenzhen-based Tencent had racked up at least $258.5 million in mergers and acquisition deals in the second quarter of this year, trailing Alibaba Group’s $2.48 billion, according to Bloomberg Industries analyst Tim Craighead.
Tencent is adding games and advertising services to applications including WeChat, known as Weixin in China. The company is counting on its apps and games like Blade & Soul and Candy Crush Saga to win a bigger slice of China’s 618 million Internet users as they migrate toward content on smartphones.
The deal will broaden Tencent’s e-commerce platform, add customers and increase revenue, analysts led by Alicia Yap at Barclays Plc said in a June 29 report.
“The investment in 58.com is strategically positive for Tencent to deepen its footprint,” Yap wrote, affirming an overweight rating on the stock.
Tencent in March agreed to buy a 15 percent stake in JD.com and transfer some of its own assets to build a stronger competitor to Alibaba. In February, Tencent acquired 20 percent in Dianping, the operator of a Yelp-like website in China, to strengthen location-based services.
For more on dealmaking in China, see "5 Buyers Find New Customers Abroad."