Tencent Music Readies Big IPO -- WSJ
April 23 2018 - 2:02AM
Dow Jones News
By Maureen Farrell and Julie Steinberg
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 23, 2018).
Tencent Music Entertainment Group, China's largest
music-streaming company, is preparing what would be one of the
biggest technology IPOs ever following the successful debut of its
European counterpart, Spotify Technology SA.
The digital-music business of Chinese internet giant Tencent
Holdings Ltd. plans to interview potential underwriting banks over
roughly the next month, according to people familiar with the
matter.
The initial public offering, potentially coming in the second
half of 2018, would be one of the largest deals of the year and is
expected to raise billions in proceeds, some of the people said.
Tencent Music is expected to list in the U.S., but it is unlikely
to make a final venue decision for several months, they said.
Tencent Music's move toward going public is the latest sign that
the IPO market is gaining steam.
Tencent Music's offering could value the business in excess of
$25 billion, some of the people said. This was the company's value
in recent private transactions, The Wall Street Journal reported
last month. That was a sharp jump from its $12.5 billion valuation
in late 2017 when Swedish music-streaming company Spotify bought a
9% stake in the company as part of a share swap.
Should investors give it that valuation in its IPO pricing, it
would be the fourth-biggest U.S.-listed tech IPO on record,
measured by valuation at the time of the offering, according to
Dealogic. That doesn't include Spotify, which didn't raise capital
in its public offering but was valued at about $29.5 billion at its
first trade.
Still, there is no guarantee the company will proceed with a
share sale in New York or elsewhere, and pre-IPO valuations can
fluctuate until a company prices its shares.
Investors are excited about Tencent Music because of its
connection to Tencent Holdings, which has a stake of more than 50%
in Tencent Music, as well as its position in the marketplace:
Tencent Music, which operates the popular music app known as QQ
Music and others, recently had 700 million monthly active users
across personal computer and mobile platforms largely in China,
according to the company. Investors have also been hungry for big
technology IPOs since they typically offer potential for
significant growth.
Tencent Music was created in mid-2016 after Tencent Holdings
bought a controlling stake in China Music Corp. and combined it
with Tencent's existing streaming business. Last month, Tencent
Holdings President Martin Lau said Tencent Music could be a
candidate for a future spinoff.
The possible Tencent Music offering could come as the IPO market
has come surging back, particularly among technology companies
listing on U.S. exchanges. After the worst year for IPOs in more
than a decade, IPO activity jumped in 2017 and has continued to
increase in volume and number of companies seeking public offerings
on U.S. exchanges this year.
Based on their pipeline, underwriters have said they expect
activity in the second half of 2018 to be busier than this year's
already elevated levels.
Still, shares of other Tencent-backed companies that have listed
in New York have traded down since their IPOs on
weaker-than-expected performance. Shares of Chinese search engine
Sogou Inc. are down 35% since November, while shares of
Singapore-based gaming and e-commerce company Sea Ltd. are down
more than 20% since October. Tencent Holdings itself, which is
listed in Hong Kong, is up sharply from a year earlier even after
its share price has dropped over the last month.
Spotify went public on the New York Stock Exchange in early
April in an unusual offering in which it didn't raise money. Late
last year, ahead of the listing, Tencent Music and Spotify swapped
stakes in each other's companies. The deal valued Tencent Music at
$12.5 billion based on Spotify's 9% stake. Tencent's nearly 10% of
Spotify valued it at nearly $20 billion.
Unlike Spotify, Tencent is expected to go with a traditional
IPO.
As a public stock, Spotify's shares have so far traded largely
above its private-market prices, which had already more than
doubled from its pre-IPO share price a year ago. That could bode
well for investors in Tencent Music when the stock hits the public
markets.
--Wayne Ma contributed to this article.
Write to Maureen Farrell at maureen.farrell@wsj.com and Julie
Steinberg at julie.steinberg@wsj.com
(END) Dow Jones Newswires
April 23, 2018 02:47 ET (06:47 GMT)
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