Tencent Acquires Majority Stake in Riot Games to Expand in U.S.

Tencent Holdings Ltd., China’s biggest Internet company by market value, bought a majority stake in Los Angeles online-game publisher Riot Games Inc.

The transaction is expected to close within 30 days, Riot Games said yesterday in a statement. While terms weren’t disclosed, a person familiar with the matter said the companies were negotiating a price of more than $350 million. The person declined to be identified because the terms are private.

Tencent is expanding outside of China, building on the 600 million-plus users of its QQ messaging service. The company bought 10 percent of Russian investor Digital Sky Technologies last year, giving it indirect stakes in Facebook Inc. and Zynga Game Network Inc. Tencent is already an investor in Riot Games, which develops the online game “League of Legends.”

“I expect to continue to see Chinese companies look at cross-border deals as they look beyond their domestic markets for growth and opportunities,” said Joe Steger, global technology transactions leader at Ernst & Young LLP in San Jose, California.

Riot Games said it will keep its Los Angeles-area headquarters and expects to hire aggressively this year. The company also plans to develop new games and expand into other markets, according to the statement.

The market for social and mobile games has attracted more suitors since late 2009, when Electronic Arts Inc. purchased Playfish Inc. for about $400 million. Playdom Inc. was acquired last year by Walt Disney Co. for $563.2 million, and Japan’s DeNA Co. purchased Ngmoco for $400 million. Zynga, the biggest maker of games on Facebook, is valued at $6 billion on secondary exchange SharesPost Inc.

Microtransactions

Riot Games was founded five years ago by Brandon Beck and Marc Merrill. The company raised $8 million in 2009 from Tencent and venture firms Benchmark Capital and FirstMark Capital. That year, it introduced “League of Legends,” the company’s first game. While the downloadable game is free to play, users spend money on microtransactions, such as paying to strengthen their characters.

A call placed to Riot Games’ office seeking comment wasn’t immediately returned, and after-hours calls placed to Tencent’s office in Shenzhen, China, weren’t answered.

Tencent, led by billionaire Chairman Ma Huateng, extended its lead in gaming over rivals Shanda Games Ltd. and NetEase.com Inc. during the third quarter, when profit jumped 52 percent to 2.15 billion yuan ($325 million) from a year earlier. Tencent shares have jumped 42 percent in the past year.

Its QQ service controlled more than 77 percent of the Chinese market at the end of 2009. As Tencent expands globally, it may face increased competition in China from search engine Baidu Inc., which is planning to develop more social-networking features. Baidu Chief Executive Officer Robin Li said this week that the company aims to derive more revenue from social services.

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net.

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