Tencent Holdings share price down, buys a 15% stake in JD.com Inc. to face competition in e-commerce

According to a filing, Tencent Holdings Ltd, which is currently considered as the largest Internet company in Asia, has reached an agreement with the Chinese e-commerce website JD.com Inc. to acquire a 15% stake in it. This is considered a strategic move as Tencent Holdings Ltd tries to become more competitive in order to meet the rivalry of Alibaba Group Holding Ltd.

Over the last few years, the companies in China were becoming increasingly pressured to achieve a faster growth, which was the reason why they have invested billions of dollars in purchases and mergers especially in the last 12 months. Alibaba alone was reported to have spent more than 2 billion dollars in 2013. It has been making attempts to develop a social media application in order to compete with the WeChat messaging application of Tencent.

One of the analysts working for Guotai Junan International Holdings Ltd – Ricky Lai, said: “Tencent, by injecting its assets like Paipai into JD.com, can better compete with Alibaba in e-commerce. This is quite a good deal for Tencent.”

Tencent will pay 214.7 million dollars in cash to JD.com. In addition, as part of the agreement, the e-commerce business QQ Wanggou and Paipai and a minority stake in Yixun will be transferred to JD.com. Tencent also announced that it agreed to purchase a further 5% stake of the company after its initial public offering is completed.

An analyst, who asked not to be identified, said for the Financial Times: “Tencent has been trying for a long time to get into ecommerce and all of these efforts went nowhere. The JD.com deal was partly a clean-up of Tencents ecommerce assets.”

The announcement of the deal comes at a time when the Internet market in China is becoming more consolidated even as the rivalry becomes more fierce than ever. The Chief Executive Officer of China E-Capital Corp. – Ran Wang – commented for the Wall Street Journal: “In the past the Internet giants and top-tier targets have been seeing each other almost on a quarterly basis and it was an ongoing dialogue that never really stopped. Right now, though, the atmosphere has become a lot more intense, and the dialogues are getting more active.”

Tencent Holdings Ltd fell by 2.22% in Hong Kong to close the session at 616.50 HKD, marking a one-year change of +116.77% and trimming its market capitalization to 1.18 trillion HKD.