Happy Annunciation approaching with Tencent ambiguity on the acquisition of Fire Rock

Happy Annunciation approaching with Tencentambiguity on the acquisition of Fire Rock? 

On the eve of this Christmas holiday, the market rumored that the parent company of Tik Tok, BtyeDance intended to acquire CMGE Technology Group Limited (HKSE:302), though both companies had simultaneously denied the merger rumors on the same day, causing the CMGE stock experienced a roller coaster ride. On the other hand, there were rumors for long that Fire Rock (HKSE:1909) had been the target of Tencent (HKSE:700), the giant of gaming industry. It becomes intriguing when both of them remained ambiguous on this news without clear denial.

Last Tuesday (22 December 2020), Reuters quoted a market source as saying that Tik Tok's parent company ByteDance plans to acquire CMGE at a price of RMB$4 to 5 per share. Calculated with the shareholdings of Fair Ridge, owned by Chairman of CMGE Mr. Xiao Jian and the Vice Chairman, Mr. Sin Hendrick, it is believed to be worth approximately US$275 million (approximately HK$2.145 billion).

CMGE noted in their announcement that while it has maintained a close cooperation with ByteDance in its ordinary course of business, the market rumor about acquisition was untrue.

There has to be a reason for the news. Who will be the ultimate real target of Tencent? What makes Tencent successful, lies on its willingness and courage to splash out on mergers and acquisitions, including 100% shareholding of Riot Games (developer of "League of Legends") , 84.3% shareholding of Supercell (developer of "Brawl Stars"), 40% shareholding of Epic Games (developer of "Fortnite"), 11.5% shareholding of Bluehole Ginno Games（developer of "PUBG"）.

Therefore, rumors lingered in the market that Tencent has been targeting on acquisition of a few gaming companies, including Fire Rock, a game developer who begins expanding its game operation business, especially in China and Southeast Asian markets such as Vietnam and Thailand in this recent years. Meanwhile, in September this year, Tencent announced the opening of a new office in Singapore as a business center in Southeast Asia, which seems to reflect the group's intention to shift its development focus to the Southeast Asian market as well.

With Tencent shifting its focus on Southeast Asian market, apart from the first-line games such as "PUBG" and "League of Legends" etc, it will requires abundant "rudimental" games similar to "Candy Crush" and "Angry Bird" to attract leisure and casual game players with stable consumption power, which resonates with the target user group of "Fish Catching Contest", a game developed and launched by Fire Rock. The game has maintained stable income since its launch. For the year of 2019, Fire Rock's revenue from the Asia-Pacific region surged by 1903% year-on-year to RMB$ 13.49 million. In the first half of 2020, the revenue of Fire Rock's Asia Pacific region further increased to RMB 27.28 million, up 114 times year-on-year. The half-year performance of Fire Rock increased by 102% compared to that of the entire fiscal year last year.

What should not be neglected is that the founder of Fire Rock, Mr. Zhang Yanhas an affinity with Tencent. Prior to founding Fire Rock, Zhang has also founded the Domain Computer Network Company Limited ("Domain Computer Network") in 1997. Tencent has acquired 19.9% shareholdings of Domain Computer Network in 2005 and eventually a full acquisition in 2010. Since the acquisition, there have been rumors that Zhang has a very close relationship with Tencent which the market infers that Tencent may also acquire Fire Rock in the near future, not to mention, with the promising business performance of Fire Rock and the all-rounded development of the Company upon the acquisition.