Tencent Music to buy Ximalaya for US$2.8B

Tencent Music Entertainment Group, the owner of China’s biggest online music platform, said it will invest around US$2.8 billion in cash and equities to acquire leading online long-form audio platform Ximalaya.

Tencent Music will pay US$1.26 billion in cash, issue new shares not exceeding 5.2% of its total stock to all shareholders of Ximalaya, and grant up to nearly 0.4% stake to the platform’s founder shareholders, the Shenzhen-based firm announced Tuesday.

The new shares will be worth around US$1.6 billion based on Tencent Music’s latest market capitalization.

In addition, Tencent Music noted that Ximalaya will become its wholly-owned subsidiary upon the transaction’s completion, with the platform restructuring its existing business.

Ximalaya will maintain its existing brand, core management team, and strategic development direction, with its products to be operated independently, the Shanghai-based company stated.

Established in 2012, Ximalaya is one of China’s leading online audio-sharing platforms, covering audiobooks, podcasts, radio broadcasts, and music, with its valuation peaking at US$4.3 billion in 2020. However, the firm tried and failed to go public four times since 2021, reportedly going through layoffs and management changes, shrinking its valuation.

Ximalaya last applied to list in Hong Kong in April last year. Its net profit reached 3.7 billion yuan (US$514.8 million) in 2023 on revenue of 6.2 billion yuan, with an adjusted net profit of 224 million yuan, according to its prospectus.

However, Ximalaya’s revenue rose only 1.7% in 2023 from the previous year, compared with a year-on-year jump of 44% in 2021. In addition, its headcount plunged to 2,637 employees from 4,342.

Rather than the uncertainty of pursuing an initial public offering, Ximalaya has decided to be acquired by Tencent Music to eliminate potential risks, according to Shen Meng, executive director of Chanson Capital. It will likely have access to more resources under the Tencent ecosystem, Shen pointed out.

Tencent Music’s net profit soared 202% to 4.3 billion yuan in the three months ended March 31 from a year ago, thanks to an almost 2.4 billion yuan one-time gain from receiving a 2% stake in Universal Music Group, according to its latest financial report. Its revenue rose 8.7% to 7.4 billion yuan.

Tencent Holdings, the parent company of Tencent Music, held a 5.3% stake in Ximayala as of the end of 2023, while its e-book unit, China Literature, owned about 3%, according to the platform’s prospectus.