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Tencent Agrees to Buy British Game Maker Sumo Group

(Bloomberg) -- Tencent Holdings Ltd. has agreed to buy the rest of Sumo Group Plc it doesn’t already own, adding to a string of gaming investments by Chinese social media and gaming giant. The British company’s shares jumped the most on record.

Asia’s most valuable firm is offering 513 pence per share for Sumo, a 43% premium to the British company’s previous close. On a fully diluted basis, the offer values Sumo at about 919 million pounds ($1.26 billion). Tencent already owns about 8.75% of Sumo, giving the outstanding shares a value of about 803 million pounds.

Tencent is the world’s largest gaming company, with stakes in giants such as Riot Games and Epic Games Inc. The company has said it plans to plow a larger portion of its incremental profits this year into cloud services, games and video content, to fend off competition from the likes of ByteDance Ltd. and growing scrutiny from Beijing.

Sumo shares jumped 42% to 509 pence at 9:01 a.m. in London trading after earlier jumping as much as 45%, its biggest intraday gain ever.

“Chinese deals may imply a higher regulatory risk, but we see no likely resistance or counterbid,” analysts at Jefferies Financial Group Inc. said in a note on Monday. “We always understood Tencent’s interest in Sumo as being that Sumo has ‘AAA potential’ and might have seen the group’s future pipeline as attractive.”

Sumo creates games for other publishers, including for Apple Inc.’s Arcade service. Other clients and partners include Xbox Game Studios, Electronic Arts Inc., Activision Blizzard Inc. and Ubisoft Entertainment SA, according to its website.

“The business will benefit from Tencent’s broad videogaming ecosystem, proven industry expertise and its strategic resources, which will help secure and further the aspirations and long-term success of Sumo,” Ian Livingstone, non-executive chairman of Sumo, said in a statement.

The Tencent-Sumo deal follows the sale of one of Britain’s oldest games studios, Codemasters, which Electronic Arts bought for $1.2 billion in December, beating out a rival bid from Take-Two Interactive Software Inc.

Still, it comes amid U.K. lawmakers urging government to rethink its open-door approach to foreign takeovers. Chinese investors are increasingly backing the businesses emerging from U.K. universities, and some of Britain’s biggest technology companies are now owned by firms headquartered in China or Japan.

Read more: Software Is Sheffield’s New Steel Thanks to Tencent and Sumo

Sumo is a success story for its home city of Sheffield, in the north of England, and another sign that software could help replace steel. Sheffield once had the moniker Steel City when the U.K. was making nearly half of the world’s supply of the metal. But now China accounts for half, and Britain almost none.

Sumo’s current headquarters are nestled on a riverbank between a 250 year-old steel foundry, Sheffield Forgemasters, and the Meadowhall shopping mall, where locals two years ago sheltered overnight after flooding devastated the region.

(Updates with outstanding share value, analyst reaction from second paragraph)

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