The war between two of China’s largest eSports companies Huya and Douyu may come to a truce at the will of Tencent

12 Aug, 2020 02:28
source: Singularity Financial

Singularity Financial Hong Kong August 11, 2020 – Tencent has gone public with its plan to merge China’s top two livestreaming platforms into an industry dominating $10 billion juggernaut with 300 million users.

In a Monday letter to Huya Inc. and to DouYu International Holdings Ltd., the internet giant proposed a stock-for-stock merger.  If the deal goes through, the war between two of China’s largest esports companies may soon come to a truce at the will of their investor, Tencent.

Under the plan, Huya would acquire all outstanding DouYu shares via DouYu shareholders, ex-changing their stock for an as-yet undetermined number of newly issued Huya shares.

The proposal is non-binding, but Tencent has paved the way for it to go through.

In a separate deal, the entertainment giant agreed to pay Nasdaq-traded Joyy, part-owner of Huya and the company behind TikTok’s serious rival Likee, $810 million in exchange for 30 million shares. Tencent will also buy 1 million shares from Huya CEO Dong Rongjie. Upon the transaction, Tencent will hold 51% of Huya’s shares and 70.4% of its voting rights.

Tencent is also the largest shareholder of Douyu, with a 38% stake and voting power.

What this means is the esports platforms that have long fought neck and neck for audiences and live-streaming hosts may soon need to work together. That’s good news for investors who have been hemorrhaging cash.

It’s game-on in China

Huya cautions it only just received the letter, so investors thinking of trading its stock on the news should understand there’s no guarantee a deal will be consummated. But Tencent has been pushing to get the two companies to merge.

NYSE-listed Huya, the most popular online gaming site in China, has a current market cap of $5.27 billion and Nasdaq-traded Douyu, rated the second place, is worth $4.44 billion, giving the duo a combined value of around $10 billion. The pair will together control more than 300 million monthly esports users, controlling over 80% of the Chinese market.

By March, Douyu had 158 monthly active users and Huya claimed 151.3 MAUs, though there can be overlaps.

It’s worth noting that Tencent has its own in-house Penguin Esports that’s a counterpart to Douyu and Huya. Merging the two would also make it easier for Tencent to integrate its own eGame streaming site, which is currently ranked fourth, while also fending off ByteDance, the owner of Tiktok, which is also developing a gaming platform.

It’s not hard to imagine the three players integrating resources and generating synergies under Tencent’s oversight.

DouYu also announced it had received the same letter from Tencent and will consider the offer. It’s unknown whether such a merger would run afoul of China’s anti-monopoly law, which prohibits mergers that restrict competition.