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Tencent pushes USD 10 billion merger of game-streaming units

Combining platforms would strengthen two US-listed companies amid economic downturn.

credit: DFIC

Tencent Holdings ((HKG: 0700)  is facilitating a tie-up between two US-listed companies in which it is invested, a move to help the Chinese entertainment titan to fend off rising competition and create a streaming group with a market cap of USD 10 billion.

Huya, which is listed on the New York Stock Exchange (HUYA), and Nasdaq-listed Douyu (DOYU) have been “in talks for a merger” for months, two people familiar with the deal told the Nikkei Asian Review. The deal is being driven by Tencent, which is the largest shareholder of both Chinese-based companies.

The proposed deal, first reported by Bloomberg, aims to end a costly fight between China’s top two streaming platforms and utilize resources to grab a greater slice of a multibillion-dollar market. The Chinese game-streaming sector is expected to generate RMB 23.6 billion (USD 3.4 billion) in revenue this year, according to market intelligence firm iResearch.

“Tencent has been trying this for a while,” said one source who asked not to be named. “Changing investors’ mindset amid COVID-19 has prompted the two firms to warm up to the idea,” the person said.

China digest

Both Huya and Douyu are profitable — earnings tens of millions of dollars in net income during the first quarter of this year — but market volatility associated with a pandemic-induced economic downturn has posed a threat to their fundraising. An enlarged single entity, on the other hand, is expected to find it easier to withstand possible headwinds.

A merger would also help Tencent lock users within its “ecosystem” at a time when challengers in entertainment, such as ByteDance’s TikTok and Nasdaq-listed Bilibili, are increasingly competing for attention. Douyu and Huya, which have become known for game-focused streaming, have helped Tencent engage gamers and lure in new players.

“The deal has momentum, but can still fall apart,” one of the persons familiar with the proposed tie-up said.

This is not the first time that Tencent has tried to tie the knot between Huya and Douyu, which have a combined user base of 309 million people in China.

But Tencent’s influence has grown after it bought an additional stake in Huya for roughly USD 260 million from JOYY in April, boosting its voting power in the platform to more than 50%.

Shares of Douyu were up 4.7% in early Wednesday trading, while Huya’s stock price jumped 6.7%. Hong Kong-listed Tencent closed 2% higher.

Tencent declined to comment on the deal. Huya and Douyu could not be immediately reached for comment.

This article first appeared on Nikkei Asian Review. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei. 36Kr is KrASIA’s parent company.