According to two sources with firsthand knowledge of the subject, China’s antitrust regulator is unlikely to accept Baidu’s $3.6 billion acquisition of JOYY Inc’s video-based domestic live streaming subsidiary YY Live.
According to them, this is in response to Beijing’s efforts to rein in gaming-related firms and corporate expansion through mergers and acquisitions.
The Baidu-JOYY agreement would be the latest multibillion-dollar deal to fall through amid China’s sweeping assault on private enterprises, particularly those in the internet sector, as Beijing strives to regulate big data and eliminate monopolistic activities.
According to the sources and two other sources familiar with the subject, if the Baidu sale falls through, it could cast a pall over a separate planned transaction to take Nasdaq-listed JOYY private, which would have valued it at much to $8 billion.
Baidu, the Chinese search engine behemoth, said in November that it would purchase YY Live from JOYY, a social networking startup, for cash in order to diversify revenue sources.
Baidu told reporters that it had not received any communications from Chinese officials indicating that the purchase was unlikely to be approved.
JOYY and China’s antitrust authority, the State Administration for Market Regulation (SAMR), did not respond to requests for comments. To complete the transaction, SAMR approval was required. Following regulatory approval, JOYY was to receive the remaining $1.6 billion in revenues from Baidu.
In a report released in early September, SAMR stated that it is investigating 11 transactions, including Baidu’s acquisition of YY Live.
However, one source familiar with SAMR’s thinking warned that allowing Baidu to purchase and further invest in a video game-related live streaming service in the wake of the gaming industry’s recent crackdown could send the incorrect message to the market.
Another source familiar with the case claimed SAMR has already communicated its position to at least one of the deal’s parties, and that the approval process will most likely drag on until the application expires.
“SAMR is hoping that the companies would withdraw their application,” a source stated.
VIDEO GAMING INSPECTION
Beijing has expressed concern about the influence video games have on the country’s minors, and new restrictions limiting the amount of time youngsters under the age of 18 can spend playing video games were enacted last month.
It has also chastised the entertainment business for “polluting” society and youngsters and has now released new criteria for artists and live streamers to follow.
Tencent Holdings’ $5.3 billion bid to merge the country’s top two videogame streaming sites Hula and DouYu was formally banned by SAMR two months ago on antitrust concerns.
According to the sources, the failure of the Baidu-JOYY agreement would be a blow to JOYY’s top two shareholders, Chairman David Li and Xiaomi founder Lei Jun, since the dynamics of their plan to take JOYY private would change drastically.
According to analysts, they were teaming up for the transaction because they feel the Chinese social media business is undervalued in the US market.
JOYY reached out to Li for comment, but he did not answer. A request for comment from Lei was also ignored.
JOYY, which was founded in 2005, went public in 2012. It also has a 16 percent share in Huya and runs the Singapore-based live streaming platform Bigo Live.
The majority of YY Live’s revenue and user traffic comes from games and entertainment content. According to the parent’s 2020 annual report, its average mobile monthly active users hit 42 million in the fourth quarter of 2020, rising 1.9 percent year over year.
However, over the same time period, the number of paying users fell by 1.1 percent, which JOYY ascribed to the influence of COVID-19 on people’s spending.
