Chinese Esports Rivals Huya and DouYu Unite to Build US$11B Livestreaming Giant

Huya’s acquisition of DouYu is a significant development for China’s esports industry

Chinese livestreaming platform Huya has acquired rival DouYu in a stock-for-stock merger deal with a unanimous nod from special committees and the boards of both companies, according a statement by the company earlier this week.

The acquisition is expected to close in the first half of 2021, subject to DouYu shareholders holding at least two-thirds of the voting power agreeing to the deal. The deal will result in DouYu’s delisting from the NASDAQ Global Select Market, becoming a privately-held and wholly owned subsidiary of 2016-founded Huya.

Post the acquisition, Huya and DouYu shareholders will hold around 50% shares in the combined company each on a fully diluted basis, representing equal ownership for both the company’s shareholders.

Leadership will also be equally split. Huya CEO Rongjie Dong and DouYu CEO Shaojie Chen will be co-CEOs of the combined company, with Chen joining the board of directors.

DouYu shareholders will get 7.3 Huya shares for each DouYu share they own, the statement noted. Investors holding American depositary shares (ADS) in DouYu have been offered 0.73 Huya ADS in exchange for every DouYu ADS they hold. At Friday’s closing price, DouYu was valued at nearly $6 billion.

Additionally, both Huya and DouYu announced cash dividends of a total of $2 billion and $60 million respectively to shareholders.

Tencent scores high with Huya’s acquisition of DouYu

With the deal, Tencent’s voting power in the company standing at a majority of 67.5% on a fully-diluted basis with the acquisition.

This further cements the company’s leading position in the gaming industry–Tencent is the biggest gaming company in the world by revenues, having a stake in some of popular games such as Call of Duty, PUBG, Fortnite, and League of Legends.

Tencent will also be entering a ‘Reassignment Agreement’ with DouYu, where the conglomerate will transfer their interests in game live streaming under Tencent’s Penguin e-Sports arm to DouYu, integrating it with the combined business of Huya and DouYu for US$5 billion.

It has also entered a share transfer agreement with Chen to purchase a little over 3.7 billion DouYu shares additionally from Chen’s affiliates and assignees.

A big deal for the Chinese esports industry

Asia is the biggest market for gaming on account of revenues from three key countries–Japan, South Korea, and China. While the gaming industry has done exceedingly well this year, esports revenues have taken a hit on account of the global pandemic, social distancing norms and nationwide lockdowns around the globe.

Yet, esports in China is expected to be worth RMB140 billion ($20 billion) this year, a lofty value for a relatively new entrant to the gaming industry.

From a global perspective, China is also the largest market by revenue for esports, and is predicted to account for $385 million of the estimated $1 billion esports revenues this year (although gaming veterans suggest that esports valuations be taken with a grain of salt).

The deal, which brings together two of China’s biggest esports platforms and was mediated global game developer Tencent, is one of the most significant ones to have taken place in the gaming industry.

This is especially so for Chinese conglomerate Tencent, a majority stakeholder in both companies, since the deal is expected to create a livestreaming giant worth $11 billion with a market share of over 80% in China, reports suggest.

Further, Huya and DouYu reported monthly average users (MAU) of 168.5 million and 165.3 million respectively in their financial results for Q2 2020. Their combined MAU stands at over 300 million (although some overlap can be expected), representing at least half of China’s estimated 520 million esports viewers and players.

Header image by Florian Olivo on Unsplash

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