China Regulators Review Huya’s $6 Billion Deal to Buy DouYu

China’s regulators said they are reviewing Huya Inc.’s proposal to acquire game-streaming rival DouYu International Holdings Ltd., part of a crackdown on anti-competitive behavior in the country’s technology industry that throws the $6 billion transaction into question.

Guangzhou-based Huya offered to buy its domestic competitor in October, proposing an all-stock transaction that would have created a combined business valued at about $11 billion at the time. Internet giant Tencent Holdings Ltd., a shareholder in both companies, would have had about 68% of the merged business’s voting shares.

Regulators announced their review of the Huya acquisition on Monday as they levied fines against a Tencent affiliate and Alibaba Group Holding Ltd. for their M&A transactions. The two companies were fined 500,000 yuan ($76,500) each over failing to declare past acquisitions under the country’s anti-monopoly laws. The antitrust agency singled out the Huya deal during a lengthy Q&A posted on its website explaining why it was tightening oversight of internet-sector deals in general.

A Huya spokesperson said the company has applied to the antitrust watchdog for a review of the proposed merger and will cooperate with the regulator. DouYu representatives didn’t immediately respond to requests for comment. Their combined market valuations are now about $8.5 billion. DouYu’s U.S.-traded shares fell 2.4% at 2:03 p.m. in New York while Huya slid less than 1%.

The transaction was negotiated before the recent government crackdown and was aimed at creating the country’s dominant live-streamed gaming leader akin to Inc.’s Twitch. Consolidation would likely have improved the profitability of the business: The streaming networks live or die by the popularity of star players and the virtual tips and gifts that fans buy for them, leading to intense bidding wars for the most-recognized names.

They are fighting over a prime position in the world’s biggest gaming market. China’s game-streaming is projected to generate 30 billion yuan ($4.6 billion) in revenue this year, according to iResearch.

As part of the deal, Tencent planned to assign interest in its own live-streaming business, Penguin e-Sports, to the combined entity for $500 million. Together, the three platforms would have unrivaled leadership in game-streaming, though they would still compete for users’ attention with hotter services like TikTok’s domestic twin Douyin and Bilibili Inc.

Huya and DouYu said in October that the deal was expected to close in the first half of 2021. Both boards of directors had unanimously approved the transaction and the chief executive officers of both companies had agreed to support it.

©2020 Bloomberg L.P.

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