Tencent and Baidu Fined by Antitrust Regulator For Previous Deals

China’s antitrust regulator fined some of its largest tech giants including Tencent Holdings Ltd., Baidu Inc., ByteDance Ltd. and Didi Chuxing for past acquisitions and investments as it stepped up its crackdown on the sector.

Pony Ma’s Tencent is being fined 500,000 yuan ($77,000) for its 2018 investment in online education app Yuanfudao, according to a statement by the State Administration for Market Regulation on Friday. Baidu was fined the same amount for its 2014 takeover of Ainemo Inc., a maker of consumer electronics including voice-controlled speakers. The firms are being censured for not seeking prior approvals for the deals -- a violation of country’s anti-monopoly laws -- though the regulator had determined the deals themselves aren’t anti-competitive.

Tencent and Baidu join fellow behemoth Alibaba Group Holding Ltd. in coming under fire from the country’s powerful antitrust regulator, as Beijing steps up efforts to rein in its once free-wheeling technology industry. The regulator had last year issued fines against Alibaba as well as Tencent unit China Literature Ltd. for similar violations.

“The message is clear that seeking government approvals in deals like these are a must.” said Ye Han, a partner at Beijing-based law firm Merits & Tree, who specializes in antitrust and M&A. “While we haven’t seen cases where companies got broke up or mergers got unwinded, such evaluations are likely going on behind the scene.”

Didi Mobility Pte, a unit of ridehailing giant Didi Chuxing, and Japan’s SoftBank Corp. were also issued fines of 500,000 yuan each -- the maximum penalty possible -- for setting up a joint venture without permission. A ByteDance unit and its partner Shanghai Dongfang Newspaper Co. were also penalized the same amounts for a 2019 partnership that created a video-copyright venture. ByteDance said the joint venture has since been canceled.

Technology companies like Tencent had previously carried out mega mergers and acquisitions through so-called Variable Interest Entity structures, which operate on shaky legal grounds. The new antitrust rules, accompanied by the fines handed down by the regulators, are a signal VIEs are now under their oversight.

What Bloomberg Intelligence Says

Tencent’s ability to strengthen its domestic ecosystem through M&A may be significantly weakened on rising anti-monopoly scrutiny, underlined by a 500,000 yuan fine by the State Administration for Market Regulation on March 12 for failing to seek approval for its investment in online education platform Yuanfudao in 2018. While the amount is immaterial to Tencent, retroactive application of new anti-competitive rules announced in November may be a stern warning to toe the line in future.

-- Vey-Sern Ling and Tiffany Tam, analysts

Click here for the research.

Other companies that were penalized in the latest round include TAL Education Group and Intime Retail Group Co.

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