EXCLUSIVE Tencent plans to take over US streaming company DouYu private -sources

People walk past a booth of live-streaming platform Douyu at the ChinaJoy digital entertainment exhibition in Shanghai, China July 28, 2016. REUTERS/Stringer/File Photo

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Jan 27 (Reuters) – Tencent Holdings Ltd (0700.HK) plans to take DouYu International Holdings Ltd private amid disagreements over strategy between executives at the Chinese video game streaming company, two people with direct knowledge of the company said. the question.

Tencent, the largest shareholder of Nasdaq-listed DouYu with a 37% stake, wants to partner with at least one private equity firm for the deal and is in talks with investment banks, they said. .

He aims to close the deal this year, one of the people said.

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Shares of DouYu, one of Tencent’s leading platforms for game marketing and China’s No.2 video game streaming site, surged on the news, jumping 12.7% in pre-market trading .

The company has debated its business strategy after Tencent’s plans to merge it with bigger rival Huya Inc (HUYA.N) were blocked by regulators in July last year on antitrust grounds.

There were differences between DouYu executives on whether to stick with game live streaming as the core business or switch to more profitable entertainment live streaming, the other person said.

This tension has not diminished even after the resignation last month of DouYu co-founder and co-CEO Zhang Wenming, who had promoted diversification of income sources, the person added. DouYu said Zhang’s departure was due to personal reasons. Co-founder Chen Shaojie now runs the company.

The privatization plans reflect Tencent’s desire to have a firm grip on its major gaming affiliates at a time when it faces a series of regulatory issues, said the people, who were not authorized to speak. on the issue and declined to be identified.

A 60% drop in DouYu’s share price since July, giving it a market value of $717 million on Wednesday, also meant it was attractively priced for a privatization deal, they added.

Tencent and DouYu declined to comment. Zhang and Chen did not immediately respond to a request for comment made via DouYu.

Tencent, owner of hit games ‘Honor of Kings’ and ‘PUBG Mobile’, has, like other Chinese internet companies, been battling an industry regulatory crackdown and in the third quarter saw revenue growth by just 13% – its slowest since its inception. public in 2004.

In addition to stalling the DouYu-Huya deal, he also had to deal with authorities’ efforts to curb underage gambling, while restrictions on other industries also curbed advertising appetite.

At the same time, competition is intensifying both domestically and globally.

ByteDance, owner of Douyin, the home version of Tiktok, and which also has a gaming unit, has made significant inroads in the video game sector. Microsoft Corp (MSFT.O) announced last week that it would acquire “Call of Duty” maker Activision Blizzard (ATVI.O) for $68.7 billion in cash – the industry’s biggest deal ever. story game.

Upcoming new rules from China’s cyberspace regulator will also require the country’s big internet companies to seek approval for new investments and fundraising, sources told Reuters. The regulator denied having published a document to that effect.

“In such a difficult regulatory and competitive environment, it becomes increasingly important for Tencent to strengthen control over existing gaming-related holding companies such as DouYu,” the second person said.

According to data from Refinitiv, there have been some $13.7 billion in private transactions for Chinese companies listed in the United States over the past two years, compared to $5.8 billion combined for 2018 and 2019.

Undervalued stocks and heightened scrutiny from U.S. regulators have often been cited as reasons for the deals. Average premiums paid by buyers jumped to 53% last year from 36% in 2020, the data showed.

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Reporting by Julie Zhu; Editing by Edwina Gibbs

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