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Why Huya Stock Dropped Today

By Evan Niu, CFA - Jan 22, 2020 at 3:54PM

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A deal with MTG has been terminated by both parties.

What happened

Shares of Huya (HUYA -12.47%) have dropped today, down by 10% as of 3:10 p.m. EST, after a previously announced joint venture with MTG fell apart. MTG had hoped to gain a foothold in China's booming esports and live-streaming market through the partnership with Huya.

So what

The companies had signed an agreement last September that would have formed a joint venture while giving Huya a minority stake in MTG portfolio company Turtle Entertainment (ESL). Huya, which is backed by Chinese tech giant Tencent, was planning to invest $30 million in ESL. MTG announced today that following due diligence, both parties have mutually agreed to terminate the deal.

Gamer playing on a computer

Image source: Getty Images.

Separately, MTG said in October that it was conducting a strategic review of its gaming business, and this week announced the results of that review. MTG is looking to cut costs and improve efficiencies through a variety of initiatives. It's unclear if that review played a factor in the deal falling apart.

Now what

"Differing views between the two parties on allocation of contractual risk and other key commercial terms are the primary reasons for the announced termination of the binding term sheet," MTG said in a statement.

"We still believe in the logic of this transaction and its potential for both MTG, HUYA, and for the esport industry globally," MTG CEO Jorgen Lindemann added. "However, both parties see a mutual termination of the negotiations as the only way forward for now given the status of the negotiations at this stage." MTG also said that the termination would not have any operational impact on ESL in 2020.

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