Chinese video game live-streaming platform Huya (NYSE:HUYA) said it had received a letter from Tencent (OTC:TCEHY) offering to mentor a merger between Huya and DouYu (NASDAQ:DOYU), Huya's biggest rival in the esports streaming space.
Tencent is a majority owner of Huya, having acquired a 50.1% stake in the gaming platform earlier this year. Its interactive entertainment chief was made the chairman of Huya's board. It also has a significant stake in DouYu.
It's game-on in China
Huya cautions it only just received the letter, so investors thinking of trading its stock on the news should understand there's no guarantee a deal will be consummated. But Tencent has been pushing to get the two companies to merge.
Huya is the most popular online gaming site in China while DouYu is No. 2, and together they control over 80% of the Chinese market. Merging the two would also make it easier for Tencent to integrate its own eGame streaming site, which is currently ranked fourth, while also fending off ByteDance, the owner of Tiktok, which is also developing a gaming platform.
According to Huya, Tencent offered to support the stock-for-stock merger as an investor in each company, as well as participating in the deal "in such manner and on such terms and conditions as to be further discussed and mutually agreed upon."
Separately, JOYY (NASDAQ:YY), from which Huya was spun off two years ago, announced it sold 30 million Class B shares of Huya to Tencent for $810 million. Huya said Tencent would also buy 1 million shares of Huya's Class B stock from Huya CEO Rongjie Dong.
DouYu also announced it had received the same letter from Tencent and will consider the offer. It's unknown whether such a merger would run afoul of China's anti-monopoly law, which prohibits mergers that restrict competition.