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Tencent Is the Big Gaming Winner as Huya and DouYu Agree to Merge

By Rich Duprey – Oct 12, 2020 at 11:37AM

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It will be the controlling shareholder of the biggest video game company.

Chinese live-streaming game platform Huya (HUYA 10.20%) announced today that it has agreed to acquire rival DouYu International Holdings (DOYU 8.26%) in a deal that values DouYu at $6 billion. But it is Tencent (TCEHY 4.31%) that comes out the big winner since it owns shares in both companies and will have a nearly 68% stake in the new company that is created.

Huya is China's most popular online gaming site while DouYu is No. 2. Together they control over 80% of the Chinese market.

Male smiling into his smartphone

Image source: Getty Images.

Huya and DouYu had discussed a merger previously, and Tencent agreed to mediate. By bringing the two sides together, the merged company will also more easily allow Tencent to promote its own fourth-ranked streaming site eGame.

Citing data from iResearch, Bloomberg says China's game-streaming market is estimated to generate $3.5 billion in revenue this year.

According to the announcement, investors have been offered 0.73 American depositary shares of Huya for each ADS of DouYu they own, and investors from both companies will equally own the new company. Huya will pay its investors a dividend of $200 million, while DouYu will pay its shareholders $60 million. 

Tencent also agreed to assign its interests in its Penguin esports live-streaming business for $500 million, effectively creating a three-way merger that will be an industry behemoth with approximately 300 million monthly active users, before overlapping subscriptions are eliminated. 

Tencent will be a video game juggernaut. As the Chinese distributor for some of the most popular online games such as Call of Duty and PlayerUnknown's Battlegrounds, the 67.5% voting control it will exercise enhances its ability to generate even more revenue from esport streams derived from its titles.

The merger is expected to close in the first half of 2021.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tencent Holdings. The Motley Fool recommends HUYA Inc. The Motley Fool has a disclosure policy.

Stocks Mentioned

Tencent Stock Quote
$40.88 (4.31%) $1.69
HUYA Inc. Stock Quote
$2.81 (10.20%) $0.26
DouYu International Holdings Ltd Stock Quote
DouYu International Holdings Ltd
$1.31 (8.26%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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