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Huya and DouYu Deal Comes Under Chinese Regulatory Scrutiny

By Rich Duprey - Dec 14, 2020 at 11:28AM

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Antitrust regulators are taking a closer look at the internet tech sector.

Huya ( HUYA -7.55% ) and rival DouYu International ( DOYU -8.27% ) dominate Chinese live-streaming, owning 80% of the game steaming market between them. Their planned $6 billion merger is poised to create an industry titan.

No one will fare better than Tencent ( TCEHY 1.33% ), as it owns a stake in both companies and will have a 67.5% voting interest in the new company after joining in the union. The merged successor company of Huya and DouYu would have over 300 million monthly active users.

However, the plans have been put in turmoil as China's regulators announced they are going to take a closer look at the merger as part of an antitrust crackdown.

Magnifying glass looking at financial statements

Image source: Getty Images.

Regulatory domino effect

Beijing fined Alibaba ( BABA -3.95% ) 500,000 yuan, or about $76,500, for failing to seek regulatory approval before increasing its ownership interest in department store chain Intime Retail Group. It also fined China Literature, a Tencent spinoff, for not reporting its 2018 acquisition of New Classics Media, a TV production unit.

In announcing the fines, the State Administration for Market Regulation (SAMR) antitrust watchdog specifically cited the Huya and DouYu tie up as the reason why it was going to more closely scrutinize internet tech deals.

It said it wanted the fines to be "a signal to society that anti-monopoly supervision in the internet field will be strengthened."

For the first time ever, the SAMR issued regulations last month laying out what it deems to be anti-competitive behavior. The regulations cover areas that include pricing, payments, and the use of data to target shoppers.

The new rules followed the regulators essentially putting a stop to the IPO of Alibaba-affiliated Ant Financial.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
$59.23 (1.33%) $0.78
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
$122.49 (-3.95%) $-5.04
HUYA Stock Quote
$7.96 (-7.55%) $0.65
DouYu International Holdings Limited Stock Quote
DouYu International Holdings Limited
$2.55 (-8.27%) $0.23

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

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