Tencent (TCEHY -1.12%) announced on Sunday that its acquisition of Leyou Technologies was on track to close after receiving approval from each company's shareholders. Leyou is the parent company of Digital Extremes, the Canada-based video game development studio known for Warframe. It also owns studios including Athlon and Splash Damage.
Leyou is expected to halt its trading on the Hong Kong Stock Exchange today, and its listing will then be withdrawn before the market opens on Dec. 23. Tencent will be paying roughly $1.5 billion in cash to acquire the company.
Leyou posted a $6.5 million loss on sales of $214 million in 2019, with revenue declining 5.9% annually in the period. The sales decline primarily stemmed from weaker performance for Warframe, but it clearly wasn't overly concerning to Tencent.
Warframe is a popular free-to-play online action game that was first released in 2013 and has managed to sustain strong levels of engagement thanks to ongoing content updates. The video game is still putting up relatively strong engagement, and Digital Extremes has shown that it's capable of releasing and sustaining hit titles. There's also a good chance that Warframe's performance can be reinvigorated by bridging the franchise to mobile. So far, the game has only been released on the PC, Sony PlayStation, Microsoft Xbox, and Nintendo Switch platforms.
Other studios under Leyou's corporate umbrella probably also caught Tencent's eye. Splash Damage's Gears Tactics received a strong reception from critics earlier this year, and Athlon is working on a Lord of the Rings game with Amazon that's set to be released in 2022. Overall, the Leyou acquisition looks like another smart move from Tencent.