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Tencent in talks to create US$10b online giant

Tencent is shoring up its home-market position against the backdrop of a Trump administration increasingly hostile toward Chinese tech companies.

Hong Kong

TENCENT Holdings Ltd is driving discussions to merge China's biggest game-streaming platforms Huya Inc and DouYu International Holdings Ltd, people familiar with the matter said, in a deal that would allow it to dominate the US$3.4 billion arena.

The Chinese social media titan - which owns a 37 per cent stake in Huya and 38 per cent of DouYu - has been discussing such a merger with the duo over the past few months, although details have yet to be finalised, said the people, who asked not to be identified because discussions are private. Tencent is seeking to become the largest shareholder in the combined entity, one person said.

A deal would create an online giant with more than 300 million users and a combined market value of US$10 billion, cementing Tencent's lead in Chinese games and social media. Faced with rising competition for advertisers from ByteDance Ltd and its rapidly growing stable of apps, the WeChat operator would then run a highly profitable service akin to Inc's Twitch.

Huya and DouYu would keep their respective platforms and branding while working more closely with Tencent's own esports site eGame, said the people.

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"As the major shareholder of both platforms, Tencent would benefit because a merger would remove unnecessary competition between them," Bloomberg Intelligence analyst Vey-Sern Ling said. "The enlarged scale can also help to drive cost synergies and fend off emerging competitors." Tencent's shares were up 1.5 per cent in afternoon trade.

Tencent is shoring up its home-market position against the backdrop of a Trump administration increasingly hostile toward Chinese tech companies. WeChat has a limited US presence and Trovo Live, a mobile-focused game-streaming service for American consumers, is only in its initial stages.

China's game-streaming market is estimated to generate 23.6 billion yuan (S$4.7 billion) in revenue this year, according to iResearch. The country's streaming networks live and die by the popularity of star players and the virtual tips and gifts that fans buy for them, leading to intense bidding wars for the most-recognised names.

Companies like Google-backed Chushou TV shuttered their services after failing to secure new money, while NetEase Inc's CC Live has found a small niche in broadcasting its in-house titles.

Already featuring Tencent's marquee games like PUBG Mobile and Honor of Kings, Huya and DouYu have established a clear lead as the top two platforms. Nevertheless, revenue growth slowed down for both in recent quarters as users shifted their attention to ByteDance's Douyin, the Chinese twin to the globally popular TikTok short-video service. A merger would help them lower broadcast and content costs at a time when rival video services like Kuaishou and Bilibili Inc - both also backed by Tencent - intensify their efforts to compete for more gaming content.

When asked about the possibility of a merger with Huya, DouYu founder and chief executive officer Chen Shaojie told analysts on a March earnings call: "We believe it's Tencent's vision." BLOOMBERG

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