Why Huya Stock fell today

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What happened

Actions of Huya (NYSE: HUYA) fell today, down 8% as of 1:20 p.m. EDT, after JOYE (NASDAQ: YY) announced a transfer of shares to Tencent (OTC: TCEH.Y). Tencent also sent Huya a non-binding merger proposal letter.

So what

JOYY sold 30 million Huya shares to Tencent for $ 810 million in cash, further strengthening Tencent’s stake in China’s leading video game live streaming platform. The Chinese tech giant, which is already the largest game publisher in the Middle Kingdom, had recently gained control of Huya in a previous purchase of Huya shares from JOYY. In addition to buying JOYY shares, Tencent has entered into a separate agreement to buy 1 million Huya shares from Huya CEO Rongjie Dong.

Image source: Getty Images.

Tencent is now pushing for Huya to merge with another live streaming specialist DouYu (NASDAQ: DOYU), which also released second quarter results this morning. DouYu now has more than 165 million monthly active users (MAU) and recorded a 34% increase in revenue to $ 354.4 million in the last quarter.

Now what

Tencent also owns a 38% stake in DouYu and is proposing an all-equity merger that would result in the acquisition by Huya of all of the outstanding DouYu shares. Huya and DouYu warn that no transaction has been finalized and that there is no guarantee that such a transaction will occur. The proposal does not specify an exchange ratio, which should be negotiated by all parties involved. As the proposed merger would be an all-equity transaction, no additional financing would be required.

“We are writing to you today to suggest that you consider a strategic combination of Huya and DouYu, which we believe represents a compelling value creation opportunity for both companies,” Tencent wrote in the letter.



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