Baidu, the Chinese search company, announced that it has canceled its three-year attempt to acquire the Chinese live streaming platform YY Live from JOYY for $3.6 billion in cash, as regulators maintain control over the online entertainment sector in the country.
Deal Cancellation and Reasons
Moon SPV, a Baidu subsidiary based in Beijing, has terminated the stock purchase agreement with JOYY for the video-based entertainment business in mainland China, as Baidu announced on Monday in a filing to the Hong Kong Stock Exchange. The company cited terms such as “necessary regulatory approvals from authorities” that were not fully met by December 31, 2023, the deal’s deadline.
JOYY’s Reaction
In response to Baidu’s notice, JOYY, listed on Nasdaq, announced on Monday that it “is seeking legal counsel and will consider all options available to it.” The stock purchase agreement had been “substantially completed” in February 2021, according to JOYY.
Impact of the Canceled Deal on Baidu
Baidu’s acquisition of YY Live was expected to close in the first half of 2021. Baidu was anticipated to purchase this popular live streaming app to become a “leading platform in live broadcasting” and diversify the revenue source of the online search engine, according to a statement by Li, the founder and CEO of Baidu, at that time.
Baidu disclosed in its 2022 annual report, published last March, that it had paid a total of $1.9 billion for the deal. The company wrote at that time: “Despite good faith efforts, we did not obtain the necessary regulatory approvals concerning the proposed acquisition.”
Challenges in Live Streaming and Baidu’s Competition
In the live streaming space, Baidu would have faced fierce competition from other Chinese tech giants like ByteDance, led by billionaire Zhang Yiming, which operates the massive social media platform TikTok and its Chinese counterpart Douyin. Hong Kong-listed Kuaishou, a live-streaming app backed by Tencent, is also a competitor.
However, moving into live streaming may not be a priority for Baidu, which has recently benefited from its long-term bet on artificial intelligence. Baidu is often referred to as the “Google of China,” having been one of the first Chinese companies to venture into artificial intelligence, investing $3 billion in research and development between the end of 2014 and 2017 alone. Last March, Baidu unveiled its AI-powered chatbot Ernie Bot, sparking comparisons to OpenAI’s ChatGPT. Baidu’s shares listed in Hong Kong rose early Tuesday before closing down 1%, performing better than the Hang Seng Tech Index, a gauge of Chinese tech stocks in Hong Kong, which fell 1.7%.
Regulatory Challenges and Their Impact on the Industry
Investors remain concerned about regulatory actions against online entertainment. In early December, the release of a draft legislation regarding new policies requiring companies to refrain from incentivizing daily logins and regulating content resulted in stock drops for Tencent and NetEase by 12% and 22%, respectively. After an $80 billion drop, authorities seemed to roll back these restrictions by approving several new games.
Over the past three years, Chinese authorities have been cracking down on big tech and enacting laws aimed at limiting video games and live streaming. In November 2021, the National Press and Publication Administration announced it would require minors to limit their video game use to less than three hours per week, among other measures. In March 2022, the National Development and Reform Commission and the Ministry of Commerce prohibited “non-governmental capital” from engaging in or participating in “live streaming activities,” without clarification on the details.
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