HONG KONG -- Tencent Holdings is facilitating a tie-up between two U.S.-listed companies in which it is invested, a move to help the Chinese entertainment titan to fend off rising competition and create a streaming group with a market cap of $10 billion.
Huya, which is listed on the New York Stock Exchange, and Nasdaq-listed Douyu have been "in talks for a merger" for months, two people familiar with the deal told the Nikkei Asian Review. The deal is being driven by Tencent, which is the largest shareholder of both Chinese-based companies.
The proposed deal, first reported by Bloomberg, aims to end a costly fight between China's top two streaming platforms and utilize resources to grab a greater slice of a multibillion-dollar market. The Chinese game-streaming sector is expected to generate 23.6 billion yuan ($3.4 billion) in revenue this year, according to market intelligence firm iResearch.
"Tencent has been trying this for a while," said one source who asked not to be named. "Changing investors' mindset amid COVID-19 has prompted the two firms to warm up to the idea," the person said.
Both Huya and Douyu are profitable -- earnings tens of millions of dollars in net income during the first quarter of this year -- but market volatility associated with a pandemic-induced economic downturn has posed a threat to their fundraising. An enlarged single entity, on the other hand, is expected to find it easier to withstand possible headwinds.
A merger would also help Tencent lock users within its "ecosystem" at a time when challengers in entertainment, such as ByteDance's TikTok and Nasdaq-listed Bilibili, are increasingly competing for attention. Douyu and Huya, which have become known for game-focused streaming, have helped Tencent engage gamers and lure in new players.
"The deal has momentum, but can still fall apart," one of the persons familiar with the proposed tie-up said.
This is not the first time that Tencent has tried to tie the knot between Huya and Douyu, which have a combined user base of 309 million people in China.
But Tencent's influence has grown after it bought an additional stake in Huya for roughly $260 million from JOYY in April, boosting its voting power in the platform to more than 50%.
Shares of Douyu were up 4.7% in early Wednesday trading, while Huya's stock price jumped 6.7%. Hong Kong-listed Tencent closed 2% higher.
Tencent declined to comment on the deal. Huya and Douyu could not be immediately reached for comment.