The news of terminating the acquisition yesterday attracted market attention. Baidu Group announced that it will terminate its acquisition of Huanju Group that evening.
According to the announcement on January 1st, Baidu submitted a notice to the Hong Kong Stock Exchange stating that it will terminate its acquisition of Happy Times. The announcement stated that due to the incomplete fulfillment of the delivery prerequisites stipulated in the share purchase agreement, Baidu's affiliated company Moon SPV Limited terminated the Share Purchase Agreement signed by Moon SPV Limited, Baidu, Huanju Group, and other related parties on November 16, 2020, as amended or supplemented in the future, through the exercise of contractual rights.
Note: Baidu's announcement
Subsequently, Huanju Group announced that it had received a notice from Baidu's affiliated company to terminate the November 2020 share purchase agreement. YY Live's sale to Baidu was basically completed on February 8, 2021, and certain matters still need to be completed in the future. However, Baidu claimed in the notice that it had exercised its right to terminate the share purchase agreement and cancelled the transaction. Huanju Group is seeking legal advice and will consider all options it can take in response to Baidu's notice.
Huanju Group was founded in April 2005 and listed on NASDAQ in November 2012 (stock code: YY). It is a comprehensive and innovative global technology internet company, with core products including Bigo Live live streaming, Likee short videos, and Hago interactive social networking.
Transaction between Baidu Group and Huanju Group
In fact, Baidu's acquisition of Huanju Era's domestic video entertainment live streaming business was one of the largest transactions in the Chinese internet industry in 2020. The transaction was initially expected to complete delivery in the first half of 2021, but was ultimately terminated due to various reasons.
In November 2022, Baidu announced that it would acquire the domestic video entertainment live streaming business of Happy Times for $3.6 billion in cash, including but not limited to YY mobile application, YY.com website, and YY PC. Delivery is expected to be completed in the first half of 2021.
It is worth noting that after the agreement was signed by both parties, Huanju was accused by a well-known short selling agency Muddy Waters, claiming that 90% of its income was fake. However, Huanju subsequently denied these allegations and conducted a comprehensive review. At the same time, Baidu and Huanju also revised the stock purchase agreement on February 7, 2021, modifying some terms and conditions.
In August 2021, according to the documents released by Huanju Group, the final binding agreement between Baidu and Huanju Group regarding Huanju Group's domestic live streaming business will be extended. Until today, this transaction has officially terminated.
Institutions claim that this move has a positive impact on Baidu
In today's research report, analysts from Furui stated that it is not surprising that Baidu terminated its share purchase agreement with Huanju Group.
Baidu is seeking to sell non core assets to reduce costs. This may also have led to Baidu reassessing the transaction value of YY Live, ultimately leading to the termination of the transaction.
According to relevant reports, Baidu is currently focusing on its AI business and has been continuously reducing costs and increasing efficiency in the past few years. Live streaming is also one of the optimized businesses. At the end of 2021, Baidu was exposed to have carried out large-scale layoffs, and the live streaming business became a "disaster area" for layoffs.
The business growth of Huanju Group has slowed down. Its live streaming business showed signs of slowing growth in 2023, which may lead to Baidu reassessing the valuation of transactions. According to data from the first three quarters of this year, the revenue of Huanju Group's live streaming business has been declining year-on-year, with revenues of $520.4 million, $477 million, and $496 million, respectively.
Related reports indicate that the social arena of overseas live streaming has become increasingly crowded. According to Digital Savy's calculations, the global video live streaming market is expected to reach 8.96 billion yuan in 2025, with a compound annual growth rate of over 10%. Under this pattern, domestic short video live streaming enterprises are accelerating their product layout, such as TikTok, Kwai and other short video live streaming application software, which have been launched overseas and quickly occupied the market.
In addition, Furui expects that Baidu's termination of transactions will have a positive impact on its financial performance, maintaining Baidu's "buy" rating with a target price of HKD 250.