When the live streaming industry was booming, Baidu and YY Live came together. Now, this business alliance, which is seen as "taking what you need", has gone its separate ways.
On the evening of January 1st, Baidu announced on the Hong Kong Stock Exchange that its related party Moon had signed an equity acquisition agreement with Huanju on November 16, 2020, regarding YY's domestic video entertainment live streaming business. It was agreed that if the transaction delivery was not completed before the deadline, either party had the right to terminate the agreement. As of December 31, 2023, which is the final deadline of the agreement, all the delivery prerequisites stipulated in the share purchase agreement have not been met.
So, Moon terminated the equity acquisition agreement with YY Live as previously agreed.
This means that the previously highly anticipated $3.6 billion merger and acquisition case in the market has ended in failure. As soon as the news came out, there was an uproar.
On the evening of the same day, the announcement from Huanju Group (NASDAQ: YY) gave another statement. According to Huanju Group's statement, YY Live's sale to Baidu was basically completed on February 8, 2021, and some 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. In this regard, the company is seeking legal advice and will consider all options it can take in response to Baidu's notice.
On January 2nd, regarding the specific situation of the termination of the above-mentioned acquisition and other issues, Baidu and Huanju Group responded to an interview with the International Financial News and stated that everything is subject to the announcement.
A sky high transaction price of over 20 billion yuan
On November 17, 2020, Baidu announced the signing of a final binding agreement with Huanju Times Group to fully acquire Huanju Group's domestic live streaming business (i.e. "YY Live"). The acquisition includes but is not limited to YY mobile applications, YY.com website, YY PC client, etc., with a total transaction amount of approximately 3.6 billion US dollars. The transaction is expected to be completed and delivered in the first half of 2021. YY Live's products, technology, team The anchor and guild ecology will all belong to Baidu. This is Baidu's largest single acquisition to date.
Huanju Group was established in April 2005, headquartered in Guangzhou, and went public on NASDAQ in November 2012. Its businesses have included YY Live, Huya, overseas social platform HAGO, video social platform BIGO, short video platform Likee, etc., covering more than 150 countries and regions worldwide. As one of the earliest live streaming platforms in China, YY Live, formerly known as YY Voice, was established in 2008 and is known as the "pioneer of runway live streaming". Its revenue mainly comes from live streaming rewards. According to the annual report data, in 2019, Huanju Group's annual revenue was 25.576 billion yuan, of which YY Live's revenue was 12.23 billion yuan, accounting for nearly 50% of the revenue.
For this acquisition of more than 10 billion yuan, Robin Lee, CEO of Baidu, responded in the third quarter of 2020 financial report conference call that Baidu has 300 million daily active users, and the acquisition of YY is very natural for flow realization. YY, as a large live streaming platform, has accumulated rich experience, and Baidu Live has many areas for reference and learning.
It is undeniable that at that time, the live streaming industry was in the spotlight, and Baidu, a latecomer, had a clear intention to increase its live streaming efforts. In May 2020, at Baidu's annual mobile ecosystem conference, Shen Dou, Executive Vice President of Baidu Group, stated that in the second half of 2020, Baidu's mobile ecosystem will focus on "people" and "services", while live streaming will reflect the key development direction of the mobile ecosystem. Live streaming is not only real-time interaction between people, but also provides valuable services.
In addition to helping Baidu quickly improve its live streaming business, this transaction is also of great significance to Huanju Group. At that time, the industry generally believed that Huanju Group had placed its business focus on overseas markets and urgently needed a large amount of financial support. At the same time, domestic regulation was becoming stricter. Therefore, by selling domestic business with peak revenue, it could provide ammunition for subsequent business structure adjustments.
It is worth noting that on the third day after Baidu announced its acquisition of YY Live, the well-known short selling agency Muddy Waters released a short selling report targeting Huanju Group, stating that after a year of investigation, it was found that about 90% of YY Live was fraudulent and a false ecosystem. The anchors who should have made a lot of money on YY actually only received a small portion of the reported income, and most of the independent channel owners were controlled by YY, In order to engage in "false transactions" and reward fans, almost all of them are robots on the company's internal network.
"We have doubts about Baidu's acquisition of YY live streaming business: what will Baidu do in the future? Does Baidu really want to achieve growth through a business that is almost completely fake?" Muddy Waters even "shouted" Baidu in the report, "Where did your due diligence go when you used nearly 7% of the market value of cash to purchase a completely fake business? How could due diligence not have discovered such large-scale fraudulent behavior?"
In response to this, Huanju Group stated at the time that there were numerous errors in the report. Subsequently, the audit committee of Huanju Group also conducted an independent review, and the final result was that the allegations and conclusions in the Muddy Waters report were not substantiated.
In March 2021, Baidu also mentioned in its listing documents that it had conducted due diligence in financial, legal, and commercial aspects before entering into the purchase agreement related to the acquisition and after Muddy Waters published a short selling report on Huanju Group. On February 7, 2021, both parties have made modifications to some of the terms and conditions of the original share purchase agreement and entered into a revised and restated share purchase agreement.
However, after three years, this highly anticipated transaction in the industry has officially come to an end. Baidu stated that Moon will seek to negotiate with Huanju on the future arrangements of the transaction after terminating the equity acquisition agreement and explore reasonable solutions.
The mystery of YY's live streaming destination
"The termination of Baidu's acquisition of Joy Group's mainland video entertainment live streaming business YY Live is not entirely unexpected, as investors have been waiting for more details of the transaction in the past few years, and the online industry has been experiencing changes in the industry and regulatory environment." On January 2, Furui released a report stating that for entertainment live streaming, there was an industry operation adjustment last year, and Baidu is also using artificial intelligence to reconstruct all products under the group.
In fact, according to the previous announcement of Huanju Group, as early as February 8, 2021, the sale of its YYLive business to Baidu Company had been basically completed. But on August 17th of the same year, Huanju Group once again announced that the company had negotiated with Baidu to extend the final deadline for the proposed transaction.
Just as the transaction was pending, at the end of 2021, according to LatePost, Cao Xiaodong, who was then sent by Baidu to be in charge of the YY business unit, no longer served as the department head. He was replaced by He Junjie, former Vice President of Baidu and former head of Baidu's strategic investment. He Junjie will also report directly to Baidu's new CFO, Luo Rong. At the same time, Zhang Ying, former Senior Vice President of Huanju Group and now President of YY Live, is preparing to leave.
Baidu's move has been interpreted by the outside world as officially joining YY Live. According to Baidu's 2020 annual report, the company has transferred $1.9 billion of the acquisition funds to Huanju Group, and the remaining $1.6 billion is temporarily stored in a designated custody account for delivery after regulatory approval of the transaction.
Data source: Baidu 2020 Annual Report
In September 2021, the State Administration for Market Regulation released the Annual Report on China's Anti Monopoly Law Enforcement (2020), which disclosed that the Administration was conducting anti-monopoly reviews on 11 cases of business concentration, including Baidu's acquisition of Huanju Group and JD's acquisition of Liexin Technology. As of now, this transaction has not been approved by the State Administration for Market Regulation.
On January 2nd, there were rumors in the market that Baidu terminated the agreement due to its acquisition of YY Live's project, which did not receive approval from relevant regulatory authorities. The specific reason for not obtaining approval was related to anti-monopoly measures. But this claim has not been officially confirmed.
In response to the termination of the acquisition, internet industry analyst Ding Daoshi analyzed to the International Financial News reporter that for Baidu, in the future, it can focus more on the research and development of AI and large models; But for Huanju Group, if only Baidu unilaterally announces the termination of the acquisition and the two sides have not reached an agreement, there may be disputes over the refund amount in the future, and even legal disputes.
In addition, Ding Daoshi also stated that due to the fact that Huanju's business has long been adjusted to focus on overseas markets, even if YY Live returns to Huanju, it is highly likely to become a business sector that has been abandoned strategically, making it difficult to rise again in the domestic live streaming field.