China technology company Tencent Holdings is likely to hold 67.5% of the voting shares of an enlarged, three-way consolidation by pushing U.S.-listed livestreaming esports companies Huya and DouYu into a merger.

The new company will be worth an estimated $11 billion.

Mastering The Game

Huya said this week it would acquire rival DouYu at 0.73 American depositary shares for each DouYu ADS in an all-stock offer. DouYu is valued at $6 billion by the deal terms, according to Reuters.

DouYu agreed to delist from the Nasdaq and its chief executive Chen Shaojie will become a joint CEO with Huya's Dong Rongjie.

Meanwhile, Tencent will sell its livestreaming business, Penguin eSports, for $500 million to DouYu after the Huyua-DouYu merger - which is estimated to close by the first half of 2021 after DouYu shareholders' approval.

The announcement saw DouYu shares up 12% this week - closing at $15.68 each at a market valuation of $4.978 billion. Huya shares fell more than 11% - closing at $22.91 with a $5.095 billion market valuation. 

Scoring The Winning Goal

Tencent held 36.9% of Huya and 38% of Douyu.

Between Huya and Douyu, the two firms boast more than 300 million monthly esports users.

According to iiMediaResearch, as of September 2019, the number of Penguin eSports monthly active users fell to 5.19 million from a peak of 5.69 million in April 2019.

In August, Tencent proposed the Huya and Douyu consolidation and planned to increase its Huya shares to 51%, while meanwhile raising its 50.9% Huya voting power to 70.4%. 

As a result, Tencent took full control of Huya in September. A wholly owned subsidiary of Tencent Holdings, Linzhi Tencent Technology Co., Ltd., is the new controller of Huya, according to corporate data inquiry company Tianyancha. 

Solving Bottlenecks 

In the face of competitors including Bilibili, Kuaishou and ByteDance, Huya and DouYu increased their operation costs from 1.358 billion yuan to 1.937 billion yuan and from 1.286 billion yuan to 1.792 billion yuan, respectively, according to the companies' reports in first quarter of 2020. 

During this period, however, MAU accounts on DouYu decreased to 158.1 million from 159.2 million at the same time of last year.

Analysts said despite accounting for combined 80% of the market, Huya and DouYu are in a development "bottleneck" - having similar livestreaming content as well as overlapping users. The consolidation deal could aid both companies in prioritizing operation costs, purchasing IP content and signing livestreaming KOLs.

A Bigger Slice Of A Bigger Pie 

The esports game industry generated revenues of $10.3 billion for the first half of 2020, an increase of 55% year on year, according to a report released by China Game Industry Research Institute. 

Tencent's own Penguin Intelligence and Tencent eSports, which is associated with data and measurement firm Nielsen Holdings, and the International Esports Federation, said China's esports users were expected to top 400 million by the end of 2020.

Analysts project China's esports market will reach 140.57 billion yuan ($20.34 billion) by the end of 2020 and 165.14 billion yuan in 2021 with mobile games and esports events contributing most of the growth.

DouYu and Huya users said "the merger will offer the convenience of playing livestreaming games on one platform but, at the same time, more content will require payments."