On the first day of the new year, Baidu's related parties and Huanju Group's three-year acquisition plan was terminated.
On the evening of January 1, 2024, Baidu announced on the Hong Kong Stock Exchange that Moon SPV Limited (hereinafter referred to as Moon), an affiliate of Baidu, terminated the Share Purchase Agreement entered into by Moon, Baidu and Huanju Group and other related parties in accordance with the previously signed agreement, as amended or supplemented in the future.
In November 2020, Baidu and Huanju Group announced the signing of a Share Purchase Agreement. According to the agreement, Baidu will acquire Huanju's domestic video entertainment live broadcast business (i.e., YY Live) for approximately US$3.6 billion in cash (adjusted for contingent consideration under the agreement, equivalent to approximately RMB25.7 billion at the current exchange rate), including but not limited to YY mobile app, YY.com website and YY PC.
Affected by this, on the evening of January 2, Beijing time, Huanju U.S. stocks opened low and moved low, down 16% as of press time, at $33.346 per share, with a total market value of $2.027 billion.
The $3.6 billion acquisition was terminated
On the evening of January 1, 2024, the Hong Kong Stock Exchange announced that Moon, a related party of Baidu, terminated the equity acquisition agreement of YY Live in accordance with the previously signed agreement.
According to the announcement, on November 16, 2020, Moon signed an equity acquisition agreement with Huanju Group for YY's live video entertainment business in China. The Share Purchase Agreement provides that the closing of the proposed acquisition is subject to certain conditions precedent, including the receipt of necessary governmental regulatory approvals and other conditions, and that either the buyer or seller has the right to terminate the share purchase agreement if the proposed acquisition is not closed by the final closing date. As of December 31, 2023, the final closing date, the closing conditions set out in the Share Purchase Agreement have not been fully satisfied.
Image source: Daily Economic News data map
Baidu said that next, Moon will seek to discuss with Huanju Group the next steps after the termination of the purchase agreement.
On the same day, Huanju Group announced that it had received a written notice of termination of the agreement from Baidu's affiliates. He also said that the sale of YY Live to Baidu was basically completed on February 8, 2021, but there are still some matters to be completed in the future. Upon receipt of Baidu's notice of termination of the acquisition, JOYGROUP is seeking legal advice and will consider all possibilities in response to Baidu's notice, all rights expressly reserved by the Company.
In its 2022 annual report, Baidu referred to the acquisition, saying that its completion was subject to a number of conditions, including the need to obtain regulatory approvals from government authorities. If the closing is not completed by the Closing Date, the Share Purchase Agreement may be terminated and the Company and JOYY have agreed to extend the Closing Date indefinitely until such extension is terminated by either party.
In addition, Baidu also said in its annual report that it had paid a total of $1.9 billion to JOYY and its designated escrow accounts in accordance with the terms and timelines set out in the share purchase agreement, and deposited a total of $1.6 billion into multiple escrow accounts, after considering the adjustment of $100 million in working capital.
Image source: Screenshot of YY live webpage
According to reports from Jiupai Finance and others, the acquisition was terminated because it was not approved by the relevant regulatory authorities.
On January 2, a person familiar with the matter confirmed to the "Daily Economic News" reporter that the termination of the acquisition was indeed the reason for supervision. According to him, in the past two years, Baidu has been carrying out work such as agency management (YY live broadcast) for the sake of business stability, and in the decision-making process, both parties hope to achieve the goal in the end, and have made efforts to achieve it. However, the termination of the acquisition due to "unfulfilled closing conditions" is "like buying a house without getting the title deed".
Previously, Baidu and YY live broadcast businesses have begun to integrate. According to reports at the time, in November 2020, Baidu made internal organizational adjustments, and Cao Xiaodong, then vice president of Baidu, was in charge of pan-entertainment live broadcast, pan-knowledge and other businesses, "which means that Baidu's live broadcast middle platform and the soon-to-be-acquired YY live broadcast business will be assigned to Cao Xiaodong to be responsible."
Later, at the end of 2021, Cao Xiaodong resigned from Baidu.
Frustrated darlings of the show
YY live broadcast is a representative of the traditional show live broadcast left after the "Thousand Broadcast War". When short video platforms such as Douyin and Kuaishou have not yet emerged, and when live broadcast forms such as live streaming and game live streaming have not yet emerged, YY live broadcast is the absolute head of the track.
Judging from the stock price performance, in January 2018, the share price of Huanju Group behind YY live broadcast once exceeded $140 (no reinstatement). At that time, the live broadcast of the show was in the "golden age".
Image source: Huanju Group's share price in the month K
In November 2020, Huanju Group and Baidu announced the aforementioned acquisition agreement.
However, shortly after the announcement of the above transaction, Muddy Waters Research, a well-known short-selling institution, said that 90% of the revenue of Joydy Group's live broadcast business was fraudulent. In response to the short selling of Muddy Waters, Huanju Group responded at the time that there were a large number of errors in the report.
However, in recent years, the live broadcast track has been accelerating, live streaming has ushered in explosive growth, game live streaming has also sprung up, the "attention" of traditional show live broadcast has been continuously dispersed, and YY live broadcast has begun to go uphill.
In comparison, from 2018 to 2020, the net income of YY Live was 10.273 billion yuan, 10.963 billion yuan and 9.950 billion yuan respectively, and the net profit was 3.289 billion yuan, 3.701 billion yuan and 3.141 billion yuan respectively. In 2020, YY Live's net income and net profit have declined significantly.
Image source: Screenshot of Baidu's prospectus
Since 2020, the reporter has not seen Baidu separately disclose the performance of YY Live.
According to data released by QuestMobile in 2022, Douyin and Kuaishou, which started with short videos, have become the main force of live broadcast e-commerce, and as of February 2022, the proportion of Douyin and Kuaishou live broadcast users has reached 86.8% and 86.0% respectively.
In an interview with reporters, the above-mentioned people familiar with the matter also believed that from the current node, Baidu's termination of the transaction is in line with the provisions of the agreement. In addition, the uncertainty of the past two years has indeed had an impact on the transaction. In addition, from an investment point of view, the termination of the acquisition is not a bad thing for Baidu, but a measure to untie the stop loss, "like Baidu's overall strategy has also been transferred to the large model, in fact, it has already paid 1.9 billion US dollars, which is the money that has been paid, so it must be a timely stop loss."
Source: National Business Daily