The largest acquisition case in Baidu's history took three years and ultimately failed. On the evening of January 1, 2024, Baidu Group (NASDAQ: BIDU, 09888. HK) announced that its related party Moon had terminated its share purchase agreement with Huanju Group (NASDAQ: YY), and the $3.6 billion acquisition of YY Live, a subsidiary of Huanju Group, was invalidated.
Regarding Baidu's abandonment of the acquisition of YY Live, Huanju Group announced that it has received a notice from Baidu's affiliated companies 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.
According to sources close to Baidu and YY Live, many employees of YY Live have already moved into Baidu's office area for work, and YY Live operates independently. But in 2022, Baidu made significant adjustments to the architecture of YY Live, and currently many of Baidu's live streaming businesses are actually operated by the YY Live team. In addition, insiders told reporters that Baidu has already paid $1.9 billion to Huanju Group for its acquisition of YY Live.
Nowadays, Baidu's abandonment of the acquisition of YY Live undoubtedly puts the YY Live team in an awkward position. What will be the future path of YY Live? What will be done with the money already paid by Baidu? And how will Huanju Group respond? Our reporter will continue to monitor.
The largest acquisition case in Baidu's history
On November 17, 2020, while Baidu announced its third quarter financial report, it also announced the specific acquisition of YY Live, a video social media platform under the Huanju Group.
According to the final agreement signed by both parties at the time, Baidu will acquire YY Live, a subsidiary of Huanju, for approximately $3.6 billion in cash, including but not limited to YY mobile applications, YY.com website, and YY PC, among others. The transaction was expected to be completed in the first half of 2021. At the exchange rate of USD to RMB on November 17, 2020, USD 3.6 billion is approximately RMB 23.6 billion.
According to data from Tianyancha, there have been 229 public investment events by Baidu, and the $3.6 billion acquisition of YY Live is the largest investment in Baidu's public investment history.
Just two days after Baidu announced its acquisition of YY Live, on November 19, 2020, the well-known short selling agency Muddy Waters released a short selling report against Huanju Group, accusing it of fraudulent behavior and questioning its revenue, profits, and paid user data. This included pointing out that approximately 90% of YY Live's revenue was fraudulent and was a false ecosystem. The subsequent announcement released by Huanju Group showed that the relevant audit committee, legal auditors, and data analysis expert team have conducted a comprehensive review of the allegations related to YY's live streaming business. The conclusion drawn from the review is that the allegations and conclusions regarding YY's live streaming business in the Muddy Waters Report have not been substantiated. Baidu did not stop its acquisition of YY Live as a result, but according to the initial announcement, the transaction of Baidu's acquisition of YY Live was originally planned to be completed in the first half of 2021, but ultimately did not complete as scheduled.
On February 7, 2021, Baidu announced that it had revised its share purchase agreement with Huanju Group, and both parties agreed to extend the deadline to March 31, 2022. After half a year, on August 17, 2021, Huanju Group announced that it and Baidu had agreed to extend the final date of the proposed transaction to a mutually agreed upon date.
In September 2021, the State Administration for Market Regulation released the Annual Report on China's Anti Monopoly Law Enforcement (2020). It was revealed that the State Administration for Market Regulation is strengthening its anti-monopoly review of 11 concentration cases, including the merger of Tencent's Huya and Douyu, Baidu's acquisition of Huanju Group, and JD's acquisition of Liexin Technology, in accordance with the law. However, as of now, no final review result has been announced regarding Baidu's acquisition of YY Live.
After more than three years, this largest acquisition in Baidu's history ultimately fell through. On January 1, 2024, Baidu announced in its abandonment of its acquisition of YY Live that the share purchase agreement stipulates that the delivery of the proposed acquisition must meet certain prerequisites, including obtaining necessary government regulatory approvals and other conditions. If the proposed acquisition is not delivered before the final deadline, both the buyer and seller have the right to terminate the share purchase agreement. As of December 31, 2023, which is the final deadline, all the delivery prerequisites stipulated in the share purchase agreement have not been fully met.
Why give up
In the merger and acquisition case of internet companies, there have been cases where the acquisition target was announced but ultimately terminated. For example, in 2013, Facebook announced its acquisition of WhatsApp for $1 billion, but ultimately abandoned it in 2017 due to regulatory issues. In 2014, Google announced its acquisition of Nest Labs for $2.6 billion, but ultimately abandoned the deal before it was completed in 2018. These cases indicate that market changes, regulatory pressures, and negotiation breakdowns may all be reasons for the termination of mergers and acquisitions.
"The completion time of the merger and acquisition may vary depending on the case, and may take several months to years, depending on factors such as the complexity of the transaction, the time required for regulatory approval, and the progress of negotiations between the two parties." Lawyer Li Min, Senior Partner of Shanghai Hansheng Law Firm, told reporters.
A person close to Baidu revealed, "Baidu abandoned its acquisition of YY Live because of antitrust review."
Ouyang Kunpo, co-founder of Zhejiang Kenting Law Firm, told reporters, "There are multiple reasons why this acquisition case has not been implemented, and the most core reason is regulatory review." As it involves cross-border transactions, the acquisitions of Baidu and Huanju Group need to be reviewed and approved by regulatory agencies in China and the United States. However, due to the escalation of trade frictions between China and the United States, as well as the suppression of Chinese enterprises by the United States, this process has become exceptionally difficult and lengthy. According to media reports, the acquisition cases of Baidu and Juju Era have been submitted to the Committee on Foreign Investment in the United States (CFIUS), but have not received a response. In addition, domestic antitrust regulations have also put some pressure on this acquisition case.
In addition to regulatory factors, several industry analysts believe that the decrease in cost-effectiveness of YY Live and the shift in Baidu's own strategic focus are also the main reasons.
According to the third quarter financial report of Huanju Group in 2020, as of September 30, 2020, the monthly active users of YY Live Mobile reached 41.3 million. In contrast, the head platforms of Tiktok and Kwai in the live broadcast field had reached 600 million people and nearly 500 million people respectively at that time.
"The combined market share of Baidu's live streaming business and YY's live streaming business is not high," Wang Chao, founder of Wenyuan Think Tank, told reporters. "I think Baidu's $3.6 billion price three years ago was too high. In these three years of business integration, the live streaming business did not achieve the desired effect for Baidu, and coupled with a strategic shift towards AI, I wanted to stop losses in a timely manner and then invest money in AI."
The reporter noticed that Baidu has not mentioned YY Live in its financial reports for the past two years. Ouyang Kunpo told reporters, "In today's heavily suppressed fashion show live streaming, YY Live's performance is undoubtedly declining. And against the backdrop of Baidu executives who advocated for the acquisition, YY's performance decline, and a significant decline in the valuation of vertical live streaming platforms, Baidu does have enough reason to give up this $3.6 billion acquisition. After all, the combined market value of Huya and Douyu in the US stock market is only $1.2 billion, which is about one-third of the price of acquiring YY Live."
"After three years, Baidu's decision to abandon the acquisition of YY live streaming is related to significant changes in the live streaming industry landscape, adjustments in Baidu's own business focus or strategic direction. Currently, Baidu is fully investing in AI, and the demand for YY live streaming has weakened," said Yu Fenghui, an expert from the Hong Kong Stock Exchange's Top 100 Research Center, to reporters
Embarrassing YY Live
Robin Lee, chairman and CEO of Baidu, had high hopes for YY Live, which was acquired with huge investment. "Baidu's diversified users, customers and ecological partners, its burgeoning mobile ecology, traffic and technological advantages, can have a synergistic effect with the content capabilities of YY Live, bringing new development opportunities for YY Live. Live broadcasting has become an indispensable infrastructure for Internet platforms. Technology and data empowerment are key driving factors for future industrial changes, including live broadcasting. Let's look forward to the new possibilities that YY Live joins Baidu for the live broadcasting industry." Robin Lee once said in an internal letter.
Sources close to Baidu and YY Live revealed that shortly after Baidu announced its acquisition of YY Live, YY Live's employees in Beijing gradually moved into Baidu's office area for work. In May 2021, the deep communication between Baidu's main mobile products and YY Live in terms of personnel, products, data, technology, etc. was basically completed, and YY Live began to shoulder the strategic task of Baidu's pan entertainment live broadcast. With the deepening of integration, YY Live and Baidu have further refined their operations at the live streaming level. Baidu has newly created a hundred battle live broadcast, achieving "complementary co construction" with YY Live.
In April 2022, Baidu made a comprehensive structural adjustment to YY Live, establishing an independent YY Live business group and adjusting it into seven major business departments, including: three major business departments (Hand Y Business Department, SDK Business Department, Interactive Business Department), two middle platforms (Content Middle Platform, R&D Middle Platform)+, and two supporting business departments (Public Support Department, Functional Business Department). Among them, the Hand Y Business Unit is responsible for the operation of the mobile YY client; The SDK Business Unit is responsible for the live streaming operation of Baidu's mobile products such as Baidu, Good Looking, and Tieba; The Content Ecology Business Unit is mainly responsible for the supply of live streaming content at all ends and communication with live streaming guilds, MCN and other institutions; The Interactive Business Unit is responsible for the core business of interactive live streaming; The public support department and functional business department mainly provide support to the three major business departments and the two middle platforms, responsible for market, public relations, human resources, finance, etc.
Now that Baidu has announced its abandonment of the acquisition of YY Live, it undoubtedly puts YY Live in an awkward position.
After Baidu abandoned its acquisition of YY Live, people close to YY Live stated that YY Live is still operating normally.
Ouyang Kunpo told reporters that for YY Live, being acquired by Baidu could have provided more resources and support, further enhancing its brand influence and market share. However, as Baidu abandons the acquisition, YY Live may need to re-examine its development strategy and future direction. In the short term, this may bring certain business pressure and uncertainty to YY Live. But in the long run, this also provides YY Live with more autonomy and flexibility, helping it find new partners or development opportunities.
"Baidu doesn't want YY live streaming. Huanju Group has already focused on overseas markets and doesn't really want to take on the domestic live streaming business. YY live streaming is now a hot potato," Wang Chao told reporters. "It's difficult for Huanju Group to spit out all the money it has. The future outcome may be that Baidu and Huanju each take a step back and treat YY live streaming as a joint venture independent company, or in other words, look for a new buyer."
Yu Fenghui told reporters, "Both parties may enter legal proceedings. Baidu and YY Live will each start adjusting and restructuring their businesses to adapt to the new market environment and strategic needs. In addition, this incident may trigger a re evaluation of the value of live streaming business and reflection on future cooperation models in the industry. It may also attract regulatory attention and have a subtle impact on the policy environment of the entire live streaming industry."