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Photographer: Gilles Sabrie / Bloomberg
Photographer: Gilles Sabrie / Bloomberg
China’s antitrust watchdog fined Alibaba Group Holding Ltd. and a Tencent Holdings Ltd.’s unit on acquisitions from a couple of years ago and said it is reviewing an imminent merger led by Tencent, signaling Beijing’s intention to tighten oversight of Internet sector deals.
The State Administration for Market Regulation said on Monday it is reviewing the combination of DouYu International Holdings Ltd. with Huya Inc., which could create a Chinese leader in streaming games similar to Amazon’s Twitch. Fine Alibaba 500,000 yuan ($ 76,500) for failing to seek approval before increasing its stake in department store chain Intime Retail Group Co. to 73.79% in 2017, while China Literature Ltd., the e-book business spun off by Tencent, was also censored under an earlier deal, according to a statement.
The sanctions come after regulators last month declared their intention to increase scrutiny of China’s largest tech corporations with new antitrust rules. In November, Beijing released draft regulations that establish a framework to curb anti-competitive behavior, such as collusion to share confidential consumer data, alliances that weed out smaller rivals, and subsidizing below-cost services for eliminate competitors. Shares of Alibaba and Tencent extended the losses and closed more than 2.5%.
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“Investment and acquisitions are important means for the development and growth of Internet companies,” said the regulator in the statement. “The companies mentioned have a great influence in the industry, they make many investments and acquisitions, they have specialized legal teams and they must be familiar with the regulations that govern mergers and acquisitions. Their lack of active filing has a relatively severe impact. “
Increased scrutiny of Beijing is raising fears of a broader crackdown on the country’s largest companies. On Monday, shares in Internet company No. 3, Meituan, plunged 3.8% after the People’s Daily wrote an editorial criticizing the industry’s concern over increased traffic and volumes in areas such as delivery. of groceries, at the expense of true scientific innovation.
China’s two largest corporations are also the most acquisitive, using dozens of deals to expand into adjacent fields and prepare some of the country’s most promising startups. Alibaba had led a $ 2.6 billion purchase of Intime as part of efforts to develop new business models that combine e-commerce with brick-and-mortar retail. China Literature agreed in 2018 buy New Classics Media for up to 15.5 billion yuan to expand filmed content.
The companies did not seek approval of the deals, which are not considered anti-competitive, the antitrust regulator said on Monday. China Literature said in a statement that it has been actively working with regulators on compliance, while representatives for Alibaba did not immediately respond to requests for comment.
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China’s Internet Rulers
Tencent, Alibaba and Ant Group have invested in a wide range of Chinese startups spanning areas from social media to online commerce.
Sources: Bloomberg, CB Insights, Crunchbase
What Bloomberg Intelligence says:
Alibaba’s ability to strengthen its national e-commerce ecosystem through mergers and acquisitions may be significantly weakened by increasing antitrust scrutiny, underscored by a 500,000 yuan fine by the State Administration of Market Regulation on Monday for not seeking the approval for its acquisitions of participation in Intime Retail. in 2014-18. While the amount is irrelevant to Alibaba, the retroactive application of the new anti-competitive rules announced in November may be a stark warning to follow the line in the future.
– Vey-Sern Ling and Tiffany Tam, Analysts
Click here to read the research
Huya agreed in October to buy DouYu in a Tencent, which currently owns stakes in both companies, was expected to own about 68% of the voting shares of the merged company. That would have given the WeChat operator control over the leader in the live gaming market, which is estimated to generate 30 billion yuan in revenue this year, according to the latest figures from iResearch.
An SF Holding Co. affiliate was also fined for failing to declare the acquisition of a competitor, Monday’s statement showed.
Read more: Dissecting China’s Offensive Against Its Internet Giants: QuickTake
“Despite its relatively modest amount, the penalty announced today has symbolic significance,” said Scott Yu, an antitrust attorney at the Beijing-based law firm Zhong Lun. “The announcement, along with the draft antitrust guide released in November, indicates that Beijing will pay close attention to the monopoly status of Chinese Internet companies.”
(Add the China literature comment in the seventh paragraph, the estimated size of the live streaming game market in the eighth paragraph)
