Baidu Abandons $3.6B JOYY Live Acquisition After Regulatory Stall

China’s search engine giant Baidu (9888. HK) has scrapped its planned $3.6 billion acquisition of Nasdaq-listed JOYY Inc’s Chinese live-streaming business, YY Live. The failure of the deal casts a shadow on the company’s ambition to diversify its revenue away from web search ads. It also underscores the difficulty for Beijing-based Baidu to acquire overseas companies in a country where regulators are keen to strengthen control of data collection and break down monopolistic practices.

The sour turn in the YY Live deal comes after the Chinese tech giant struggled to get its other recent diversification initiatives. A few years ago, it invested billions of dollars in online-to-offline services, betting it would earn commission fees as restaurants, cinemas, and other local businesses used its technology to connect with customers. But that plan failed to gain traction as rival Tencent-backed Meituan Dianping dominated this market.

Despite the setback, Li remains determined to push Baidu into new businesses. His ambition to develop chips for self-driving cars dovetails with Beijing’s drive to open up data collected by private-sector companies. And his push into AI reflects China’s growing demand for more sophisticated applications of its deep learning technologies.

In the latest earnings report, Baidu said revenue derived from its live streaming business, which includes its iQiyi video platform and other offerings, was up by almost 40% year-on-year in the third quarter of this year. However, the company lowered its full-year profit forecast on weak advertising sales and slower-than-expected growth in membership revenues.

At the director’s meetings, Li often stresses the importance of developing new perspectives and thinking outside the box to keep improving, which he believes is the key to achieving outstanding results. He has also stressed that management must have an “achiever spirit” to steer the company forward and avoid stagnating. He has called for managers to be familiar with M&A, financial statements, and brand management to make better decisions.

JOYY, which has about 277 million global monthly active users, said in a statement that it had received a notice from an affiliate of Baidu on Monday asserting its right to cancel the deal. JOYY is seeking legal advice on its options, it added.

The deal was initially announced in November 2020. It was subject to various regulatory approvals and other conditions, including completing a due diligence process by both parties. In 2021, JOYY was the target of a short seller report by Muddy Waters Research LLC, which claimed that the company had engaged in a series of accounting violations.

Reuters reported in December that the acquisition was likely to be blocked by China’s antitrust authorities. China’s government is cracking down on powerful companies, particularly in the technology sector, as it seeks to increase controls over how companies collect consumer data and break down monopolistic practices. But it remains to be seen how Beijing will approach the YY Live deal and whether other tech pioneers will face similar hurdles.

Anthony Jones

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