China antitrust: Beijing approves Tencent’s acquisition of search engine Sogou after vetoing Huya-Douyu merger

  • Tencent received ‘unconditional approval’ for its acquisition of Sogou, a process the tech giant initiated last year, as it seeks to supercharge WeChat search
  • The move is a sign of relief for a tech industry under increasing scrutiny in China, where Big Tech companies have faced numerous fines over M&A activity

China’s antitrust watchdog has granted tech giant Tencent Holdings “unconditional approval” to buy out US-listed search engine Sogou, a sign of relief for the country’s Big Tech companies as Beijing has been tightening its scrutiny of the sector.

The decision to clear the deal was announced on Tuesday as part of a larger list of approved deals on the website of the State Administration for Market Regulation’s (SAMR) antitrust bureau, which noted that the regulator’s review of the deal concluded on Monday.

Tencent first sought to take China’s second-largest search engine private last year, offering US$9 per share for a company whose technology could help supercharge WeChat, the country’s largest social network. It might also help Tencent shake up a search market long dominated by Baidu while fending off new challenges from TikTok owner ByteDance.

Tencent has been Sogou’s largest shareholder since 2013, when it purchased 36.5 per cent of Sogou’s shares and merged the search engine with its own Soso search. The SAMR fined Tencent last week for failing to report the deal at the time, but the watchdog made it clear that the tech giant’s move did not exclude or limit market competition.

The green light for the acquisition also comes days after the SAMR officially blocked the merger of Huya and Douyu International Holdings, China’s two biggest video game live-streaming platforms, often likened to Amazon’s Twitch. Since Tencent, the world’s largest video game company by revenue, is the controlling shareholder of Huya and owns more than a third of Douyu, SAMR said the merger would have strengthened Tencent’s dominant position in the game streaming market.

The move also comes as the SAMR is poised to crack down on Tencent’s music streaming arm, forcing Tencent Music to give up exclusive streaming rights the company has reached with music labels, Reuters reported on Monday, citing anonymous sources.

The New York Stock Exchange decorated for the first day of trading for Tencent Music Entertainment, the owner of China’s biggest music streaming platforms

Beijing started intensifying its regulatory scrutiny over Big Tech in late 2020. In the first big antitrust decision against a tech company, regulators fined Alibaba Group Holding, owner of the South China Morning Post, a record 18.2 billion yuan (US$2.8 billion) in April over the practice of requiring merchants to sell exclusively on its platforms.

The SAMR has since pursued investigations into Chinese on-demand delivery services giant Meituan and online housing broker KE Holdings.

Compared with Alibaba, Tencent’s punishments have been relatively minor fines over failures to disclose certain mergers and acquisitions.

In March, Tencent founder Pony Ma Huateng confirmed that he met with the SAMR. Ma said he was cooperating with regulators on compliance issues, including “reviewing some conditions in our past investments”.

Author: Iris Deng, South China Morning Post