Tencent in Bid to Acquire ByteDance Gaming Divisions, A Move That May Pull Two Tech Giants Closer

Tencent, a Chinese tech behemoth, is potentially acquiring ByteDance’s gaming subsidiaries NUVERSE and Mutong Technology, a move that could significantly strengthen their partnership and reshape the gaming industry landscape globally.

These assets, on the market since October 2023, have attracted numerous major gaming companies’ interest, but actual negotiations are limited to big players due to the high valuation, possibly in billions of dollars.

ByteDance, not urgently needing funds, is carefully considering the strategic implications of any deal. The current economic environment also complicates these high-value transactions, according to insiders close to the matter.

The few real contenders are tech giants like Tencent and NetEase, as well as several overseas tech companies. Despite claims that numerous A-share listed companies could potentially acquire ByteDance’s gaming business, insiders say that no A-share company has formally approached ByteDance for a deal.

Tencent is one of the most viable potential buyers and could provide the strategic benefit that ByteDance is seeking for. The two Chinese tech giants have been mending their relationship since 2021 and have initiated business collaborations on multiple levels.

Tencent, with its financial capability and strategic positioning, is well-positioned to take over Mutong – and potentially NUVERSE if the price is right.

If Tencent indeed acquires ByteDance’s gaming businesses, the relationship between the two will likely deepen. Tencent Games would benefit from ByteDance’s short video platform Douyin’s traffic, while Douyin would gain from Tencent’s advertising budget. Tencent Video and Tencent Music also could use Douyin for promotion.

Of course, this won’t change the fact that the two still competes fiercely in other businesses. WeChat’s move into e-commerce could pose a threat to Douyin’s business, for instance.

One implication of a tighter Tencent-ByteDance relationship is that it could pose challenges to other internet companies, especially other gaming firms. For instance, NetEase’s "Dan Zai Party" success owes much to its effective use of Douyin. A Tencent-ByteDance alliance would make it harder for other gaming companies to compete with such formidable competitors.

Antitrust concerns in a potential acquisition by Tencent are significant but not insurmountable. Since gaming is not a platform business – there’s no precedent of antitrust concerns preventing a gaming acquisitions in China – this should not pose a major issue to a Tencent deal.

For any potential buyers, Mutong Technology, operating independently and reporting directly to ByteDance’s management team, is more attractive than NUVERSE.

Mutong Technology boasts popular eSports games like the Mobile Legends, has primarily an overseas user base (especially in Southeast Asia) and a professional and focused management. Therefore, Mutong is likely to remain intact as an entity post any potential deals.

NUVERSE’s position is more complicated, with its only attractive asset being the game "Jing He CoA", which generates stable cash flow and profits. But because of chaotic management, the valuation of NUVERSE remains uncertain. Other NUVERSE products, including "Planet: Restart" and some unreleased games, appear to have lesser acquisition value to buyers.

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