IDreamSky Technology Holdings Ltd. is in exclusive talks to buy rival gaming firm Leyou Technologies Holdings Ltd. for about $1.4 billion, according to people familiar with the matter.
IDreamSky, which counts Tencent Holdings Ltd. among its shareholders, is seeking co-investors to help finance the transaction, the people said, asking not to be identified because the deliberations are private. Potential partners could include private equity firms as well as other gaming companies, the people said. The Shenzhen-based company is working with Credit Suisse Group AG on the deal, they said.
Leyou has gained about 16% this year, giving it a valuation of around HK$7.8 billion ($996 million). Shares of iDreamSky have plunged more than 30% since its debut last year, valuing the company at about HK$5.8 billion.
There hasn’t been any final decisions as talks are ongoing and the companies could still decide against a transaction, the people said. Representatives of iDreamSky and Credit Suisse declined to comment, while a representative for Leyou didn’t immediately respond to requests for comment.
Leyou, listed in Hong Kong in 2011, has developed the free shooting games Warframe and Dirty Bomb. It’s also working with Amazon.com Inc. to co-produce a video game based on the popular fantasy series “The Lord of the Rings.” Other coming games are Civilization Online and Transformers.
In September, Leyou said that it was holding preliminary talks with potential investors on possible transactions, which may lead to a public takeover. Bain Capital, CVC Capital Partners and KKR & Co. as well as other gaming companies were among bidders for Leyou, Bloomberg News reported last month.
Last week, Leyou said in a filing that its controlling shareholder Charles Yuk entered into a memorandum of understanding to sell a 69.2% stake to an unidentified potential buyer. The company granted a 21-day exclusivity period to the potential purchaser to conduct due diligence and try to reach a formal agreement.
As part of any potential deal, Yuk would acquire the company’s interests in certain offices in the iconic Lippo Centre in Hong Kong and enter into an agreement to provide financing to help develop certain games, according to the filing.
IDreamSky, listed in Hong Kong about a year ago, had 57 games including 16 role-playing games on its platform as of June 30, according to its interim report. It has exclusive publishing rights in China for popular titles including Subway Surfers and Temple Run.
Michael Chen, its co-founder and chief executive officer, is iDreamSky’s largest shareholder with a 25.92% stake, according to data compiled by Bloomberg. Tencent Mobility, a unit of the Chinese technology giant Tencent, owns about 18.6% as the second-largest holder.