China to clear Tencent’s $3.5 billion Sogou deal

(Reuters) – China’s antitrust regulator is ready to clear tech giant Tencent Holdings Ltd’s plan to take the country’s no.3 search engine Sogou private, three people with knowledge of the matter told Reuters, a move that signals the watchdog is willing to wave some deals through even as it ratchets up sector scrutiny.

The regulator, State Administration of Market Regulation (SAMR), has no objection to the $3.5 billion deal for the 60% of U.S.-listed Sogou that Tencent doesn’t already own, the people said, as long as Tencent is willing to set up a special mechanism to ensure data security – a first for SAMR deal approvals.

Tencent must also pay a comparatively small fine – 500,000 yuan ($76,000) – for not reporting deals properly for antitrust reviews, two of the people said, in line with past cases for similar violations.

The move highlights Chinese regulators are still looking to approve merger and acquisition deals in the tech sector, but now with strict conditions after years of a laissez-faire approach. The green light for the closely watched deal will come as a relief for China’s tech sector, reeling from Beijing’s antimonopoly crackdown on home-grown internet giants that culminated weeks after the shelving of fintech firm Ant Group’s $37 billion IPO in November.

“What SAMR wants is enforcement … it is not in their interest to kill or actively block a deal,” said one of the people. “They are fine with companies’ actual market-leading status as long as it doesn’t prevent new entry into the market.”

The people with knowledge of the matter declined to be identified due to the sensitivity of the matter.

Sogou trails only Baidu and Qihoo 360 in China’s enormous internet search market, according to analytics firm SpeedTest, and is the sole search engine on Tencent’s all-in-one mobile app WeChat, a must-have in everyday life in China. Tencent, China’s biggest video game and social media company, first announced plans to take it private last September.

Tencent and SAMR did not immediately respond to requests for comments when contacted by Reuters.

Sogou declined to comment.

DATA CONCERN

One of the areas of heightened scrutiny has been M&A deals in the sector in the recent past, with the regulators taking a dim view of the violation of antitrust rules and, in some cases, data privacy laws.

The linchpin of the deal approval conditions is meeting the regulator’s requirement on data security – defining who can have what kind of access to the bulk of users’ data and personal information, and how to use that, said the three people.

A merger of China’s two leading video games streaming sites – Huya and Douyu, both backed by Tencent – is also under review and will need to satisfy similar requirements on data security, said the sources.

Reuters reported last month that Tencent was having to offer concessions to get approval for its plan to merge the two sites, including giving up exclusivity on some of its content rights.

After the merger, Huya and Douyu will need to set up a firewall in-between and cannot share user data and information to each other, two of the people said.

SAMR would also approve the merger soon after a final touch on the concessions are made, they said.

($1 = 6.5468 Chinese yuan renminbi)

Reporting by Pei Li and Julie Zhu; Editing by Sumeet Chatterjee and Kenneth Maxwell

Virgin Media’s chief to be named CEO of merged company after tie-up with O2: Sky News

(Reuters) – Virgin Media’s boss, Lutz Schuler, will be named on Wednesday as the chief executive of the British broadband company’s joint venture with the Telefonica SA’s UK mobile network O2, Sky News reported on Tuesday.

Patricia Cobian, O2’s finance chief, will be appointed to the equivalent role at the joint Venture, Sky News bit.ly/3fO8V6q reported citing city sources.

Virgin Media and Telefonica did not immediately respond to requests for comment.

Virgin Media, owned by Liberty Global Plc, is awaiting regulatory approval for its 31 billion-pound ($42.86 billion) tie-up with O2, according to Sky.

The Competition and Markets Authority (CMA) has a statutory deadline of late May for making a judgment on the deal, the report added.

Facebook purchase of Kustomer may face EU antitrust scrutiny

BRUSSELS (Reuters) – Facebook’s acquisition of customer service startup Kustomer may be subjected to European Union antitrust scrutiny after Austria asked EU enforcers to take over the task, the European Commission said on Tuesday.

The move comes as the EU competition regulator girds up to vet more tech, pharma and biotech startup deals, sending a warning to tech giants criticised by some for so-called killer acquisitions where they buy nascent rivals with the goal of shutting them down.

The world’s largest social network announced the deal in November, which could help it to scale up its instant messaging app WhatsApp, which has seen usage jumped during the COVID-19 pandemic.

Facebook sought approval for the deal from the Austrian competition agency on March 31.

“We can confirm that we have received a request for referral from Austria,” a Commission spokeswoman said.

Other national watchdogs have 15 working days to inform the EU competition enforcer whether they too want it to review the deal.

“Following the expiry of the deadline for other Member States to join the referral, the Commission will have 10 working days to decide whether to accept or reject the referral,” the spokeswoman said.

Facebook said the deal would bring more innovation to businesses and consumers in a dynamic and competitive space.

“We look forward to demonstrating to regulators that Facebook and Kustomer would offer more choices and better services through this pro-competitive deal,” a Facebook spokesman said.

SK Group buys 16.3% stake in VinCommerce for $410m

SEOUL (Reuters) – South Korea’s third-largest conglomerate, SK Group, said on Tuesday it has agreed to acquire a 16.3% stake in Vietnam’s VinCommerce, a retail affiliate of Masan Group, for $410 million.

SK Inc, formerly SK Holdings Co Ltd, as well as battery maker SK Innovation, SK Telecom, world’s second-largest memory chip maker SK Hynix and power generation firm SK E&S are participating in the deal through an investment unit focused on Southeast Asia.

VinCommerce operates about 2,300 convenience stores and supermarkets in Vietnam, with a roughly 50% market share in the country’s consumer retail sector, SK said.

SK plans to accelerate other investments in major strategic interests such as online and offline distribution, logistics, and electronic payment in Vietnam by utilizing its strategic partnership with Masan Group, it said.

Exclusive: UK refers Facebook acquisition of Giphy for in-depth probe

(Reuters) – Britain on Thursday referred Facebook Inc’s acquisition of GIF website Giphy for an in-depth probe after the U.S. social media giant told the country’s competition watchdog it would not be offering any undertakings to address its concerns.

The regulator last week gave Facebook and Giphy five working days to offer proposals to address its concerns over their merger deal, which could affect digital advertising and the supply of animated images.

Hitachi to buy U.S. software developer GlobalLogic for $9.6 billion

TOKYO (Reuters) – Hitachi Ltd said on Wednesday it will buy U.S. software company GlobalLogic Inc for $9.6 billion, including repayment of debt, as the Japanese industrial conglomerate pivots from electronics hardware to digital services.

The acquisition is part of Hitachi’s ongoing business portfolio overhaul, which includes the $7 billion acquisition of ABB Ltd’s power grid business last year and a series of divestitures of its domestic hardware subsidiaries.

Hitachi’s stock tumbled 7% on the Tokyo Stock Exchange – the biggest fall in more than a year – on the big ticket deal.

San Jose-based GlobalLogic is currently owned 45% each by Canada Pension Plan Investment Board and Swiss investment firm Partners Group. The rest is owned by the company’s management.

Founded in 2000, GlobalLogic has more than 20,000 employees in 14 countries and offers software engineering services to 400 active clients in industries including automotive, healthcare, and finance.

GlobalLogic’s expertise stretches from chips to cloud services and will extend the range of Hitachi’s own digital services business, company executives told a news conference.

Past GlobalLogic projects include working with McDonald’s on its customer app and in-store digital ordering system and with chipmaker Qualcomm on a fingerprint recognition system, according to its website.

Hitachi aims to close the transaction, which will be funded with cash and bank loans, by the end of July.

The conglomerate is in talks with private equity firms to sell Hitachi Metals Ltd, a deal that could fetch more than $6.4 billion, following the sale of its chemical unit and diagnostic imaging business.

Poland’s CD Projekt to seek M&A targets in bid to become a top gamemaker

(Reuters) – Poland’s CD Projekt will actively look for merger and acquisition targets in its bid to become one of the top three video game makers in the world, it said on Tuesday.

Investors and players had expected the Polish studio behind Cyberpunk 2077 to present a plan to fix the game that was one of the most anticipated in 2020 but was bug-ridden when it was released in December.

The announcement of acquisition plans had not been expected in the strategy document published on Tuesday.

CD Projekt said shortly before publishing the strategy update that it had signed a letter of intent to take over Canadian development studio Digital Scapes.

The company, which did not reveal the deal’s value, said it had cooperated with the Vancouver-based game development studio since 2018. The Digital Scapes team employs “around a dozen experienced game creators”, CD Projekt said.

The Cyberpunk 2077 maker was due to hold a news conference later on Tuesday.

Grindr’s U.S. security review disclosures contradicted statements made to others

NEW YORK (Reuters) – When Grindr Inc’s Chinese owner sold the popular dating app to an investor consortium last year to comply with a U.S. national security panel order, the parties to the deal gave information to authorities that contradicted disclosures to potential investors and Chinese regulators, Reuters has learned.

They told the Committee on Foreign Investment in the United States (CFIUS) that James Lu, a Chinese-American businessman who is now Grindr’s chairman, had no previous business relationship with a key adviser to the seller, a man named Ding’an Fei, according to a Reuters review of the parties’ written submissions to CFIUS.

Fei, a former private equity executive, was acting as an adviser to Beijing Kunlun Tech Co Ltd, Grindr’s owner at the time, on the deal, the documents show.

“The investors and Ding’an Fei have at no time conducted business together in their personal capacities prior to the proposed transaction,” Kunlun and the investor group, called San Vicente Holdings LLC, wrote to CFIUS in a response dated March 27, 2020.

However, when Lu was raising funds to buy Grindr in the second half of 2019 and early 2020, potential investors were told by firms helping him raise the money that Fei was involved in the effort with him in various capacities, a review of four different fundraising documents shows.

The duo had also done business together in other ventures: Fei was a member of the board of a Chinese restaurant operator in which Lu served as chief executive officer, according to that restaurant company’s 2018-2019 annual report.

The discrepancies and omissions in the parties’ response to U.S. authorities, reported by Reuters for the first time, could prompt a new review from CFIUS, according to six former U.S. officials and lawyers familiar with the panel’s rules. If CFIUS were to find the statements were not true, it can also lead to civil penalties and criminal charges under the false statement provisions of the U.S. penal code, they said.

“If a transaction was approved based on misrepresentations, that could well invalidate the approval of the transaction,” said Brent McIntosh, who served as the Treasury Under Secretary responsible for CFIUS when the Grindr deal was cleared. McIntosh declined to comment on the specifics of Reuters’ findings.

San Vicente spokesman Taylor Ingraham said that “a complete and accurate account of James Lu’s relationship with Ding’an Fei, as well as his investments and business activities in China, was provided to CFIUS prior to the agency’s approval of San Vicente Holdings’ acquisition of Grindr.”

Ingraham declined to make Lu, who owns a 17% stake in the buyer’s group, available for an interview. Lu, Fei, Kunlun and Grindr did not respond to emailed requests for comment.

CFIUS and the U.S. Treasury Department, which chairs CFIUS, did not respond to requests for comment.

CHINA DEALINGS

The documents reviewed by Reuters include a resume for Lu that was put together by the parties in support of the CFIUS application. While the resume lists positions going back to 2002, it does not mention some of his business dealings in China. In particular, Chinese regulatory filings show Lu is chairman of a Chinese investment firm, where a local government is the majority shareholder.

Scott Flicker, a regulatory partner at law firm Paul Hastings LLP who was not involved in the Grindr case and reviewed Reuters’ findings, said CFIUS would want to know about Lu’s business dealings in China when assessing whether his past could be used by Beijing to compromise him.

“It is potentially relevant information for the CFIUS review. The integrity of the acquiring party is relevant to the question of threat of exploitation,” Flicker said.

However, some lawyers played down the possibility that CFIUS would reopen its review. They noted that there is no publicly known precedent of the panel ever having done so. Were CFIUS to identify misstatements in a review, it would likely take action only if they significantly raised the risk of a transaction harming national security, said Alexis Early, a regulatory partner at law firm King & Spalding LLP who was not involved in the Grindr deal.

Reuters could not determine whether San Vicente and Kunlun disclosed those activities to CFIUS subsequently.

Reuters first reported about the ties between Lu and Fei in June of last year, after CFIUS had already approved the sale of Grindr to San Vicente for $620 million. Reuters could not determine whether CFIUS had taken any action following that Reuters report.

Since then, Reuters has reviewed three sets of confidential written questions that CFIUS sent to the parties, their responses to them and several supporting documents. Reuters could not determine whether CFIUS knew of the specific discrepancies reported in this article when it approved the deal last year.

Ingraham did not comment on whether there were any additional communications with CFIUS beyond the set of questions and answers seen by Reuters.

GRINDR SALE

Based in West Hollywood, California, Grindr is especially popular among gay men and has millions of users. CFIUS ordered Kunlun, a Chinese mobile gaming company, in May 2019 to sell Grindr, giving it about a year to complete the deal. The move was among a series of actions the United States took in recent years against Chinese companies.

Reuters previously reported that Kunlun was ordered to divest Grindr because U.S. authorities worried personal information about Americans could fall into Beijing’s hands. here

Lu started raising money from outside investors for the Grindr acquisition in the months after the CFIUS order, according to the fundraising documents and the responses to CFIUS. Lu first sought money for the acquisition through a fund called Duo Capital, and later an entity called TGL Capital.

In the fundraising documents, Fei is named as associated with the funds in various ways, including as a contact person for Duo Capital, a member of the external advisory team of Duo Capital and as a co-leader of TGL Capital. Reuters could not learn more about his role or independently verify the information.

The ties between Fei and Lu came to CFIUS’ attention during the review. In the third set of questions, CFIUS asked, “Is Mr. Ding An Fei of TGL Capital (formerly known as Duo Capital) the same Dingan Fei” who is listed as “an individual who should receive notices on behalf of Beijing Kunlun Tech Co Ltd?”

In their March 27, 2020 response, the parties denied any ties. “Neither Ding’an Fei nor anyone else employed by or representing Kunlun has ever held a position with TGL Capital, Duo Capital, or San Vicente,” they wrote.

Lu did not respond to questions about Duo and TGL.

San Vicente and Kunlun also told CFIUS in their March 27, 2020 response to questions about the relationship between Fei and the San Vicente investors that Lu knew Fei “because they have each held positions in the investment community working on Asia-U.S. transactions.”

However, Fei sat on the board of restaurant operator Life Concepts Holding, in which Lu served as CEO, according to the company’s annual report. Fei stood down from Life Concepts’ board in April 2020, amid the CFIUS review, without disclosing a reason, according to a Life Concepts filing with the Hong Kong stock exchange.

Life Concept, based in Hong Kong, did not respond to a request for comment.

EU antitrust watchdogs to have more say over tech, pharma, biotech start-up deals

BRUSSELS (Reuters) – EU antitrust regulators are set to have more say over small merger deals involving start-ups in the technology, biotechnology and pharmaceutical industries, the EU enforcer said on Friday, in a warning to big companies eyeing such deals.

The move comes amid regulatory concerns on both sides of the Atlantic that a buying spree of start-ups by big companies, which do not trigger competition scrutiny because of the low value of the deal, may be so-called killer acquisitions.

This refers to a company buying a potential rival still in a nascent stage with the aim of shutting it down.

Critics have often cited the hundreds of small companies acquired by Alphabet’s Google and Facebook in recent years while supporters say such deals provide the money and resources to help start-ups to grow.

The European Commission said it wants national competition watchdogs to refer more small deals to the EU enforcer.

“A more frequent use of the existing tool of referrals under Article 22 of the Merger Regulation can help us capture concentrations which may have a significant impact on competition in the internal market,” European Competition Commissioner Margrethe Vestager said in a statement.

The Commission cited recent deals in the digital, pharmaceutical, biotechnology and certain industrial sectors which had escaped regulatory scrutiny.

UK watchdog gives Facebook, Giphy five days to offer remedies

(Reuters) – Britain’s competition watchdog on Thursday gave Facebook and Giphy five working days to offer proposals to address its concerns over their merger deal, which could affect digital advertising and the supply of animated images.

The UK’s Competition and Markets Authority began an initial investigation in January at a time when the U.S.-based social media network firm was under global regulatory scrutiny over antitrust concerns.

It found that Giphy, once a rival to Facebook in digital ads through paid sponsorships outside the UK, had plans to expand sponsorship deals to other countries, including the UK.

“If Giphy and Facebook remain merged, Giphy could have less incentive to expand its digital advertising… This is particularly concerning given Facebook’s existing market power in display advertising,” the regulatory authority said bit.ly/2NPDEUP.

Facebook and Giphy did not immediately respond to Reuters requests for comments.

The world’s largest social media company bought Giphy, a website for making and sharing animated images, or GIFs, in May last year to integrate it with its rapidly growing photo-sharing app, Instagram. However, a source told Reuters in June that Facebook was pausing the integration.

The company had said that Giphy’s integrations with other social platforms like Twitter Snapchat and ByteDance’s TikTok would not change.