iDreamSky Technology Holdings Ltd. is in advanced talks with buyout firm CVC Capital Partners to jointly acquire gaming firm Leyou Technologies Holdings Ltd., according to people familiar with the matter.
iDreamSky, which counts Tencent Holdings Ltd. among its investors, has been in exclusive talks with Leyou’s controlling shareholder since late last year, Bloomberg News previously reported. Leyou later confirmed that it’s been in negotiations with iDreamSky and had extended the exclusivity for five times.
CVC emerged as a likely partner for iDreamsky, which has been seeking co-investors to help finance the $1.4-billion transaction, said the people, who asked not to be identified as the matter is private. The private equity firm was once among bidders for Leyou, people familiar with the matter have said.
In a deal, Shenzhen-based iDreamSky plans to hold a majority stake after it combines with Leyou, while CVC is set to hold a significant minority stake in the merged entity, the people said.
The prospective buyers would retain Leyou’s biggest hits including the free shooting online game Warframe and consider selling some of its games under development and physical studios to help fund the acquisition, the people said.
Shares of Leyou climbed as much as 4.2% in their biggest gain in almost two weeks in Hong Kong, while iDreamSky reversed earlier losses, rising as much as 2.3%.
Leyou’s controlling shareholder Charles Yuk and other selling holders “are in the course of finalizing the transaction and financing documents.” with iDreamSky even as the exclusivity period has ended, the company said in a Feb. 17 exchange filing.
The companies are seeking to reach a formal agreement within the next few weeks, the people said. Talks could still fall apart and other bidders could emerge, they said. Representatives for CVC and iDreamSky 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 free shooting games Warframe and Dirty Bomb. The Fujian-based company is also working with Amazon.com Inc. to co-produce a video game based on the popular fantasy series “The Lord of the Rings.” Other upcoming games are Civilization Online and Transformers.
Listed in Hong Kong in 2018, iDreamSky 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 25.9% 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.