The antitrust regulator in China has penalized some of its tech majors, including Tencent Holdings Ltd (OTC: TCEHY), Baidu Inc (NASDAQ: BIDU), ByteDance Ltd, and Didi Chuxing, for past acquisitions and investments as it stepped up its restriction on the technology sector, Bloomberg reports citing a statement by the regulator.
What Happened: Pony Ma’s Tencent was fined $77,000 (500,000 yuan) for its 2018 investment in online education app Yuanfudao. Baidu was fined the same amount for its 2014 takeover of consumer electronics maker Ainemo Inc. The firms were being reprimanded for not seeking prior approvals amounting to the violation of the country’s anti-monopoly laws.
Tencent and Baidu join fellow Alibaba Group Holding Ltd (NYSE: BABA) as Beijing stepped up efforts to monitor the technology industry. The regulator had issued fines against Alibaba and Tencent unit China Literature Ltd. for similar violations last year.
Ride-hailing firm Didi Chuxing unit Didi Mobility Pte and Japan’s SoftBank Group Corp (OTC: SFTBF) (OTC: SFTBY) were issued fines of 500,000 yuan each, being the maximum possible penalty for setting up a joint venture without permission.
A ByteDance unit and its partner Shanghai Dongfang Newspaper Co were also penalized the identical amounts for a 2019 partnership that created a video-copyright venture. ByteDance’s joint venture was reportedly canceled.
Technology companies like Tencent had previously carried out acquisitions via Variable Interest Entity structures, which operate on shaky legal grounds, and have been overlooked under the new antitrust rules.
Why It Matters: The scrutiny and penalty might significantly impact Tencent’s ability to reinforce its domestic ecosystem via M&A for failing to seek approval for its investment in online education platform Yuanfudao in 2018. Though the penalty amount is inconsequential to Tencent, the retroactive application of new anti-competitive rules announced in November could be a possible dampener for its ambitions.
Other companies penalized in the latest round include TAL Education Group (NYSE: TAL) and Intime Retail Group Co.
Price action: TCEHY shares were down 7.76% at $82.35, and BIDU was down 3.96% at $261.67 on the last check Friday.
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