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- Modern Times Group and Huya have mutually terminated the negotiations related to the forming of a strategic joint venture for esport expansion into China and a minority stake investment in MTG’s portfolio company ESL.
- Following the announcement, the company’s shares dropped 19.2% at the market’s open to 93.70 kr SEK ($9.86 USD).
- Expanding into the Chinese esports market remains a priority for Modern Times Group.
Yesterday, Swedish esports and gaming firm Modern Times Group (MTG) announced that its expansion plans into the Chinese esports market have been put on hold. Following the announcement, the company’s shares dropped 19.2% at the market’s open to 93.70 kr ($9.86) from the previous day’s closing price of 115.95 kr ($12.20) and closed at 100.20 kr ($10.54) for the day.
MTG and Huya have mutually terminated the negotiations related to the forming of a strategic joint venture for esport expansion into China and a minority stake investment in MTG’s portfolio company ESL.
In September, both companies entered into an agreement, which would have seen Huya investing $30M in ESL via the acquisition of primary and secondary shares as well as ESL issuing new shares at a value of $22M to increase capital to be used for further expansion; parts of which would be used by ESL to fund its pro-rata part of the joint venture company.
In a regulatory notification, MTG explained that “differing views between the two parties on allocation of contractual risk and other key commercial terms are the primary reasons for the announced termination of the binding term sheet.”
“We still believe in the logic of this transaction and its potential for both MTG, HUYA, and for the esport industry globally. However, both parties see a mutual termination of the negotiations as the only way forward for now given the status of the negotiations at this stage. With that said, expansion into the important Chinese esport market continues to be a priority for MTG and we are looking forward to seize opportunities in the near future“, said Jørgen Madsen Lindemann, CEO and president of MTG, in a release.
While according to MTG, the termination of the negotiation will have no operational impact on ESL in 2020, the company announced the first results of a strategic review last week, which will provide annual savings of approximately 90M kr ($9.47M), of which 40M kr ($4.21M) will be reinvested into ESL’s operations.
Furthermore, MTG will book one-off charges in its Q4 financial results related to redundancy costs and impairment charges at its headquarter and in group companies totaling approximately 190M kr ($19.99M), including redundancy costs of 35M kr ($3.68M), as a result of the reduction on the overall ESL workforce announced in December. Additionally, MTG will report write-downs amounting to 165M kr ($17.36M), of which the majority is related to the 100% stake sale of its portfolio company Zoomin to Dutch media and entertainment company Azerion in October 2019.