By Julie Zhu

HONG KONG (Reuters) – China’s antitrust regulator is unlikely to approve Baidu (NASDAQ:)’s $3.6 billion acquisition of JOYY (NASDAQ:) Inc’s video-based domestic live streaming business YY Live, two sources with direct knowledge of the matter told Reuters.

According to them, this is in response to Beijing’s attempts at reining in gambling-related businesses as well as corporate expansion via transactions.

In China’s ongoing crackdown on all private businesses, including those within the internet sector in China, this would make the Baidu/JOYY deal the most recent multi-billion dollars transaction to fall. Beijing is trying to take control of big data and end monopolistic business practices.

According to two sources familiar with the situation, the failure to close the Baidu transaction could put a damper on a planned deal to privatize Nasdaq-listed JOYY. This would have valued it up to $8billion.

Chinese search engine giant Baidu had announced that it would purchase YY Live (social media company JOYY) in November. The cash payment was intended to diversify the revenue sources.

When Reuters contacted Baidu, Baidu stated that they had not been notified by Chinese regulators about the likelihood of approval.

The State Administration for Market Regulation in China (SAMR), China’s antitrust regulator, did not reply to queries for comments. JOYY also declined comment.

For the final closing of the deal to take place, SAMR approval has been required. After regulatory approval, JOYY will receive $1.6 million from Baidu.

SAMR reported in September that they were conducting antimonopoly checks on 11 transactions, including the Baidu acquisition of YY Live.

However, a source who knows the thinking of SAMR said it was not likely to approve the deal because Baidu’s acquisition and continued investment in the video gaming-related live streaming company could be interpreted as a negative signal to the market.

A second source familiar with the matter said that SAMR has already informed at least one deal party of its position and stated that approval will continue until the application is approved.

Source said that SAMR was hopeful the companies would withdraw the application.

SCRUTINY ON VIDEO GAMING

Beijing has expressed its concern over the influence video games have over the country’s minors and last month introduced new rules that limit the amount of time under-18s can spend on video games.

In addition to criticizing the entertainment industry’s “polluting” of society and youth, they recently issued new guidelines that guide artists and livestreamers on their behavior.

SAMR officially blocked Tencent Holdings’ (OTC:), $5.3billion plan to combine the country’s two top videogame streaming sites Hula, DouYu and JOYY on antitrust grounds.

According to sources, a failure to close the Baidu/JOYY deal could be a setback for JOYY’s two top shareholders, chairman David Li and founder Lei Jun of Xiaomi (OTC) as their plans to privatize JOYY would have a profound impact on the company’s dynamics.

Reuters reports that the two were collaborating because they feel the Chinese social network company is too undervalued in America.

A request to comment was made through JOYY. Li didn’t respond. Lei also did not reply to the request for comment.

JOYY, which was established in 2005, went public on May 2, 2012. It is also the operator of Bigo Live, an online streaming platform based in Singapore and a 16% share in Huya (NYSE :).

YY Live mainly relies on gaming and entertainment content to generate its revenues and users. The average number of mobile users per month reached 42 millions in the fourth quarter 2020. That’s an increase 1.9% from the prior year, according to the parent 2020 annual report.

Its paying users decreased by 1.1% in the same time period. This was JOYY’s interpretation of COVID-19’s impact on spending.