(Yicai) June 11 -- Tencent Music Entertainment Group, the owner of China's biggest online music platform, said it will acquire leading audio content platform Ximalaya for USD2.9 billion in cash and shares.

Tencent Music will pay USD1.3 billion in cash, issue new stock equal to as much as 5.2 percent of its total equity to all Ximalaya shareholders, and grant an up to nearly 0.4 percent stake to Ximalaya's founding investors, the Shenzhen-based firm announced yesterday. Based on Tencent Music's market value, those shares will be worth around USD1.6 billion.

Established in 2012, Ximalaya offers audiobooks, podcasts, radio broadcasts, and music to more than 300 million users, and was valued at as much as USD4.3 billion in 2020. But since 2021, the business has attempted to go public four times without success and has reportedly gone through many rounds of layoffs and management changes, leading to a sharp drop in its valuation. It last applied to list in Hong Kong in April last year.

Faced with the uncertainty of having another go at an initial public offering, Ximalaya has opted to be bought, Shen Meng, executive director of Chanson Capital, told Yicai. And under Tencent’s umbrella, it will likely have access to greater resources, Shen added.

Shares of Tencent Music [HKG: 1698] finished 1.4 percent lower at HKD72.60 (USD9.25) apiece in Hong Kong today. The benchmark Hang Seng Index rose 0.8 percent. The firm’s New York-listed stock [NYSE: TME] fell 0.9 percent to USD18.34 yesterday, after opening up 4.7 percent.

Tencent Holdings, the parent company of Tencent Music, had a 5.3 percent stake in Ximayala as of the end of 2023, while its e-book unit, China Literature, owned about 3 percent, according to the platform's listing prospectus.

Tencent Music noted that Ximalaya will become a wholly-owned subsidiary and undergo an internal reorganization following the acquisition. Ximalaya told Yicai that the Shanghai-based company will retain its brand, core management team, and strategic direction, and its products will continue to operate independently.

Ximalaya’s net profit reached CNY3.7 billion (USD514.8 million) in 2023, with a first adjusted net profit of CNY224 million (USD31.2 million), according to the IPO prospectus. But revenue rose only 1.7 percent to CNY6.2 billion, braking sharply from a year-on-year jump of 44 percent in 2021. In addition, its employee headcount plunged to 2,637 from 4,342.

Editors: Dou Shicong, Martin Kadiev