(Yicai Global) Aug. 11 -- Tencent Holdings, the largest shareholder of DouYu International Holdings and Huya, has suggested a merger to create China's biggest game streaming platform, confirming market rumors that have been circulating for two months. The target companies' stocks fell.

Huya's shares [NYSE: HUYA] plunged 9.93 percent to USD24.04 yesterday. DouYu's stock price [NASDAQ: DOYU] tumbled 8.51 percent to USD13.97.

Tencent's share price [HKG: 0700] climbed 3.69 percent to HKD520.50 (USD67.20) this morning.

The two rivals said in separate filings with stock exchanges yesterday that their boards of directors have received the Shenzhen-based tech giant's share swap proposal under which Huya or its units would acquire each outstanding ordinary share of DouYu. Consequently, the latter's shareholders would receive an agreed number of Huya's newly issued stock.

Soon after, Joyy, one of Huya's shareholders, announced that it has penned a deal with a unit of Tencent to sell 30 million Huya shares for USD810 million. That would result in the buyer to have more than half of Huya's equity, which could enhance the platform's competitiveness.

Currently, Tencent has nearly 37 percent of Guangzhou-based Huya's shares, with almost 51 percent of the voting rights. It also has 38 percent of DouYu's equity.

By March, Huya had 31.7 million monthly active users while Wuhan-based DouYu's user base reached 25.2 million, according to data by Intelligence Research Group. That would make up four-fifths of all monthly esports watchers in China, although based on QuestMobile's data from June.

But competition is intensifying as short video platforms Douyin, Kuaishou and Bilibili are becoming increasingly broad in their content offering as most of video platform users in China tend to be interested in games too, according to CNG.

Editor: Emmi Laine