By Julie Zhu
HONG KONG (Reuters) - China's Bilibili (NASDAQ:BILI) is in talks to buy a 24% stake in Yoozoo Games as part of a nearly 5 billion yuan ($765 million) deal, two people said, as the online video site aims to tap its legion of young users to grow in the world's top gaming market.
The move comes after Bilibili, which is backed by Chinese technology giants Tencent Holdings (OTC:TCEHY) and Alibaba (NYSE:BABA) Group Holding, raised about $2.6 billion in a secondary listing in Hong Kong last month.
It also comes as Yoozoo, the video game company that is also known as Youzu Interactive, is facing management challenges after its chairman died under suspicious circumstances in December.
A majority of Bilibili's more than 200 million monthly active users in December were young people, and it is this customer-base demographic that the Shanghai-based firm hopes will fuel its growth in the $44 billion Chinese gaming market.
The gaming industry received a boost last year after the COVID-19 pandemic forced many residents to stay at home, driving up game downloads and boosting the revenues of the companies. A majority of gaming customers in China are young.
Bilibili is in talks on the deal with Xu Fenfen, chairwoman of Yoozoo, said the two people and another person with direct knowledge of the matter.
Last month, Bilibili and its founder Chen Rui submitted to Xu a term sheet - a non-binding agreement describing the basic terms and conditions of an investment - said the first two people.
A 24% stake in Yoozoo is worth about $475 million based on the Shenzhen-listed company's market capitalisation of $1.98 billion on Wednesday.
In addition to the stake purchase, Bilibili and Chen are looking to acquire Yoozoo's headquarters building in Shanghai and take on debt of nearly 700 million yuan the company's late founder Lin Qi left, said the two people.
Bilibili, which last week invested HK$960 million ($123 million) for a 4.72% stake in online game developer X.D. Network, could team up with some Shanghai-based state investors to form a consortium for the deal, they added.
A Bilibili spokeswoman denied it was seeking a deal with Yoozoo. Yoozoo, which is the developer of the popular 'Game of Thrones: Winter Is Coming' game, did not reply to a request for comment.
Another attraction for Bilibili to team up with Yoozoo is content opportunities. Yoozoo has sole rights globally for film and TV adaptations of the Hugo Award-winning science fiction novel - The Three-Body Problem.
"It could also bring Bilibili or any other potential buyers closer to co-developing the IP rights of Chinese best seller The Three-Body Problem together with Yoozoo," said one of the sources.
The deal discussions come against a backdrop of growing challenges for Yoozoo's Xu, said the sources. Xu moved into the helm after Lin died in what local police characterised as suspected poisoning.
Bilibili rival Kuaishou Technology also held talks for the stake purchase and The Three-Body Problem-related co-development. But Kuaishou has yet to submit a term sheet, said one of the people and a fourth person with knowledge of the matter.
Kuaishou did not respond to a request for comment.