$Baidu(BIDU.US) announced the completion of its acquisition of YY, and Dolphin Research will briefly discuss it.

Overall, the impact of this news can be ignored; it is just the conclusion of a failed acquisition case. There has been much discussion about the reasons and consequences, which will not be elaborated here. However, if we must analyze the pros and cons, Dolphin Research believes that at least from the perspective of original expectations, this result may not be bad for Baidu.

Baidu announced in early 2024 the termination of the acquisition of YY, hoping to achieve a perfect return of $3.6 billion in cash through the constraints of a supplementary agreement (which had not been approved before the final deadline), but this "wishful thinking" was already difficult to realize.

$JOYY(YY.US) has been fully focused on overseas operations since spinning off YY in 2021, and YY employees had already been assigned to Baidu, with significant structural adjustments occurring in 2022. Baidu cannot expect to return the product at the original price after three years just because live streaming has no future.

The issue of government approval, if the State Administration for Market Regulation disagreed with the acquisition, should have issued an order to prohibit it long ago, such as the announcement prohibiting the merger of Douyu and Huya. However, as of today, the market regulation headquarters has not explicitly halted Baidu's acquisition plan for YY.

Therefore, from early 2024 to yesterday's announcement, Baidu and YY should have been negotiating the "acquisition price" for an entire year.

How much is YY worth now?

(1) If YY operates independently, the current user activity (App DAU 2 million+) is hard to convince investors to give a valuation significantly higher than Douyu (DAU 4 million+) and Huya (DAU 4 million+). As of yesterday, Douyu's market value was $200 million, and Huya's was $800 million. Perhaps YY has more users on the PC side?

(2) As a business of Baidu, considering the advantages of traffic complementarity, the value generated should be somewhat greater, after all, YY is not difficult to profit.

(3) But in any case, it is definitely not worth $2.1 billion, and the market will not proportionally add it to Baidu's valuation.

So the label of "big spender" is firmly attached to Baidu, but this is already a well-known fact. YY can demand $2.1 billion only because the first payment amount was already agreed upon at the time of acquisition. To ask YY to return part of it, anyone would refuse. However, the $1.6 billion in the escrow account was never received by YY, so returning it to Baidu after coordination would be acceptable.

Compared to the worst expectation of strictly enforcing the original acquisition price, Baidu does not need to spend extra money now, and YY is not a huge loss project, which can be considered an acceptable result under expectations. Additionally, the frozen $1.6 billion can be retrieved immediately and will be fully used for AI in the future.

Regarding the five-year YY acquisition case, Dolphin Research believes that the biggest problem may not lie in the mistake of the acquisition decision (spending some unnecessary money is not a big deal for Baidu, which still has $18 billion in net cash on its balance sheet in Q4 2024), but rather reflects Baidu's core issue—organizational execution capability. After all, even after the acquisition, internal business integration encountered significant obstacles, making external expansion through synergy even more difficult.

Now that the dust has settled, will Baidu make any business efforts and attempts regarding YY in the future? For Baidu, which is currently focused on AI, the possibility is low. As for the further future? We can only wait and see.