6. On October 12, 2020, the Chinese live game streaming companies said that Huya will buy DouYu International Holdings in a stock-for-stock merger deal. Huya Inc is a China-based holding company principally engaged in the operation of game live streaming platforms. The Company cooperates with e-sports event organizers, game developers and publishers to develop e-sports live streaming. DouYu International Holdings Ltd is a China-based company principally engaged in the operation of its own live streaming platforms. The Company operates its platform on Personal Computer and mobile apps, through which users can enjoy immersive and interactive gaming and entertainment live streaming. Read the news articles about the announcement in italics and answer questions below. "Chinese live streaming platform, Huya will buy DouYu International Holdings in a stock-for- stock merger deal, the Chinese live game streaming companies said on Monday. Tencent, which is Huya's biggest shareholder and also owns over a third of DouYu, had been pushing for the deal for months, Reuters reported in August... DouYu will receive 0.730 American depositary shares of Huya, representing a premium of 34.5% to DouYu's last close of $14, valuing it at nearly $6 billion, according to Reuters calculation based on 317.5 million shares... DouYu's U.S.-listed shares, which have risen more than 65% this year, were up 23.2% before the bell...." A) Broadly, Merger and Acquisitions (M&A) deals could be categorized as horizontal, vertical and conglomerate. Which category does this Huya/DouYu deal belong to? Explain. (4 marks) B) Upon the announcement of the merger, Huya (acquirer) stock price dropped about 8%. What does the price reaction of Huya represent? What does the price drop imply? Explain. (4 marks) C) Upon the announcement of merger, DouYu (target) stock price rise 23.2%. Why does the stock price of DouYu rise? Why the stock price increases of DouYu is smaller than the premium offer by its acquirer? Explain. (5 marks) D) Huya's stock price dropped about 8% right after the merger announcement, what is the implied premium to DouYu's shareholder right after the merger announcement? (7 marks) 6. On October 12, 2020, the Chinese live game streaming companies said that Huya will buy DouYu International Holdings in a stock-for-stock merger deal. Huya Inc is a China-based holding company principally engaged in the operation of game live streaming platforms. The Company cooperates with e-sports event organizers, game developers and publishers to develop e-sports live streaming. DouYu International Holdings Ltd is a China-based company principally engaged in the operation of its own live streaming platforms. The Company operates its platform on Personal Computer and mobile apps, through which users can enjoy immersive and interactive gaming and entertainment live streaming. Read the news articles about the announcement in italics and answer questions below. "Chinese live streaming platform, Huya will buy DouYu International Holdings in a stock-for- stock merger deal, the Chinese live game streaming companies said on Monday. Tencent, which is Huya's biggest shareholder and also owns over a third of DouYu, had been pushing for the deal for months, Reuters reported in August... DouYu will receive 0.730 American depositary shares of Huya, representing a premium of 34.5% to DouYu's last close of $14, valuing it at nearly $6 billion, according to Reuters calculation based on 317.5 million shares... DouYu's U.S.-listed shares, which have risen more than 65% this year, were up 23.2% before the bell...." A) Broadly, Merger and Acquisitions (M&A) deals could be categorized as horizontal, vertical and conglomerate. Which category does this Huya/DouYu deal belong to? Explain. (4 marks) B) Upon the announcement of the merger, Huya (acquirer) stock price dropped about 8%. What does the price reaction of Huya represent? What does the price drop imply? Explain. (4 marks) C) Upon the announcement of merger, DouYu (target) stock price rise 23.2%. Why does the stock price of DouYu rise? Why the stock price increases of DouYu is smaller than the premium offer by its acquirer? Explain. (5 marks) D) Huya's stock price dropped about 8% right after the merger announcement, what is the implied premium to DouYu's shareholder right after the merger announcement? (7 marks)