iDreamSky Technology Holdings Ltd. and buyout firm CVC Capital Partners are considering reducing their offer to jointly acquire rival gaming company Leyou Technologies Holdings Ltd., according to people familiar with the matter.

The suitors are seeking to significantly cut from a previous offer that would have valued Leyou at about $1.4 billion, the people said. Market volatility and tighter funding conditions due to the coronavirus outbreak are among the reasons, said the people, asking not to be identified because the matter is private. Leyou’s slumping earnings were also a factor, they said.

Leyou reported a net loss of $8.4 million in 2019, compared to net income of $20.4 million in 2018, because of a decline in revenue from its free shooting online game Warframe, an increase in marketing expenses and currency fluctuations. Shares of Leyou have dropped about 13% this month, giving the gaming firm a market value of HK$7.2 billion ($929 million).

The consortium, which is lining up financing from banks, is in advanced discussions with Leyou’s shareholders on the new offer, the people said. The companies may not be able to reach an agreement as talks could still fall apart, they said.

A representative for iDreamSky said the company will provide the latest progress of the acquisition via the Hong Kong stock exchange website, while a representative for CVC declined to comment. A representative for Leyou didn’t immediately respond to requests for comment.

iDreamSky, which counts Tencent Holdings Ltd. among its investors, has been in talks with Leyou’s controlling shareholder Charles Yuk and other selling holders since late last year. CVC later joined iDreamSky in the takeover bid, Bloomberg News reported in February.

In a deal, Shenzhen-based iDreamSky plans to hold a majority stake after it combines with Leyou, while CVC is set to hold a significant minority stake in the merged entity, the people familiar with the matter have said. The prospective buyers would retain Leyou’s biggest hits including Warframe and consider selling some of its games under development and physical studios to help fund the acquisition, the people said at that time.

Shares of iDreamSky have slipped about 2% this month, giving the company a market value of HK$6.2 billion.

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