(Adds analyst comment and background; changes media slug to VIZIO-M&A/LEECO from CHINA-TECH/LEECO)
* Regulation, China policy cited by LeEco as reason for drop
* LeEco has faced financial troubles in recent months
* New distribution, content agreement to replace acquisition
April 11 (Reuters) - LeEco has scrapped a planned $2 billion acquisition of U.S. consumer electronics company Vizio due to regulatory issues, a fresh setback to the cash-strapped Chinese conglomerate's expansion drive.
The deal was first announced in July, with LeEco agreeing to acquire the Irvine-based manufacturer of LCD/LED flat panel TVs.
A LeEco representative cited a "Chinese policy factor" for abandoning the proposal, but declined to provide further details.
LeEco, one of China's most ambitious companies that grew from a Netflix-like video website to a business empire spanning consumer electronics to cars within 13 years, is struggling to meet its ambitions that include beating Elon Musk's Tesla Motors in premium electric vehicle making.
In recent months, LeEco has faced financial troubles which founder and chairman Jia Yueting has attributed to the rapid pace of business growth, calling it a "big company disease".
Reuters reported last month that LeEco is looking to sell a 49-acre U.S. Silicon Valley property for around $260 million less than a year after buying it from Yahoo Inc to boost liquidity.
It follows a $2.2 billion investment secured in March with backers including property developer Sunac China Holdings Ltd to finance its Internet TV and entertainment business.
China has intensified scrutiny of outbound deals over the past several months in an attempt to limit capital outflows and stabilise the yuan. Last month, Chinese conglomerate Dalian Wanda Group's $1 billion deal to buy Hollywood's Dick Clark Productions was terminated, a deal media said had fallen apart due to Beijing's scrutiny on outbound deals.
A new agreement between LeEco and Vizio will now replace the scrapped deal, by which the companies will incorporate LeEco's app and content within Vizio's platform, and bring Vizio products to the China market, LeEco said on Tuesday.
Some observers welcomed the withdrawal of the Vizio acquisition plan, saying it is good for LeEco which has owed suppliers money and recently had a sports broadcasting contract terminated due to an unpaid instalment.
"At some stage, when they're more cash ready they can think again about acquiring... In the meantime, they can get this partnership going," said Neil Shah, a research director at Counterpoint Research.
The unspent money will also likely help LeEco rekindle its supply-chain partnerships to resume full-scale production, especially since fourth quarter phone shipments were scaled back due to the cash crunch.
The company shipped less than a million phones globally in the fourth quarter of last year, when it normally shipped close to 4 million to 5 million per quarter in 2016, according to data from Counterpoint Research.
Late on Monday, LeEco's listed unit Leshi Internet Information & Technology Corp Beijing said first-quarter net profit was expected at between 103 million and 132 million yuan, versus 114.7 million yuan ($17 million) profit a year earlier. ($1 = 6.9033 Chinese yuan renminbi) (Reporting by Jess Macy Yu in TAIPEI; Additional reporting by Ismail Shakil in BENGALURU and Cate Cadell in BEIJING; Editing by Randy Fabi and Muralikumar Anantharaman)