(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 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
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
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
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)