Bottom line: LeEco’s latest mega purchase will throw a lifeline to the struggling Vizio TV brand, as its latest issue of new shares at a big discount reflects growing investor fatigue and skepticism with the company.
Acquisitive online video superstar LeEco (Shenzhen: 300104) is back in the headlines for its latest mega-purchase, signing a deal to buy Vizio, a US-based TV brand that is at once one of the nation’s largest and also most obscure. At the same time, LeEco, formerly known as LeTV, is in separate but somewhat related headlines in a big cash-raising exercise through a new share issue. The company has become quite adept at such cash raising these days, often using its overvalued stock to bring in new money.
I’ve previously given my view that LeEco is a house of cards just waiting to be toppled by a moderate breeze, and now it seems the Vizio brand of TVs is the latest card in that structure. I wrote about this particular deal last week, when rumors of a tie-up first emerged after LeEco and Vizio jointly issued invitations to an event for a major announcement. (previous post) LeEco denied rumors of an acquisition at the time, so we can now see how credible this company is.
All that said, LeEco is certainly one of China’s hottest companies right now, and local investors are quite willing to fork over billions of of dollars in cash to pursue CEO Jia Yueting’s dream of creating an ecosystem of video products and services delivered over devices like TVs, smartphones and cars. This Vizio purchase is clearly part of the smart TV picture, and will see LeEco buy the California-based company for $2 billion. (English article; Chinese article)
I previously wrote that LeEco was likely to invest in AmTRAN (Taipei: 2489), the Taiwanese company that is one of Vizio’s largest shareholders and its main supplier. But there’s no mention of AmTRAN in any of the latest announcements, so it appears that this new tie-up is purely between LeEco and Vizio.
There’s not much more detail in reports on the deal, though they do note that Vizio filed to make a New York IPO last year but never carried through with the plan. Perhaps that’s because the closely-linked AmTRAN swung to an operating loss last year of nearly T$1 billion ($30 million), and it’s quite likely that Vizio is now also operating at a loss.
Thriving But Diving
The TV business is at once both thriving and dying, as more consumers use alternate devices like smartphones and PCs to watch video and other new media these days. LeEco began its life as a seller of smart TVs, which it sold cheaply to consumers who agreed to subscribe to its online video services. Thus I suspect this deal will see Vizio and AmTRAN become one of LeEco’s major new TV suppliers, as the company gets set to try and export its core video service and related products to the US and other markets.
LeEco is already preparing the ground for such a move, and has launched a US version of its LeMall online store that now features a smart TV model selling for $499. The company is also buying a major piece of Silicon Valley real estate for its new US headquarters, which was probably set to cost around $200 million. It is also planning to build a new energy car plant in Nevada with a price tag of about $1 billion.
To help pay for some of that activity, the company has just separately announced a new private placement of its shares that will raise about 4.7 billion yuan ($700 million). (Chinese article) LeEco sold the shares for 45.01 yuan apiece, representing a discount of about 10 percent to its latest share price. It’s no surprise the company had to offer a discount to find more money for its unending expansion. In this case investors are probably starting to tire of this hyperactive company that loves to spend money but has yet to show any concrete results for all of its grandiose plans.
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