Bottom line: LeEco will try to buy out Coolpad later this year in its new position as the company’s largest stakeholder, while its plans for a massive Silicon Valley campus stand a less than 50 percent chance of getting completed.
The phenomenal but problematic entertainment superstar LeEco (Shenzhen: 300104) is in a couple of big headlines as the new week begins, led by word that a new transaction has made it the largest stakeholder in struggling smartphone maker Coolpad (HKEx: 2369). Rumors were flying thick and fast last week that LeEco, formerly known as LeTV, was on the cusp of an outright takeover of Coolpad, and this latest move certainly looks like a possible prelude to such an bid. Meantime, separate media reports are confirming news from earlier this year saying LeEco has purchased a piece of prime Silicon Valley land that it hopes to develop as a campus for its future US headquarters.
I have serious doubts about whether this headquarters will ever get completed, since I have serious doubts about LeEco’s future in general. Others certainly don’t seem to share my skepticism, and have given the company billions of dollars in funds to expand its fast-growing entertainment empire that now includes a wide range of assets, many of which aren’t included in the listed company’s financial reports. Those include video content-making assets, its smartphone business, and even some car-making assets, in addition to its original online video platform.
All that said, let’s focus on the news of the day, which has LeEco paying HK$1.05 billion ($135 million) for an additional 11 percent of Coolpad to raise its stake in the company to 28.9 percent. (Chinese article) LeEco bought the stock from Coolpad’s former largest stakeholder, Data Dreamland, which sold the shares for HK$1.90 apiece, representing a premium of nearly 20 percent to Coolpad’s last closing price.
Following the purchase, Data Dreamland’s stake in Coolpad has been reduced to 9.2 percent, making it a clear second-fiddle to LeEco. While it may look like LeEco paid a big premium for the stake, it’s worth noting that Coolpad’s stock was worth nearly twice as much a year ago as it is now, when the company was quite hot after signing on both LeEco and security software specialist Qihoo 360 (NYSE: QIHU) as equity partners.
Coolpad’s attempt to sign on 2 rivals as partners didn’t sit well with Qihoo, which ended up dumping Coolpad, touching off a downward spiral for the company. Its fading reputation in China’s overheated smartphone market didn’t help matters, and the company has relied on money from LeEco and also a plan to raise about $100 million through a rights offer at the beginning of this year to stay afloat. (previous post)
Big Smartphone Bet
LeEco is betting heavily on smartphones as part of its larger plans to build an entertainment ecosystem around hardware like TVs, smartphones and cars. That has led many to speculate it would like to purchase Coolpad outright. At its current market value, Coolpad is now worth around $1 billion, meaning an outright acquisition would cost LeEco another $700 million, a quite affordable amount for the cash-rich company.
Meantime, we’ll close quickly with news confirming reports from last month saying LeEco was in talks to buy an idle piece of land in Silicon Valley from struggling Internet company Yahoo (Nasdaq: YHOO). (previous post) The latest reports cite public records showing the transfer of the 48.6 acre land parcel in Santa Clara has been completed. (Chinese article)
Cash never seems to be a major problem for LeEco, and that appears to be the case again this time as it reportedly paid $250 million for the plot. That’s well above the $100 million that Yahoo paid a decade ago for the land. There’s no comment from LeEco in the reports, though it appears the campus will become a technology R&D center for its growing stable of high-tech products. As I’ve said at the outset, I have serious doubts about LeEco due to its murky structure and breakneck growth into a wide range of areas, and would put the odds at less than 50 percent that this new Silicon Valley campus will ever get completed.
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