Chinese online entertainment and technology group LeEco has agreed to buy American smart television manufacturer Vizio in a $2 billion deal, underscoring the company’s growing ambition to penetrate the US market.
LeEco, formerly known as LeTV, said on Wednesday that it has acquired 100% of California-based Vizio plus 49% of Inscape Data Services, which collects and aggregates real-time consumer viewing data with software embedded in Vizio screens.
The takeover, due to be completed in the fourth quarter of this year, is not only one of the television industry's largest-ever acquisitions but is also LeEco chairman Jia Yueting's latest foray into the US market.
Los Angeles-based auto startup Faraday Future, in which Jia is a major investor, is already spending $1 billion building a 900-acre factory in Nevada, where it hopes to manufacture self-driving electric cars to compete against Tesla. Now Jia is snapping up the second-biggest player in the US smart TV market, not far behind Samsung with a 24% market share, according to a 2014 report by US research firm Strategy Analytics.
"LeEco believes in breakthrough technologies, a complete ecosystem and disruptive pricing. Acquiring Vizio is an important step in our globalisation strategy and building our North American presence," Jia said.
Vizio's hardware and software business will be operated as a wholly-owned subsidiary of LeEco, while its data business, Inscape Data Services, will be spun off and operate as a separate firm, according to the statement. William Wang, chief executive of Vizio, will become chairman and CEO of Inscape.
Wang expressed "mixed feelings" on the transaction. Speaking at a joint event in Los Angeles to mark the takeover, he said: "As the owner and father of Vizio, I am very reluctant to let it go. But as the CEO and owner of the company, I know this is the right decision to make for our hardworking employees and loyal shareholders."
The transaction will likely help LeEco to take over Vizio’s manufacturing plant in Mexico to produce its own TV sets, as well as fast-tracking its US expansion plans. LeEco established its North American headquarters in Silicon Valley in April.
In addition, the purchase could help to combine LeEco’s strength in internet-connected TV applications and online video content with Vizio’s widespread distribution chain in the US smart TV industry. It could also boost the combined sales of the two firms’ smart TV sets to 10 million per year, according to the statement.
LeEco aims to become the world’s third-largest TV maker in the next three years.
The Vizio deal comes after the high-flying online video-streaming giant inked a tie-up with TCL Multimedia, one of the world’s largest TV producers. Last December, LeEco bought a 20% stake in TCL for about $300 million, making it the second-largest shareholder in the Chinese television conglomerate.
“Vizio is a critical part of LeEco’s entry into the US market,” said Winston Cheng, a former Bank of America Merrill Lynch investment banker who now runs LeEco's global corporate finance.
IPO plans
Vizio filed for an initial public offering with American regulators last year, with the goal of raising $172 million to fund its expansion. It was reportedly set to float in the second half of this year but it is unclear whether LeEco will push ahead with the listing once it acquires Vizio.
Vizio will continue to be headquartered in Irvine, California, and its management team will stay on following the takeover, the company statement said.
Set up in 2004, LeEco, originally a video streaming website with a two-person team, has developed into one of China’s most popular online content providers and now claims to employ 10,000 people in mainland China, Hong Kong, and the US.
In recent years, it has shifted away from its core video-streaming business, first by tapping into China’s already-crowded markets for smart phones and smart TVs. The company is known for selling devices at disruptive low prices to gain market share to help build up a large base of loyal customers for its paid online content, including television shows, movies, and live sports matches.
The Beijing-based internet ecosystem company made a splash into the domestic smart TV market last year by selling more than three million sets, branded Super TV, and gaining a 6% market share against market leader Skyworth with a 20% share. It aims to ship 6 million units this year.
Having built up a solid presence and attained strong brand recognition in China, where the economy is slowing, LeEco has been expanding in other countries such as India and Russia as well as the US.
“This year marks the start of our globalisation,” LeEco’s co-founder and vice chairman Liu Hong told FinanceAsia in an interview in late March. “America represents mature, developed economies and has the most picky consumers. If our business model cannot succeed there, we won’t see our global expansion as a success.”
