LeEco’s effort to buy the largest television manufacturer in the U.S. has stalled, as tighter currency controls in China put the $2 billion deal on hold.
The delay comes at a convenient time for LeEco, which is facing a cash crunch acknowledged by its chairman, Jia Yueting, in November. Some observers question whether the company is stretched so thin that it would be able to pay for the acquisition even if the Chinese government permits it. But LeEco could still borrow in order to make the deal.
“The deal is pending regulatory approval,” a LeEco spokesperson said on Wednesday of the purchase agreement with the U.S. television maker Vizio, without elaborating.
The high-profile acquisition attempt was meant to give LeEco a foothold in the U.S. market. Announced in July, it won much attention for the ambitious LeEco, whose business has fanned out from video hosting to self-driving cars, smartphones and sports deals.
China introduced tighter restrictions on outbound investment in December to stop the drain on its foreign-exchange reserves and control currency depreciation. The government has advised companies to “make decisions prudently” with regard to outbound investments in areas unrelated to their core business.
LeEco reiterated its commitment to the deal in February, stating the acquisition was still a “priority.”
“Capital controls might not be the main issue in this stalemate deal,” says tech blogger Yu Bin, who runs Chaoqi.net. “For an entity as large and complicated as LeEco, there are always ways to skirt restrictions, but there’s no way around the reality of inadequate funds.”
LeEco’s financials have gone downhill since its high-profile announcement in July that it would buy Vizio.
Many of LeEco’s creditors, such as Taiwan contract manufacturer Compal Electronics and Truly Semiconductors, have opted for a debt-to-equity swap, since chances of cash payment from the liquidity-challenged company begin to look bleak.
Regardless of the actual reason for the delay, it works out well for LeEco, says Wang Yanhui, president of the Mobile China Alliance. “The last thing they would want is to see the Vizio deal flop and the deposit go down the drain.”
The deal has been viewed by Yu and others from the start as a vanity project aimed primarily at boosting LeEco’s name overseas and stoking up stock prices.
Therefore it might not necessarily be bad news for LeEco if the deal does not go through, observers say. “The business unit was overpriced and superfluous in the U.S., where it lacks quality content programs,” says Ding Daoshi, president of Sootoo Research in Beijing. “It gives LeEco ample opportunity to pare down the unnecessary.”
This would not be the first deal to be affected by the restrictions. Entertainment aspirant Wanda scrapped plans to buy Hollywood awards show producer DCP for $1 billion due to outbound capital controls earlier this month.
By April Ma