Baidu in talks to sell majority stake in iQIYI, China’s answer to Netflix – sources

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(Reuters) China’s web search engine big Baidu Inc is in talks to promote its controlling stake in iQIYI Inc, China’s reply to Netflix, in a deal that would worth all of iQIYI at about $7 billion, two folks with information of the matter stated.

Baidu, which owns 53% of iQIYI and holds greater than 90% of its shareholder voting rights, plans to promote all its holdings within the Chinese language video streaming providers agency, the 2 folks and one other two sources acquainted with the matter stated.

Whereas cinemas have struggled with COVID-19 lockdowns, China’s on-line video market is booming. Home consulting agency Zhiyan forecasts 2022 income is about to climb to 163 billion yuan ($24 billion), up 17% year-on-year.

Nasdaq-listed iQIYI, the No. 2 participant in China’s video streaming market after Tencent Holdings’ Tencent Video, has a market worth of $4 billion. Baidu’s focused valuation of $7 billion for the entire firm in its divestment would characterize a worth of about $8.13 per share in contrast with its newest shut of $4.67.

The divestment plan, not beforehand disclosed by Baidu, comes after the agency deemed iQIYI to be a non-core asset, and because it seeks to sharpen its give attention to creating its capital-intensive synthetic intelligence and autonomous driving items, the primary two sources stated. 

Phrases of the deal haven’t but been finalized and are topic to alter, stated the sources, who declined to be recognized on account of confidentiality constraints.

Baidu didn’t reply to a request for remark.

“That is purely market rumor,” iQIYI stated in an emailed assertion to Reuters, with out offering additional remark.

The iQIYI stake has drawn preliminary curiosity from numerous monetary sponsors and state-owned corporations, stated three of the sources, together with Hong Kong-based personal fairness agency PAG.

China Cellular, the world’s largest cellular community operator by subscribers and proprietor of streaming service Migu Video, can be amongst potential consumers, two of the folks with information of the matter stated.

PAG declined to remark. China Cellular didn’t reply to a request for remark.

If Baidu achieves its valuation goal, that may characterize a premium of greater than 100% to iQIYI’s common share worth over the previous three months of $3.97. The streaming agency’s shares have misplaced 70% up to now yr amid a broader Chinese language tech sell-off.

U.S.-listed shares of iQIYI had been down 4.7%, whereas Baidu rose 4% in premarket buying and selling on Wednesday.

Baidu, whose companies vary from web search to electrical automobiles, with growth into cloud providers, robotaxis and autonomous driving in recent times, has tapped Financial institution of America to work on the potential sale, the second pair of sources stated.

Financial institution of America didn’t provide any fast remark.

IQIYI HITS, LOSSES

The stake sale plan drawn up by Baidu, price almost $50 billion by market worth, comes in opposition to the backdrop of China’s regulatory crackdown since late 2020 on corporations from know-how, personal training and different sectors, which hammered their shares and compelled some to reduce growth in non-core areas.

The Nasdaq Golden Dragon Index, which tracks Chinese language corporations traded on Wall Avenue, is down 50% over the previous yr.

Snaring iQIYI would give a possible purchaser the possibility to dive into the principle marketplace for full-length TV exhibits and films.

Tencent Video and iQIYI, in addition to smaller rival Youku, owned by Alibaba Group Holding, provide films, drama sequence and actuality exhibits – each unique content material and materials purchased from different producers.

iQIYI has made a number of hit drama sequence, together with “The Lengthy Night time” and “The Wind Blows From Longxi”. Its unique selection exhibits, “The Rap of China” and “The Huge Band”, have additionally been main matters on social media.

On the flip facet, cash-burning iQIYI has barely damaged even in its 12-year historical past. Within the January-March interval, it delivered a quarterly revenue for the primary time since 2016, when it began to report quarterly earnings.

It recorded a internet earnings of 169 million yuan ($25 million) within the first quarter of the yr, in contrast with a internet lack of 1.3 billion yuan in the identical interval a yr earlier, however its income dropped 9% to 7.3 billion year-on-year.

Supply: Reuters; Reporting by Julie Zhu and Kane Wu; Further reporting by Nivedita Balu, Modifying by Sumeet Chatterjee and Kenneth Maxwell  June 15, 2022 3:19 AM PDT

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