Leshi Internet Information and Technology Corp plans to acquire 100% of fellow LeEco unit Le Vision Pictures for Rmb9.8 billion ($1.51 billion) in a combined cash-and-shares deal that formally kills off previous plans for an independent listing.
Shenzhen-listed Leshi, which is controlled by LeEco's chairman Jia Yueting, said in a filing late Friday that it will issue 165 million shares at Rmb41.37 per share to purchase a 69.6% stake in Le Vision Pictures. The shares will be issued to 44 shareholders of the film production and distribution firm, including LeEco.
Leshi, the first online video firm to go public in China, said it will fund the rest of the acquisition via a share placement with five unnamed investors that could raise up to Rmb5 billion and will also be used replenish its working capital.
The transaction comes as LeEco (formerly known as LeTV) builds an integrated media and telecommunications network of entertainment content that encompasses television, film, and live sports.
"The acquisition will help LeEco to build up a fully-connected ecosystem of content,” Liu Hong, LeEco’s co-founder and vice chairman, told FinanceAsia in an interview.
It should also cut out the potential for wasteful overlap as Leshi focuses on TV drama and film investment and Le Vision Pictures sticks to producing films, whilst stimulating synergies across platforms.
“Le Vision Pictures is positioned as an online film company. Therefore it has to generate chemical reactions with online video sites. It will also gain a lot of support from the listed Leshi,” Liu said.
Some analysts reacted positively to news of the deal and highlighted the longer-term possibilities.
"After acquiring Le Vision Pictures, Leshi would become a leading player [in the online video market]...as its ecosystem will be further integrated and the synergies between its different types of businesses will become more apparent," Xu Juan, an analyst at Huatai Securities, said in a note on Monday.
Co-founded by Chinese businessman Jia and former state radio journalist Liu in 2004 in Beijing, Leshi has grown from a pure online video site to one of China’s most popular online content providers.
The online video firm, sometimes dubbed the Netflix of China, now owns the broadcasting rights to more than 100,000 TV episodes and 5,000 movies, according to the company. With a market capitalisation of Rmb109 billion ($16.8 billion), Leshi is currently the second-largest company listed on ChiNext, Shenzhen's Nasdaq-style technology-friendly board.
Le Vision Pictures, set up in 2011, is one of China’s leading private film firms with offices in Beijing, Hong Kong and Los Angeles. It has partnerships with some of the country’s most famous film directors and also invested in a number of the country’s box-office successes, including Tiny China, China’s highest grossing film franchise.
Le Vision Picture also has a growing presence in Hollywood. Apart from financing and distributing Hollywood imports into China, it has partnered with Legendary and Universal Pictures on The Great Wall, an upcoming science fiction film starring Matt Damon.
In August 2013, Le Vision Pictures raised Rmb200 million in its maiden round of private fundraising, which valued the firm at Rmb1.55 billion. About a year later it raised a further Rmb340 million, lifting its valuation to Rmb4.8 billion.
Zhang Shao, chief executive of Le Vision Pictures, told Chinese media at the time and subsequently that “going public independently on the A-share market is the first choice” for the company.
However, LeEco was hit with a series of regulatory and financial headaches in 2014, including a tightening in the rules covering the online broadcast of foreign movies and other content. There was also chairman Jia’s mysterious five-month overseas stay after speculation emerged about his ties to a brother of now disgraced Ling Jihua, a former aide to former Chinese president Hu Jintao.
Jia told Chinese financial publication Caijing at the time that “those are all rumours that link LeEco with politics. LeEco was a 100% market-oriented company…I’m not returning to China because I want to focus on the company’s overseas expansion.”
After his return in late 2014, Jia announced plans to incorporate Le Vision Pictures into Leshi within 12 months to create more synergies. Trading in Leshi shares was consequently suspended in December 2015 as that process kicked off.
The decision to merge the two was widely interpreted as an attempt to boost Leshi’s plunging stock price; the company had lost Rmb5.7 billion of its market value in just one week ahead of the 2014 announcement.
But the move also ruffled a few feathers at the time.
“His return didn’t completely dispel investors’ concerns over the company until he promised to insert new assets (such as Vision Pictures) into Leshi," said one person close to Le Vision Pictures’s management, noting that the company had been aiming for its own initial public offering.
"The change upset Zhang Shao and other managers [of Le Vision Pictures],” the person said.
Zhang, founder and former president of Chinese film production company Enlight Pictures, has since appeared to have warmed to the change.
“Whether Le Vision Pictures can go public or not isn’t very important," he said in an interview with domestic news portal Sina last December. "Relying on LeEco’s whole ecosystem we have a chance to compete with big Hollywood firms on the global market in the future. This is too appealing to me.”
Le Vision Pictures recorded Rmb765 million and Rmb1.15 billion in revenue in 2014 and 2015, while its net profit stood at Rmb64 million and Rmb136 million, respectively.