The collapse of Vizio Inc.’s $2 billion sale to LeEco this month highlights the difficulty of completing deals between U.S. and Chinese companies in the current political-economic climate, though it presents one of Orange County’s best-known brands a range of options in the aftermath.
Vizio’s management team has several paths to explore following the axed sale, from product road maps and strategy to potentially positioning the brand for another exit.
The Irvine-based brand entered the year as the second largest minority-owned company in OC, with estimated annual sales of $3.5 billion, up from an estimated $3.1 billion in 2015.
The company employs about 230 at its Irvine Spectrum headquarters, nearly half of its 480 companywide, an incredibly lean total that attests to its fine-tuned supply chains in Asia and Mexico, and distribution deals with big-box retailers, such as Wal-Mart, Target and Costco.
Vizio and LeEco signaled they would try to revitalize the partnership by exploring ways to incorporate LeEco content across Vizio’s connected platform while providing a distribution channel for Vizio products in China.
Neither company disclosed details of the agreement, and Vizio declined interview requests for this story.
The brand has been the U.S. leader in soundbars since 2014, and competes annually against Samsung for the title of the top TV seller in the country. TVs have accounted for more than 90% of its annual sales, according to regulatory filings.
It recently unveiled a smart-TV line for the Canadian market in a tie-in with the ongoing National Hockey League playoffs.
Data Business
Founder William Wang will have to craft the next phase of the company’s developing Inscape data business after it was dealt a setback this year by the Federal Trade Commission and office of the New Jersey attorney general.
Vizio in early February agreed to a $2.2 million agreement to settle charges it violated unfair trade practices and consumer protection laws by tracking the viewing habits of smart-TV owners without their knowledge or consent.
The settlement prompted Wang and Vizio to assess the business model and look into tweaking it, a possibility first reported by the Business Journal at the time.
“Together with government, we’re learning about the privacy issue better,” Wang said. “We’re working hand-in-hand with the government to establish the right way to benefit the advertisers and the content producers.”
The technology, fully acquired in 2015 from San Francisco-based Cognitive Media Networks Inc. through a $50 million cash buy, was a key aspect of Vizio’s growth plan, which it laid out to potential investors as it pondered an initial public offering a few years ago.
The service can capture up to “100 billion daily anonymized viewing data points” from connected Vizio TVs that “can be used to generate intelligent insights for advertisers and media content providers,” the company highlighted in a 2015 filing with the Securities and Exchange Commission.
Vizio was seeking to raise as much as $172.5 million in the IPO before LeEco’s courtship.
Deal Breakdown
The sale first raised concerns among analysts in November—four months after it was announced—when chatter picked up that the Beijing-based company hit a cash crunch due to expanding product lines and markets.
LeEco Chief Executive and founder Yueting “YT” Jia in a letter to employees at the time said, “We blindly sped ahead, and our cash demand ballooned. We got over-extended in our global strategy. At the same time, our capital and resources were in fact limited.”
The message came a month or so after LeEco’s U.S. launch event in San Francisco, where the company spent more than two hours promoting its third-generation smartphone, an Android smart bike, 85-inch smart TV, updated subscription services, a virtual reality headset, and an autonomous electric vehicle.
Perhaps it was telling that the conglomerate barely mentioned Vizio during the long press event, highlighting instead its plans to take on the likes of Apple, Tesla, Samsung, Amazon, Netflix and Disney on their own turfs.
By year-end, the transaction still hadn’t closed, upending the projected deal timeline the companies laid out in July when they announced the sale. LeEco had also failed to gain final approval from Chinese regulators, a lingering issue that it cited for the deal’s ultimate demise.
U.S. regulators signed off on the sale late last year, according to news reports.
In late February, the Business Journal reported that a deadline to finalize the transaction was looming and casting further doubt that LeEco could close the deal as it faced ongoing financial woes.
Wang, who would have ceded his role after the sale, appeared to take the setbacks in stride.
“The deal is still in progress, subject to LeEco capabilities. We have fulfilled our obligation,” he said at the time.
Reports surfaced a month later that LeEco was trying to sell a recently purchased development site for its planned U.S. headquarters in Santa Clara as the company moved to improve its depleting cash position—another red flag.
“LeEco has been working to identify additional investors as well as a development partner,” the company said in statement to the Business Journal regarding the 49-acre Silicon Valley EcoCity project, which the company had planned to house about 12,000 workers at build-out.
On April 10, the companies, citing “regulatory headwinds,” announced the deal was dead as some new reports said LeEco had missed payrolls and lost employees.
LeEco had never responded to numerous Business Journal inquiries about the date of the closing deadline or whether it ever passed.
China Deals Drop
The Vizio sale was the latest to fall apart as regulatory strains increase in China. The value of deals led by Chinese buyers so far this year is roughly $37.7 billion, down nearly 59% from the same period in 2016, a record year for such deals, according to New York-based Dealogic.
Deal count through April 17 was 178, down from 241 a year earlier.
The drop comes amid warnings issued by Chinese regulators to prospective buyers to more carefully weigh foreign investments and avoid additional debt.