Alibaba, Tencent hold off iQIYI buyout plans due to price, regulatory concerns - Reuters

  • Alibaba Group (NYSE:BABA) and Tencent (OTCPK:TCEHY) each have held separate talks with Baidu (NASDAQ:BIDU) to acquire a controlling stake in video streaming service iQIYI (NASDAQ:IQ), source Reuters.
  • But the discussions have stalled with little hope of resuming soon as BABA and Tencent balk at a valuation of around $20B demanded by Baidu and as both companies, which have their own video streaming services, face heightened scrutiny by China’s antitrust regulators.
  • Another Chinese tech giant, TikTok owner ByteDance (BDNCE) has also internally looked at the possibility of acquiring a controlling stake in iQIYI. But Baidu, which holds more than 90% of iQIYI’s shareholders' rights, is not likely to consider ByteDance given a years-long feud between the two companies.
  • Purchasing iQIYI would give ByteDance the opportunity to enter the main market for longer length TV shows and movies.
  • Considered China’s equivalent to Netflix, Nasdaq-listed iQIYI has a market capitalization of $16.4B, which values Baidu’s 56.2% stake at about $9.2B.
  • Tencent believes the company is worth about half of what Baidu wants. However, none of the companies have commented on the deal talks.
  • IQ recently on Nov. 16 reported its Q3 earnings. The company recorded 3% drop in quarterly revenues with fewer subscribers than a year ago, with total members of 104.8M vs. 105.8M last year.
  • iQIYI is also under SEC investigation after a report in April issued by short-seller Wolfpack Research accused iQIYI of inflating numbers.
  • Considering regulatory headwinds, investing in iQIYI now may be politically difficult for Alibaba and Tencent after Beijing unveiled draft guidelines aimed at preventing monopolistic behavior by internet companies.
  • That follows sudden suspension of Ant Group’s $37B IPO just days ahead of its debut to slam the brakes on Alibaba.
  • A glance at most popular video streaming services globally:
  • IQ shares down 4% premarket.

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