China's LeEco buys Vizio for $2 bln

Jia Yueting (left), founder and CEO of LeEco, and William Wang, founder and CEO of Vizio, announce the $2-billion acquisition at a joint press conference on Tuesday in Hollywood. LIA ZHU / CHINA DAILY

Chinese tech company LeEco announced on Tuesday that it will acquire Vizio, a major TV manufacturer in the US, for $2 billion in cash as it expands globally.

It took the two companies three years to reach the agreement, under which Vizio's hardware and software businesses will be operated as a wholly owned subsidiary of LeEco, while the data business - Inscap - will operate as a separate, privately owned company. LeEco Global will own a 49 percent stake of Inscape, and William Wang, founder and CEO of Vizio, will own a 51 percent stake.

The transaction, which is expected to close in six months or so subject to regulatory approval, will have a three-year Vizio “earnout” for an additional payment of $200 million, with revenue and profit thresholds for a potential total consideration of $2.25 billion, said Winston Cheng, LeEco senior vice-president, global head of corporate finance and development.

An earnout agreement states that the seller of the business, in this case Vizio, will receive enhanced compensation if it reaches certain financial thresholds.

LeEco will retain all current Vizio employees and enter into a 10-year licensing agreement with Inscape. The Vizio brand and its products will continue to be sold through their existing distribution channels.

With the acquisition, LeEco is expected to have more than 20 million big-screen users, which will provide a solid foundation for the Beijing-based company to expand its presence in the US and realize its global strategy, Jia Yueting, founder and CEO of LeEco, said at the press conference in Hollywood.

Vizio, based in Irvine, California, is the second-largest smart TV vendor in the US after Samsung. Known for its affordable flat-screen TVs, Vizio has factories in Mexico and China.

After the acquisition, Vizio will provide LeEco approximately 8 million newly installed connected TVs annually as well as major North American retail channels, and LeEco will support Vizio with its internet, technology, content and cloud services, Cheng said.

He said Vizio was a "critical part of LeEco's entry into the North American market" and LeEco Global was committed to spending 10 percent of revenue on research and development in the future and provide R&D capabilities to Vizio.

The two companies had combined revenue of more than $4 billion in the first half of 2016, and the group expects double-digit revenue increases over the next few years, said Cheng, adding that the combined company has more than 28 million cumulative smart connected TVs installed.

Like LeEco, Vizio shares a similar vision of creating premium products with the latest innovations and making them accessible for everyone, Wang said.

"I'm excited to see how LeEco's global reach and resources will elevate Vizio as we continue to bring great technology, innovation and value to our consumers," he said.

LeEco has set its sights on the US market in recent months. In April, it opened a North American headquarters in San Jose, California, with the objective of tapping into Silicon Valley's talent and innovation. The facility houses the company's autonomous driving research center - the LeFuture AI Institute, in partnership with Faraday Future.

It recently completed the acquisition of Yahoo's nearly 50-acre development site in Santa Clara, California, with a payment of $250 million, according to a report by Silicon Valley Business Journal last month.

"Within three months, LeEco will formally enter into the US," said Jia, who called it a "big bang plan".