Baidu Inc (NASDAQ:BIDU) is in discussions to sell its majority ownership in iQIYI Inc, China’s equivalent to Netflix (NASDAQ:NFL), in a transaction that could value iQIYI at about $7 billion, according to two individuals familiar with the situation.
Baidu, which owns 53 percent of iQIYI and has more than 90 percent of its shareholder voting rights, wants to sell its entire stake in the Chinese video streaming services company, according to these two persons and two other sources with knowledge of the situation.
While China’s theaters have suffered because to COVID-19 lockdowns restricting consumer movement, the country’s online video business is booming: 2022 revenue is projected to reach 163 billion yuan ($24 billion), an increase of 17 percent year-over-year, according to Zhiyan, a Chinese consultancy group.
Nasdaq-listed The market capitalization of iQIYI, the No. 2 participant in China’s video streaming industry behind Tencent Holdings’ Tencent Video, is $4 billion. Baidu’s planned value of $7 billion for the whole firm in its disposal would equate to a share price of $8.13, compared to its most recent closing price of $4.67.
Baidu’s previously undisclosed decision to sell iQIYI comes after the company determined iQIYI to be a non-core asset and as it intends to concentrate on expanding its capital-intensive artificial intelligence and autonomous driving operations, according to the first two sources.
The terms of the agreement have not been finalized and are susceptible to change, according to sources who requested anonymity owing to confidentiality concerns.
Baidu didn’t reply to a request for comment.
According to three of the four sources, the iQIYI share has attracted early interest from a variety of financial sponsors and state-owned firms, including the Hong Kong-based private equity company PAG.
China Mobile (NYSE:CHL), the world’s biggest mobile network provider by subscriber count and owner of streaming service Migu Video, is also a prospective bidder, according to two individuals familiar with the subject.
PAG refused to comment. China Mobile did not reply to a request for comment.
If Baidu reaches its valuation objective, iQIYI’s average share price over the last three months would be valued at a premium of more than 100 percent. The streaming company’s shares have dropped 70 percent over the last year due to a larger decline in Chinese technology stocks.
According to the second set of sources, Baidu, whose operations span from internet search to electric cars, with recent development into cloud services, robotaxis, and autonomous driving, has hired Bank of America (NYSE:BAC) to work on the prospective sale.
Bank of America provided no quick response.
“This is nothing more than market rumor,” iQIYI wrote in an email to Reuters, without additional comment.
IQIYI ATTACKS AND LOSSES
The almost $50 billion market value of Baidu’s proposed stake sale comes against the background of China’s regulatory crackdown on technology, private education, and other enterprises since late 2020, which has battered their shares and caused several to cut down operations in non-core areas.
The Nasdaq Golden Dragon Index, which measures Chinese firms trading on Wall Street, has decreased by fifty percent in the last year.
Capturing iQIYI would allow a prospective buyer to enter the primary market for full-length TV series and films.
Tencent Video, iQIYI, and Youku, a smaller competitor owned by Alibaba (NYSE:BABA) Group Holding, provide movies, drama series, and reality programs, including both original and licensed content.
iQIYI has produced a number of popular drama series, such as “The Long Night” and “The Wind Blows From Longxi.” Its original variety performances, “The Rap of China” and “The Big Band,” have also garnered significant social media attention.
In contrast, the cash-burning iQIYI barely broke even over its 12-year existence. In the January-March quarter, the company posted its first quarterly profit since it began reporting quarterly results in 2016.
It posted a net gain of 169 million yuan ($25 million) in the first quarter of the year, compared to a net loss of 1.3 billion yuan in the same time a year earlier. However, its sales decreased by 9 percent year-over-year, falling to 7.3 billion.