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Exclusive: Baidu is in talks to sell a controlling share in iQIYI, China's Netflix competitor, according to sources

Image: Reuters Berita 24 English -  According to two people familiar with the situation, China's internet search engine giant Baidu Inc ...

Image: Reuters

Berita 24 English -  According to two people familiar with the situation, China's internet search engine giant Baidu Inc is in talks to sell its controlling stake in iQIYI Inc, China's answer to Netflix, in a deal that could value the entire company at around $7 billion.

According to those two persons and two other sources familiar with the subject, Baidu, which owns 53 percent of iQIYI and has more than 90 percent of its shareholder voting rights, plans to sell all of its assets in the Chinese video streaming services provider.

While China's cinemas have struggled as a result of COVID-19 restrictions on consumer mobility, the country's online video business is booming: revenue is expected to reach 163 billion yuan ($24 billion) in 2022, growing 17% year on year, according to Zhiyan, a domestic consultancy firm.

Nasdaq-listed After Tencent Holdings' Tencent Video, iQIYI is the No. 2 participant in China's video streaming business, with a market value of $4 billion. Baidu's goal valuation for the entire company in its disposal is $7 billion, which works out to around $8.13 per share, compared to its most recent closing of $4.67.

According to the first two sources, Baidu's divestment plan comes after the company assessed iQIYI to be a non-core business and as it aims to concentrate its emphasis on developing its capital-intensive artificial intelligence and autonomous driving operations.

The deal's terms haven't been finalised and could alter, according to the sources, who declined to be identified owing to confidentiality concerns.

A request for comment from Baidu was not returned.

Three of the four sources claimed the iQIYI share has piqued the interest of a number of financial sponsors and state-owned enterprises, including Hong Kong-based private equity company PAG.

According to two people familiar with the situation, China Mobile, the world's largest mobile network provider by subscribers and the owner of streaming service Migu Video, is also a potential bidder.

PAG did not respond to a request for comment. A request for comment from China Mobile was not returned.

If Baidu hits its goal valuation, it will be more than 100 percent higher than iQIYI's average share price of $3.97 over the last three months. The streaming company's stock has dropped 70% in the last year as a result of a broader sell-off in Chinese technology stocks.

According to the second set of sources, Baidu has hired Bank of America to help with the potential sale. Baidu's operations range from internet search to electric vehicles, with recent expansion into cloud services, robotaxis, and autonomous driving.

Bank of America did not respond to a request for comment right away.

"This is purely market hearsay," iQIYI said in an emailed response to Reuters, declining to elaborate further.


Baidu's stake selling proposal, worth over $50 billion in market value, comes amid China's regulatory crackdown on technology, private education, and other sectors, which has pounded their shares and pushed several to scale back operations in non-core areas since late 2020.

Over the last year, the Nasdaq Golden Dragon Index, which monitors Chinese companies trading on Wall Street, has dropped 50%.

Purchasing iQIYI would allow a prospective buyer to enter the main market for full-length TV series and movies.

Tencent Video, iQIYI, and Youku, a smaller competitor owned by Alibaba Group Holding, all offer movies, drama series, and reality shows, both original and purchased from other creators.

"The Long Night" and "The Wind Blows From Longxi" are two of iQIYI's popular drama programmes. "The Rap of China" and "The Big Band," two of its original variety events, have also been hot subjects on social media.

On the other hand, in its 12-year history, the cash-burning iQIYI has barely broken even. For the first time since 2016, when it began reporting quarterly earnings, it made a profit in the January-March period.

It made a net profit of 169 million yuan ($25 million) in the first quarter of this year, compared to a net loss of 1.3 billion yuan in the same period the previous year, while revenue fell by 9% to 7.3 billion yuan.

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