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June 15, 2022

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 all of iQIYI at about $7 billion, two people with knowledge of the matter said.

Baidu, which owns 53% of iQIYI and holds more than 90% of its shareholder voting rights, plans to sell all its holdings in the Chinese video streaming services firm, said those two people and another two sources familiar with the matter.

Nasdaq-listed iQIYI has a market value of $4 billion. Baidu's targeted valuation of $7 billion for the whole company in its divestment would represent a price of about $8.13 per share compared with its latest close of $4.67.

The four people with knowledge of the plan declined to be identified due to confidentiality constraints.

The divestment plan, not previously disclosed by Baidu, comes after the firm deemed iQIYI to be a non-core asset, and as it seeks to sharpen its focus on developing its capital-intensive artificial intelligence and autonomous driving units, said the first two sources.

Baidu, whose businesses range from internet search to electric vehicles, with expansion into cloud services, robotaxis and autonomous driving in recent years, has tapped Bank of America to work on the potential sale, said the second pair of sources.

Baidu didn't respond to a request for comment, while Bank of America did not offer any immediate comment.

"This is purely market rumour," iQIYI said in an emailed statement to Reuters, without providing further comment.

The stake sale plan drawn up by Baidu, worth nearly $50 billion by market value, comes against the backdrop of China's regulatory crackdown since late 2020 on firms from technology, private education and other sectors, which hammered their shares and forced some to scale back expansion in non-core areas.

The iQIYI stake has drawn initial interest from a number of financial sponsors and state-owned companies, said three of the four sources, with Hong Kong-based private equity firm PAG among them.

China Mobile, the world's largest mobile network operator by subscribers and owner of streaming service Migu Video, is also among potential buyers, two of the people with knowledge of the matter said.

PAG declined to comment. China Mobile did not respond to a request for comment.

If Baidu achieves its valuation target, that would represent a premium of more than 100% to iQIYI's average share price over the past three months of $3.97. The streaming firm's shares have lost 70% in the past 12 months amid a broader sell-off in Chinese tech shares.

Terms of the deal have not yet been finalised and are subject to change, the sources said.

Source: Reuters
Image Source: Baidu