Baidu is a new investor of Bitauto Holdings. (Photo : Reuters)
Baidu, China’s leading search engine, has proposed a management buyout of iQIYI whereby it will allot shares to Baidu CEO Li Yanhong and iQIYI CEO Gong Yu.
The management buyout of iQIYI will reach $2.8 billion, excluding cash and debts, with 80.5 percent of issued shares held by Baidu.
The collaborative purchase by Li and Gong is a move to change the video supplier's Variable Interest Entity (VIE) Structure, considered an obstacle for iQIYI to raise funds in the domestic capital market.
Gong said in an internal email that the joint efforts were supposed to "win more support from domestic market, to enhance fundraising capabilities and to create more freedom for the company to develop on the basis of market demand."
iQIYI will look for an opportunity to be listed in the domestic stock markets after privatization. Since its founding on April 22, 2010, iQIYI sold Preferred Stock (B) to Baidu for $45 million a year later. As a result, Baidu became the largest shareholder after it bought the entire equity held by Providence Equity Partners on Nov. 3, 2012, according to China Technology News.
Baidu bought PPS, another online video provider, at $370 million and merged the acquired company with iQIYI in 2013. Nov. 19, 2014 saw Baidu introducing investment summing up to 1.8 billion yuan ($274.2 million) from Xiaomi, a local manufacturer of digital gadgets, to be used by iQIYI.
In a report released by Huaxi Metropolis via China.org, the shares of Xiaomi approximated at 10-15 percent will remain intact, despite the takeover initiated by Li and Gong.
The recent financial report of Baidu shows that the operating profit of the IT business in Q3 2015 hit 2.512 billion yuan, a year-on-year decrease of 35.9 percent.
Besides losses of the online to offline (O2O) sector, which led to over 30 percent of profit decline for Baidu, the operating losses of iQIYI summed up to $156 million were estimated to have eaten into Baidu's profits at a rate of 5.4 percent.
The company's stock price in the United States surged 8.16 percent to $152.73 million in February, when the company announced the management buyout.
