SMARTPHONES: TV Maker AmTRAN Next Target for LeEco?

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Bottom line: LeEco is likely to buy a controlling 30-40 percent of struggling low-cost Taiwanese TV maker AmTRAN in a deal to be announced next week, as part of its bigger plan to build an ecosystem of entertainment products and services.

LeEco to invest in Vizio?

Media have been buzzing these last few days about rumors of a potential acquisition by online video superstar LeEco (Shenzhen: 300104) of the struggling low-cost TV brand Vizio, owned by Taiwan’s AmTRAN Technology (Taipei: 2489). In usual fashion, LeEco has denied such a takeover, and even took the unusual step of issuing a formal statement saying it has no such plans. But that wouldn’t rule out a major strategic investment in money-losing AmTRAN, or an acquisition of the company by a non-listed unit of LeEco, formerly known as LeTV.

As a longtime follower of LeEco and someone also quite familiar with Vizio, I can say that a major equity tie-up between the pair seems quite likely based on recent trends. The source of all the buzz is an invitation to a July 26 briefing co-hosted by the 2 companies near Vizio’s US headquarters in Los Angeles. No details are given, except to say that an important announcement will come. (English article; Chinese article)

All that said, let’s review some background about both companies and why their recent trends almost certainly point to a major equity tie-up or possible acquisition. LeEco’s denial does seem to indicate its purchase of a major AmTRAN stake might be the most likely tie-up, though I still wouldn’t rule out an outright acquisition.

Either path wouldn’t be particularly expensive for LeEco, which seems to have no problem raising big amounts of cash from investors keen to back its dream of creating an ecosystem of entertainment delivered over devices like TVs, smartphones and even cars. AmTRAN has a current market value of just T$17.2 billion, or roughly $500 million, meaning a controlling stake of the company would cost LeEco $300 million or less.

AmTRAN rose to prominence around a decade ago on its low-cost Vizio brand of TVs, which it sold to big names like Wal-Mart (NYSE: WMT) and other US electronics chains in its heyday. But the company, which competes solely based on its low prices, has been squeezed in recent years by by its demanding retail customers, and last year reported an operating loss of nearly T$1 billion. At the same time its revenue has steadily shrunk to around T$20 billion last year, down by nearly half from 2012.

LeEco on the Rise

At the same time, LeEco has moved in the opposite direction, investing aggressively in smartphones and cars that will form part of the ecosystem it hopes to build to deliver its core entertainment products and services. The company recently became the largest stakeholder in struggling smartphone maker Coolpad (HKEx: 2369), and is trying to build a factory to make new energy cars in the US. (previous post)

The listed LeEco is squarely on an upward track financially, with revenue and profits both soaring in the last few years. Last week the company issued a financial update saying its revenue in the first half of the year rose 100-150 percent to as much as 11 billion yuan ($1.6 billion), while profit grew by a slower 10-20 percent to as much as much as 306 million yuan. (company announcement)

All of that brings us back to my original thesis, centered on LeEco’s aggressive investment in devices that are part of its envisioned ecosystem and AmTRAN’s need for a wealthy patron to guarantee its future survival. That reality, combined with this vague media invitation for next week, seem to almost guarantee the announcement of a major tie-up that will include a big investment by LeEco. My best guess is that LeEco will probably buy 30-40 percent of AmTRAN, in a deal valued at around $200 million.

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