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Baidu is demanding a payment of $20 billion for its stake in the video streaming platform as it controls approximately 56% of iQIYI.
Shares of Chinese online video streaming platform iQIYI Inc (NASDAQ: IQ) are down approximately 4% during Friday’s pre-market to trade around $21.55. The fall in iQIYI stock price is largely attributed to news that Alibaba Group Holding Ltd (NYSE: BABA) and Tencent Holdings Ltd (OTCMKTS: TCEHY) have all stalled acquisition talks with Baidu over price and regulatory concerns.
According to news outlet Reuters, people with close knowledge of the matter have disclosed that there are little hopes of the talks recommencing soon.
The buyers claim iQIYI is overvalued, whereby Tencent price it half the market value. According to the metrics provided by MarketWatch, iQIYI has a market valuation of $16.43 billion. In addition, the company has 322.73 outstanding shares. Apparently, Baidu is demanding a payment of $20 billion for its stake in the video streaming platform. Baidu controls approximately 56% of iQIYI, thus putting its value at around $9.2 billions.
Notably, the Chinese video streaming platform is considered to be equivalent to Netflix Inc (NASDAQ: NFLX) from the west. However, the platform has reported a decline in subscribers and its shares have dropped during the past one months.
Market data by MarketWatch indicates IQ shares are up 6.06% and 14.8% year to date and three months respectively. However, they have dropped approximately 10.58% and 1% in the past one month and five days respectively. The company is facing investigations by the US Securities and Exchange Commission (SEC) after a report in April issued by short-seller Wolfpack Research accused iQIYI of inflating numbers.
The Bigger Picture of iQIYI Acquisition
iQIYI is ranked the second video streaming platform in China with millions of subscribers. Its huge market data and future growth prospects attract major tech companies in the country including ByteDance, TikTok parent company.
However, the Chinese government has recently put up measures to control huge companies in market monopoly. Hereby making Alibaba and Tencent cautious in the acquisition talks.
“After regulators published new fintech and antitrust rules which will hit Alibaba’s business, Alibaba’s management is currently reluctant to proceed with big deals,” Reuters reported.
The anti-trust law by the Chinese government will significantly affect Alibaba affiliated company Ant Group that recently debuted a $37 billion IPO.
Baidu is now left to choose ByteDance as the next possible buyer of iQIYI. However, the two have had a cold relationship for years and the deal is not likely to move on. Baidu seeks to dispose of its stake in iQIYI in a bid to focus more on artificial intelligence and also the autonomous driving sector.