LeTV or canceled the acquisition of US TV company Vizio subject to foreign exchange policy

March 28 news, according to informed sources, subject to the increasingly tightened foreign exchange control policy, LeTV's acquisition of Vizio may be aborted.

It is reported that in July last year, LeEcoGlobal, a non-listed entity of LeEco, announced that it will acquire US television manufacturer Vizio for US$2 billion. The transaction was originally planned to be completed at the end of last year, but after entering 2017, both parties are in a state of silence and have not announced the latest progress. With the recent changes in foreign exchange exit policies, this transaction has also increased dramatically.

According to public information, Vizio is the largest TV manufacturer in the United States and has been adhering to the "high-end products and parity strategy". As of the second quarter of last year, it sold 22 million smart TVs. Its founder is a Chinese-American entrepreneur Wang Wei.

In addition to LeTV, a number of well-known overseas M&A projects are also at risk due to the new foreign exchange exit policy.

It is reported that SOHO China has recently cancelled or slowed down the plan to sell its Hongkou SOHO and other properties. Chairman Pan Shiyi disclosed that he intended to use the proceeds of the sale for overseas investment. However, due to the inability to exit the foreign exchange control funds, the company decided to cancel the sale plan.

Similar overseas transaction abortions have recently exploded. A few days ago, Geely announced its withdrawal from the bid for Malaysian automaker Proton, but did not disclose the reasons. Not long ago, Wanda’s acquisition of DCP, a well-known American television production company, was stranded. DCP even filed a lawsuit and demanded a reverse termination fee of $25 million from Wanda.

The background of this series of events is the rapid growth in the number and amount of overseas investment by Chinese companies in the past few years. In 2015, China's foreign direct investment reached a record high of US$145.67 billion, ranking first in the world for the first time. This figure also exceeded the actual use of foreign capital in China during the same period ($135.6 billion), achieving net output under capital.

Along with the depreciation of the renminbi, the Chinese government began to gradually release the signal of tightening foreign exchange policy last fall. In November last year, China’s foreign exchange regulators and the Ministry of Commerce issued a warning to banks that they might veto the acquisition of assets other than the main business, and that the transfer of 5 million US dollars and above must be specifically approved. In December last year, the Ministry of Commerce and the State Administration of Foreign Exchange reiterated that they would monitor overseas transactions in the real estate and entertainment industries.

During the two sessions this year, the new Minister of Commerce Zhong Shan criticized Chinese companies for “blind, irrational foreign investment”. Zhou Xiaochuan, the governor of the central bank, also stated that some overseas mergers and acquisitions did not meet the industrial policy requirements of China’s foreign investment. Some sports, entertainment, and clubs are invested." It is widely believed that this has released a signal of strong capital outflow control.

At present, many well-known transactions of Chinese companies' overseas mergers and acquisitions in 2016 are still in an unfinished state. For example, the giants bought PlayTIka, a casual social mobile game company, for $4.4 billion.

PricewaterhouseCoopers disclosed that in 2016, 51 Chinese companies exceeded US$1 billion in overseas mergers and acquisitions of Chinese companies. As of now, less than 70% of them have actually been completed, including the acquisition of overseas private acquisitions by star private companies such as Vizio.

Some media predict that Chinese companies' overseas M&A transactions in 2016 will be between $4 billion and $7.5 billion - or one-third of the transaction abortions may be postponed.