Rise and Fall of LeEco: Will it Survive?
Case Code: BSTR544
Case Length: 19 Pages
Pub Date: 2018
Teaching Note: Available
Industry: Technology & Communications
Themes: Financial Accounting & Reporting, Restructuring
Abstract Case Intro 1 Case Intro 2 Excerpts
When LeTV started operations, it was the first company in China to stream TV shows, movies, and original content to subscribers who paid for this content. Over time, the company acquired the inclusive copyrights to popular Chinese TV programs and movies and its video streaming service became so popular in China that it was often called the ‘Netflix of China’. LeTV went in for an Initial Public Offer (IPO) of CNY730 million (US$110.4 million) in August 2010 on the Shenzhen Stock Exchange as ‘Leshi Internet Information and Technology Corp., Beijing’ (Leshi)...
Transforming into Leecosystem
Building on the success of the video streaming business, Jia ventured into various businesses, establishing companies either from scratch or through acquisitions. He created 15 subsidiaries and 68 affiliated parties in different industries (see Exhibit 1: Selected Subsidiaries of LeEco Group). Within a short period, Jia entered into businesses such as virtual reality, real estate, cloud computing, music streaming, smart electric cars, live sports, smart bikes, film production, wine e-commerce, internet finance, etc. These new ventures were not part of Jia’s listed firm (Leshi), but were private companies. Jia sold his stake or used his stake in Leshi as collateral to borrow money to finance these new ventures. According to a Shenzhen Stock Exchange filing, Jia had garnered CNY4.7 billion (US$707.7 million) by selling off his stake in Leshi....
Challenges of Spreading too Thin
LeEco’s rapid diversification created major challenges for it. Early signs of problems brewing became apparent when trading in the Leshi stock did not restart as per schedule. In December 2015, trading in the Leshi stock was suspended for a short period to allow Leshi to merge its filmmaking subsidiary – LeVision Pictures – into its stock. The stock trading was scheduled to start on January 5, 2016, but started only in June 2016...
Taking Tough Decisions
To take on the challenges, Jia decided to cut his salary to one yuan (US$0.15) per annum. To reduce costs, LeEco also decided to reduce the workforce. By early December 2016, the company had reduced 85% of its workforce in India. In a statement, the company said, “India is one the most strategic markets for LeEco, and hence there is no exit plan.” The company also reduced the number of its employees in Hong Kong and the US....
Raising Fresh Financing
Around mid-November 2016, Leshi announced that it had secured a funding of US$600 million from 10 investors. The company planned to invest this money in a car venture and LeEco Global...
Change of Guard
In May 2017, Leshi’s CEO and CFO changed. Liang Jun replaced Jai as CEO, and Zhang Wei replaced Yang Lijie as CFO of the company. However, Jia continued as chairman of the company. Jia termed these two replacements as the most important milestone in the history of the company after its IPO. In a letter to all LeEco employees, Jia said, “After we introduced the second-largest and strategic shareholder (Sunac), we formally initiated a major restructuring of Leshi.”...
Drawing Attention form Chinese Authorities
In September 2017, the Supreme People’s Court placed two subsidiaries of LeEco on the credit defaulter’s blacklist as these companies had collectively refused to repay CNY107 million (US$16.38 million) to their suppliers. Hu Jiaming, Analyst at Capital Securities, said, “The listed debts of the two companies are just the tip of [the] iceberg for LeEco. One of the challenges the group has been facing is to decide whether to repay the debts first or use the money to expand the business first.” Later, in the same month, the company repaid some of the money due to the suppliers. A company insider stated that company had repaid CNY100 million (US$15 million) to 28 suppliers and planned to repay 27 more suppliers later...
To extricate the company from the problems in which it found itself, Hongbin decided to take some drastic but important decisions to turn the company around. The focus was on reducing costs, and reducing the employee strength by 10%. Hongbin’s target was to reduce debt, which was as high as 394% of equity when he assumed office, to less than 100% of equity by the end of 2018 and less than 70% by the end of 2019....
Exhibit I:Selected Subsidiaries of LEECO Group
Exhibit II: The Ecosystem Structure of LeEco
Exhibit III: LeEco Corporate Structure
Exhibit IV: Corporate Structure of LeEco’s Non-Listed Companies
Exhibit V: Five Years Balance Sheet of Leshi Internet Information and Technology Corp., Beijing
Exhibit VI: Five Years Income Statement of Leshi Internet Information and Technology Corp., Beijing
Exhibit VII: Five-year Cash Flow Statement of Leshi Internet Information and Technology Corp., Beijing
Buy this case study (Please select any one of the payment options)
|PayPal (9 USD)