LeEco entered into a definitive agreement to acquire Vizio for $2 billion, with the latter’s hardware and software businesses to be operated as a wholly owned subsidiary.
Meanwhile, Vizio’s data business, Inscape, will spin out and operate as a separate, privately owned company.
“LeEco believes in breakthrough technologies, a complete ecosystem and disruptive pricing,” said Yueting Jia, chairman and CEO of LeEco. “Acquiring Vizio is an important step in our globalization strategy and building our North American presence.”
The acquisition benefits both companies with Vizio offering LeEco a steady install base of users and a brand that is distributed throughout major North American retail channels.
Commenting on the transaction, which is expected to close during the fourth quarter of 2016, research firm IHS Technology said the biggest challenge for LeEco will be convincing Vizio’s US retail customers that it will be business as usual during the integration, with no loss of product quality/supply, account service or supply chain discipline.
IHS said the acquisition will help LeEco and Vizio to optimize their supply chain resources. While TV supply chain relationship for both LeEco and Vizio will likely stay unchanged for the next few years, TV manufacturers that supply products exclusively to Vizio or LeEco may have more opportunities as long as they are cost competitive.
Also, the acquisition is also likely to impact their competitors, should LeEco decide to apply its current business model in China to North America and other markets.
The Chinese company focuses on the growth of the paid content subscription, while it sells TV hardware at below manufacturing cost or even provides it for free during promotional periods.