Chinese Video Streaming Company iQIYI Soars As Tencent Reportedly Eyes Majority Stake

Shares of Chinese video streaming platform iQIYI Inc IQ were  ripping higher Tuesday on reports of a takeover approach from social media and gaming company TENCENT HOLDING/ADR TCEHY.

What Happened: iQIYI, which is majority owned by Chinese search giant Baidu Inc BIDU, has been courted by Tencent with an offer to buy a majority stake in the former, Reuters reported, citing two people familiar with the matter.

iQIYI, popularly called China's Netflix Inc NFLX, has a market capitalization of $14.05 billion, according to the Yahoo database.

As of Feb. 20, 2020, Baidu held 56.2% of iQIYI's outstanding ordinary shares, representing 92.7% of its total voting power, according to iQIYI's latest annual report filed with the SEC.

The plans are in preliminary stages and subject to change, the report said.

The Deal Logic: Tencent is aiming to be the leader in the Chinese online entertainment industry, and the speculated deal would likely to cement its leadership position.

A combination is also seen to increase bargaining power while producing and buying content and also trim overhead, mainly in the form of marketing expenses to capture market share, according to Reuters. 

In premarket trading Tuesday, ADSs of Nasdaq-listed iQIYI were soaring 38.43% to $26.51 and Baidu ADSs were up 10.37% at $128.93. 

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