US TV maker Vizio is seeking damages totaling $115 million from its estranged partner LeEco – signaling more shaky times ahead for shareholders in the struggling Chinese electronics manufacturer. The warning signs were there from the offset, but the allegations are deeper and darker than initially suspected.
Just one year ago, Vizio and LeEco were ready to embrace a $2 billion merger that the two believed would form a powerhouse in TV and media in the US, but that quickly fell through the floor and this week Vizio has filed two lawsuits against its Chinese ex for derailing the relationship amid some shady business practices.
Vizio says it has only received $40 million of the $100 million termination fee that was part of the merger contract, so its primary suit in a federal court is seeking the remaining $60 million, plus $15 million in punitive damages.
The second suit, which is almost identical, has been filed in Orange County Superior Court against LeEco subsidiary LeEco Technology, which also operates in California, presumably meaning Vizio should have an easier ride in the legal proceedings, rather than trying to take down a Chinese company in a federal court.
Vizio has accused that key executives within LeEco of covering up the holes that had emerged in LeEco Global Holding, the group through which it planned to acquire Vizio. Vizio’s lawsuit adds that other LeEco executives were misled by financial malpractices, which claimed that the takeover of Vizio was required to “either obtain the instant financial stability, credibility and resources.”
The allegations get much stronger in wording, as Vizio states that LeEco “concocted a secret plan to gain or try to obtain access to Vizio’s large corporate customers and key decision makers there for its own purposes, and create a false widespread public impression of its own financial health and wellbeing.” LeEco has so far declined to comment on the allegations.
LeEco isn’t exactly keeping up a squeaky clean reputation, as just a few days ago its Chairman Jia Yueting had $182 million worth of assets frozen by a Shanghai court, for unpaid debts.
Faultline Online Reporter predicted the failure of this deal from the outset – a call we made without knowing the true state of LeEco’s financial books and the depth of the cover ups that Vizio is alleging.
However, we think the failure of the deal is a blessing in disguise, as it had the potential to destroy the only indigenous TV manufacturer in the US. Vizio was essentially started up to rival Samsung in the TV space and is best known for its suite of budget smart TVs, it has a TV market share of just over 20% in the US, the second largest behind Samsung, but only 3.4% worldwide.
Not too long ago, LeEco was thought to be the world’s fastest growing smartphone vendor, but the company has run into a world of trouble after missing its US sales target by a wide margin and is now planning to slash 365 jobs, 70% of its US workforce. Reports also suggest that LeEco is holding off on these job cuts because its current troubled financial state of affairs will not stretch to pay severance fees.
The job cuts are part of a restructuring of the company which LeEco says involves targeting its content business at Chinese-speaking households.
LeEco made its debut in the US in October last year, with products such as smartphones, smart TVs, an electric car, a VR headset, a smart bicycle and its OTT service which was dubbed the Netflix of China.
No wonder the company has spun itself a web of misfortune given this extravagant lineup of debut products, and then still has audacity to go ahead with a $2 billion bid for a company that it could not afford.
While the fate of its various business ventures remain on the ropes for now, this week, one of the companies LeEco backs, Faraday Future, pulled its plans to build an electric car factory in the Nevada desert.