Shake up at China’s LeEco comes as investors grow impatient

The management shake-up in LeEco’s Shenzhen-listed arm is a signal that investors are getting impatient for a turnaround at the financially beleaguered Chinese internet company, despite a US$2 billion cash injection from investors at the beginning of the year, according to analysts.

On Sunday, it was announced through a filing on the Shenzhen stock exchange that founder Jia Yueting would step down as chief executive of LeShi Internet Information & Technology Corp Beijing, LeEco’s Shenzhen-listed arm. However, Jia would remain as the company’s chairman.

Longtime Lenovo executive Liang Jun will replace Jia as chief executive at Leshi. Liang joined Leshi as an executive in 2012.

The firm’s chief financial officer, Yang Lijie, was also stepping down due to “personal reasons”, according to the filing. Zhang Wei, Leshi’s China chief financial officer, will replace Yang as finance chief.

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According to analysts and industry observers, the shake-up in management just four months after property developer Sunac China Holdings invested over 15 billion yuan (US$2.2 billion) in the cash-strapped company is a signal that investors are eager for a renewed focus on profitability measures.

“There have been a lot of issues in terms of the company’s financial status and even after getting US$2 billion in investment [from Sunac] we have not really seen the company turn around,” said Kitty Fok, managing director for research firm IDC China.

In November, the LeEco group of companies headed by Jia was plagued by news of a cash crunch after he wrote an internal letter saying the company had expanded too quickly and sunk over 10 billion yuan into its ambitious electric, driverless car business. Vendors of various LeEco subsidiaries, such as its LeMobile unit, also filed lawsuits against the firm for unpaid bills.

The company started out as a video platform before rapidly expanding into producing consumer electronics such as smartphones, televisions and even an electric bicycle, and entering markets such as India and the US.

Fok said that Jia’s departure from the chief executive post is a signal that shareholders lack confidence in him, and want to give another executive who has a different plan of action a chance to lead the company.

Fok declined to comment on whether there could be a boardroom struggle between Leshi and its investor Sunac, but acknowledged that in every organisation, struggles and different points of view between the executive team are not uncommon especially when the company is facing difficulties.

Zhang Yi, chief executive of Guangdong-based consultancy iiMedia Research, believes that Jia’s stepping down as Leshi’s chief executive is likely a move to appease shareholders, but maintains that it could be positive for Leshi in the long run.

“Jia Yueting stepping down from the Leshi listed arm is not necessarily a bad thing. Sunac might have requested this move, or there could be differing opinions from the board for this decision. But Jia’s resignation means that there will be a clear differentiation between its listed video business and its unlisted businesses such as its electric car unit,” Zhang said.

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“Previously, investors shied away from Leshi’s stock because they can’t differentiate between the listed and unlisted companies, since they all come under the LeEco brand,” he said, adding that any negative news about its car business for example would have an impact on the listed video business.

A clear distinction with two different chief executives running the listed and unlisted businesses could boost confidence in the long term, according to Zhang.

However, in the short term the management restructuring could be viewed negatively by shareholders and could affect Leshi’s stock price, he said.

To improve profitability, Leshi needs to focus on its core businesses of entertainment content and hardware, where it is already a big player in China.

“Leshi should focus on what they’re strong at, which is their core business in content. Videos and entertainment is now one of the major industries in China, and less resources should be invested towards businesses such as driverless cars,” Fok said, adding that LeEco’s car business requires major financial investment and should only be a focus when there is a strong technology partner.

Sunac founder and chairman Sun Hongbin stated at the company’s annual general meeting on Monday that he remains optimistic about LeEco’s television and film businesses, and emphasised that Sunac will not be investing in LeEco’s car unit.

Sun also stated that he was not seeking to gain control of Leshi, although he will play a role in managing the company’s governance structure and management system.

Leshi’s shares remained suspended on the Shenzhen stock exchange on Monday. Its stock price last closed at 30.68 yuan on April 14, and has slid 14 per cent since the beginning of the year.