* Baidu plans to sell all its holdings in iQIYI -sources
* Stake sale could value iQIYI at about $7 bln -sources
* Targeted iQIYI valuation would represent price of $8.13
* Deal has drawn interest from PAG and China Mobile -sources
HONG KONG, June 15 (Reuters) - China's internet search
engine giant Baidu Inc is in talks to sell its
controlling stake in iQIYI Inc, China's answer to
Netflix, in a deal that could value all of iQIYI at about $7
billion, two people with knowledge of the matter said.
Baidu, which owns 53% of iQIYI and holds more than 90% of
its shareholder voting rights, plans to sell all its holdings in
the Chinese video streaming services firm, said those two people
and another two sources familiar with the matter.
While China's cinemas have struggled as COVID-19 lockdowns
have restricted consumers' mobility, its online video market is
booming: 2022 revenue is set to climb to 163 billion yuan ($24
billion), up 17% year-on-year, according to domestic consulting
Nasdaq-listed iQIYI, the No. 2 player in China's video
streaming market after Tencent Holdings' Tencent
Video, has a market value of $4 billion. Baidu's targeted
valuation of $7 billion for the whole company in its divestment
would represent a price of about $8.13 per share compared with
its latest close of $4.67.
The divestment plan, not previously disclosed by Baidu,
comes after the firm deemed iQIYI to be a non-core asset, and as
it seeks to sharpen its focus on developing its
capital-intensive artificial intelligence and autonomous driving
units, said the first two sources.
Terms of the deal have not yet been finalised and are
subject to change, said the sources, who declined to be
identified due to confidentiality constraints.
Baidu didn't respond to a request for comment.
The iQIYI stake has drawn initial interest from a number of
financial sponsors and state-owned companies, said three of the
four sources, with Hong Kong-based private equity firm PAG among
China Mobile, the world's largest mobile network
operator by subscribers and owner of streaming service Migu
Video, is also among potential buyers, two of the people with
knowledge of the matter said.
PAG declined to comment. China Mobile did not respond to a
request for comment.
If Baidu achieves its valuation target, that would represent
a premium of more than 100% to iQIYI's average share price over
the past three months of $3.97. The streaming firm's shares have
lost 70% in the past 12 months amid a broader sell-off in
Chinese tech shares.
Baidu, whose businesses range from internet search to
electric vehicles, with expansion into cloud services, robotaxis
and autonomous driving in recent years, has tapped Bank of
America to work on the potential sale, said the second
pair of sources.
Bank of America did not offer any immediate comment.
"This is purely market rumour," iQIYI said in an emailed
statement to Reuters, without providing further comment.
IQIYI HITS, LOSSES
The stake sale plan drawn up by Baidu, worth nearly $50
billion by market value, comes against the backdrop of China's
regulatory crackdown since late 2020 on firms from technology,
private education and other sectors, which hammered their shares
and forced some to scale back expansion in non-core areas.
The Nasdaq Golden Dragon Index, which tracks Chinese
companies traded on Wall Street, is down 50% over the past year.
Snaring iQIYI would give the potential buyer the opportunity
to dive into the main market for full-length TV shows and
Tencent Video and iQIYI, as well as smaller rival Youku,
owned by Alibaba Group Holding, offer movies, drama
series and reality shows - both original content and material
bought from other producers.
iQIYI has made several hit drama series, including "The Long
Night" and "The Wind Blows From Longxi". Its original variety
shows, "The Rap of China" and "The Big Band", have also been
major topics on social media.
On the flip side, the cash-burning iQIYI has barely broken
even in its 12-year history. In the January-March period, it
delivered a quarterly profit for the first time since 2016 when
it started to report quarterly earnings.
It recorded a net income of 169 million yuan ($25 million)
in the first quarter of the year, compared with a net loss of
1.3 billion yuan in the same period a year earlier, but its
revenue dropped 9% to 7.3 billion year-on-year.
(Reporting by Julie Zhu and Kane Wu; Editing by Sumeet
Chatterjee and Kenneth Maxwell)