(Chinese Version)

LeEco’s listed company, Leshi Internet Information & Technology Corp, has had many embarrassing moments in the Chinese A-share market. At first, the company miraculously became listed despite having major issues, and then survived the anti-corruption wave. Later Leshi became one of the most interesting shares in China powered by Jia Yueting’s ecosystem concept. It's fair to say that Leshi has never failed to surprise us.

When LeEco was having major cash bleed, Sunac China’s board chair Sun Hongbin poured in ￥15 billion and helped the Internet company out. However, it seems LeEco has got into another embarrassing situation.

It’s incredible that as a listed company, Leshi didn’t announce its new CEO itself. Such major management change did not appear on Leshi bulletin either, but instead was revealed at its second biggest shareholder Sunac China’s press conference. Several news outlets have reported that Sun Hongbin had announced at Sunac China’s press conference this month that the president of Leshizhixin (non-listed company) has been appointed as the new CEO of Leshi, the listed company. After researching on relevant requirements on listed companies in China, TMTPost learned that the law regulates that companies must make public announcements when having major management shift or personnel change that would have a profound impact on operation. However, Leshi did not follow the requirement and made an announcement.

Amazingly, many news on Leshi's major strategy adjustments were not published by Leshi itself but Sunac China. Sun Hongbin had revealed LeEco’s strategy adjustments and future plans in details for several times at Sunac China’s press conference: changes of the independent board of the listed company; the retrenchment strategy of the listed company; the management shift of the listed company; the responsibility change of the listed company’s actual holder etc.

“In the future, LeEco will only have two main parts, which are Leshi and LeSEE. The development of LeSEE is up to Jia Yueting. Jia will focus on the car business. Leshi has me,” Sun said at Sunac China’s press conference. When this statement was made, Jia was still the official board chair and CEO of Leshi. It’s incredible that it was Sun Hongbin who announced the appointment of Liang Jun.

Perhaps it’s not uncommon to see such phenomenon in the Chinese A-share market as there is a lack of supervision. But if similar things take place in a mature and developed market, the result will be disastrous. But the embarrassment did happen, and the regulator of the A-share market wasn't there to fix it.

Make no mistake. Sun Hongbin is just as aggressive as Jia Yueting. It’s apparent to the public that LeEco is having internal leadership conflict.

Recently, Leshizhixin’s president Liang Jun announced that LeTV’s sales department would return to Leshizhixin starting from May 18th.

This move is the complete opposite of Jia Yueting’s structural adjustment that was set to handle the cash plunge six months ago. In response to the cash plunge, Jia Yueting set up the LeEco sales and service platform to operate the online sales of LeEco’s products. According to Jia’s plan, LePar would be responsible for the business of offline stores related to the O2O category. Zhang Zhiwei, former vice president of Leshizhixin would be in charge. Tencent Technology reported that after Sun Hongbin had invested in LeEco, it seemed only Liang Jun won over Sun’s trust.

Liang Jun

Who exactly is Liang Jun?

Besides strong business capability, Liang Jun is also interesting for his past experience at Lenovo. Before joining Leshi on January 30th 2012, Liang Jun had worked at Lenovo for seven years. Liang started to work for Lenovo Group in April 1995. He had been Lenovo’s general manager of the product chain management department, the server business department, the marketing department of Lenovo’s mobile telecom tech subsidiary, and the vice president of Lenovo’s smartphone R&D department.

Graduating from Tsinghua University with a master degree, Sun Hongbin joined Lenovo in 1988. In 1990, Lenovo made an exception and promoted him to the manager role of Lenovo’s corporate development department, mainly in charge of the Chinese character card and microcomputer distribution business. However, due to economic problems, he was sent to prison by Liu Chuanzhi himself. Sun was sentenced to five years in prison and later got a 14-months reduce on penalty.

On March 27th 1994, Sun Hongbin finished his penalty and left the prison. The prison time didn’t break Sun down. He subsequently founded Sunac China and once again reminded the public of his genius operation mind and extraordinary execution ability. With ￥500,000 from Liu Chuanzhi, Sun founded SUNCO. Sunac China was originally a high-end real estate project of Sun Hongbin in 2003.

It’s unknown whether Sun Hongbin and Liang Jun had have a close relationship at Lenovo before, but it’s natural for them to communicate with each other as they both come from Lenovo. The new arrangement announced on May 18th is a sign of separating the listed company Leshi. It’s also Sun Hongbin fulfilling his promise of improving the transparency of the listed company and private company of LeEco.

On May 15th Liang Jun had also openly stated that Leshizhixin has a very stable team and that it’s the private business that is having cash crisis. He added that LeEco’s business should be separated from Jia’s own goals. This statement is regarded by many as an olive branch to Sun Hongbin.

According to Sunac China and Leshi’s announcements, Sunac China has invested strategically in LeEco’s three subsidiaries. Sunac China has acquired 8.61% of the shares of Leshi at ￥6.041 billion, 33.5% of Leshizhixin’s shares at ￥7.95 billion, and 15% of Le Vision Pictures at ￥1.05 billion. Sun Hongbin revealed at the performance review conference on March 28th 2016 that Sunac China had invested ￥12.4 billion in LeEco.

Sun Hongbin has openly stated that LeEco’s strength not only lies in its contents, but also its production ability and TVs. “If LeEco sells 10 million TVs, then it has a rating of two TV channels combined,” Sun said. “These three factors would be a direction for the greater cultural and entertainment industry. We will be able to grasp users’ preference if they use our TV, and thus help out the content makers. We will also be able to make advertisements that target the audience more precisely. And we also have income from the membership system.”

With the support from Liang Jun who also came from Lenovo, Sun Hongbin will be able to better control Leshizhixin’s business. And Liang Jun will better carry out the concepts and manage the listed company as the CEO.

Jia Yueting and Sun Hongbin

The fierce second biggest shareholder and the left-behind LeEco ecosystem

In the recent 30 days, there has been a great number of news on layoffs within LeEco’s ecosystem. The most apparent case has been LeSports, the subsidiary with a layoff rate of 70%.

On May 8th, Hutchison Whampoa made a public announcement demanding payment from LeEco. That said, Jia is also owing money to Li Ka-shing, one of the richest Chinese businessmen. LeEco was put on the center of attention once again before the YiDao scandal comes to an end entirely.

According to Hutchison Global Communications, LeEco’s LeCloud has been delaying payment for a long time.

On May 3rd, LeSports did not livestream the first round of the Real Madrid VS Atletico Madrid match at 2:45. The commentators and LeEco’s member users all got the cancel notice at the very last minute from LeSports.

However, LeEco later rebroadcasted the second round. Internal staff of LeSports revealed to Tencent Technology that the company might have payment issues with the UEFA Champions League due to financial situations, and the copyright owner cut off the signal to protest.

It’s actually a rather mild approach for the copyright owner to protest. In comparison, LeSports acquired Chinese Football Association Super League’s exclusive broadcasting right between 2016 and 2017, but the deal was later cancelled because of payment issues. LeSports has another major sports event at its disposal, the FA Premier League. However, the deal is not exclusive.

The second biggest shareholder Sun Hongbin stated directly at the press conference on March 28th that the deal with Chinese Football Association Super League was completely unnecessary because the company poured in 1.3 billion and lost 500 million. “You can’t do this business only because the Chinese audience likes it. This is business. It’s a wrong decision,” Sun said. Yu Hang, COO of LeSports, who was in charge of purchasing broadcasting rights left the company during that period.

The former second biggest holder, China Bridge Capital, advised Jia Yueting to focus on the listed company and consider the car business a dream while LeEco was plagued by cash bleed and controversy. But later Jia expressed in an interview that China Bridge Capital is merely a shareholder from the secondary market, and that the company doesn’t have second or third biggest shareholder. Subsequently, China Bridge Capital disappeared from the top ten shareholder list that was issued by LeEco in the Q1 of 2017.

Sun Hongbin then poured in ￥15 billion and became Le.com’s second biggest shareholder. Apparently, Sun is a more controlling person. This can be reflected by the fact that the COO of LeSports left the companyafter Sun criticized LeSports.

What is Sun Hongbin aiming for?

Is it true that Sunac China, a real estate company, only aims to be an investor and work with LeEco to build a so-called real estate ecosystem?

Recently, the listed company Jinke has been having a share war. And Sunac China also offered the company an olive branch. According to open statistics, Jinke has a buildable area of 18.46 million square meters by the end of 2016. Statistics also show that Jinke is planning to expand its buildable area by 6.5 million square meters. Apart from that, Jinke has a value of stock of ￥71.527 billion, accounting 65.47% of its total asset.

At a conference in November 2016, Sun Hongbin explained his logic: increase the land bank through acquisitions. By March 25th 2017, Sunac China has already accumulated a land bank of 79.12 million square meters. In 2015, the company only had 27.20 million square meters.

As a matter of fact, LeEco has a rather large land bank. In accordance with LeEco’s real estate statistics, LeEco possesses a land of 10,000 mu in Moganshan in Zhejiang province, and a land of 5000 mu in Yizhuang, Beijing. The Economic Observer reports that LeEco had directly acquired a land bank of 8,300 mu. If we add the land bank still under negotiation with local governments, LeEco in fact has a land bank of 25,000 mu.

The Economic Observer also learned that LeEco had acquired lands in Beijing, Chongqing, Shanghai, Zhejing province, and two states in the U.S. These lands are mostly for industrial purposes while some are supplementary lands like residential area and office area. Additionally, LeEco has also reached strategic cooperation agreements with the local governments of Guiyang Free Trade Zone, Tianjin’s Ji county, Shenzhen, Zhangjiakou, Beijing’s Chaoyao district and Linfen etc. However, the relevant details haven’t been announced yet.

Seasoned real estate industry insider Zhu Xiaohong expressed that nowadays it’s getting harder and harder to acquire land through auction. “Getting lands from acquisition is quite a good move. In the future, the big fish will eat up the smaller ones. It’s a tendency,” Zhu said.

Sun Hongbin also mentioned that they could cooperate with LeEco on land acquisition during an investor meeting. “For instance, we can build movie theme towns, sport theme towns or car towns. “What should be done if Jia Yueting invested in LeSEE and the money runs out? Sell the lands? Who should take over?”
As Sun Hongbin gradually gets hold of LeEco’s quality assets, LeSports and YiDao slowly fade away from LeEco’s focus, it seems LeEco has found hope amid financial crisis. There is nothing more important than survival. It would be very difficult for Sun Hongbin to “let go of” LeEco since the company has such a large land bank and Le.com the listing shell. But many would wonder: what about LeEco’s actual holder Jia Yueting?

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The article is published with authorization from the author @Zhu Taowei, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.