Baidu to Sell Majority Stake in Its Financial Services Unit

The deal, which is expected to close in the second half of the year, would value Baidu's Financial Services Group at nearly $4 billion.

CapitalWatch Staff
    Apr 30, 2018 1:36 PM  PT
Baidu to Sell Majority Stake in Its Financial Services Unit
author: CapitalWatch Staff   

Chinese internet giant Baidu Inc. (Nasdaq: BIDU) announced Monday that it would sell a majority stake in Baidu Financial Services Group (FSG) for around $1.9 billion to a consortium led by TPG Capital Management LP and Carlyle Group LP, as it looks to further its push into the FinTech industry.

Under the new planned structure, Baidu would divest a majority equity stake in FSG, which has been renamed Du Xiaoman Financial. Of the $1.9 billion, Du Xiaoman would retain $840 million with the balance of $1.06 billion going to Baidu to purchase its stake, the company said in a statement.

"In the coming age of FinTech, Du Xiaoman will leverage the technological capabilities of Baidu AI to partner with financial institutions and provide technology-driven, trustworthy financial services to consumers in China," said Guang Zhu, senior vice president at Baidu and general manager of the current financial services business, who is slated to become CEO of Du Xiaoman.

The deal, which is expected to close in the second half of the year, would value FSG at nearly $4 billion, said one person with direct knowledge of the matter.

"This transaction marks another milestone for Baidu to incubate new businesses with large opportunities and strong synergies with Baidu's core business, on the heels of iQiyi's public listing," said Robin Li, Chairman and CEO of Baidu.

In particular, the investment would give Baidu the firepower it needs to narrow the lead that Alibaba Group Holding Ltd. (NYSE: BABA) and Tencent Holdings Ltd. have taken in financial services, and also to find revenue streams outside its internet search business.

The deal provides foreign investors with a significant indirect stake in a number of lucrative onshore financial service businesses and comes as the government opens up China's financial sector to more foreign investment.

Competition and Opportunity

The Baidu deal also adds to a flurry of fundraising activity by Chinese technology firms, including Ant Financial Services Group and Inc.'s (Nasdaq: JD) finance arm, which are keen to respond to burgeoning demand for digital services, especially in the financial sector.

FSG runs payment system Baidu Wallet, an online credit service and an online wealth management platform. Analysts said it has faced difficulties in building up Baidu Wallet.

Baidu Wallet, which also draws in users for other financial services such as online credit, had 100 million activated accounts as at the end of 2016 - a much smaller customer base than China's top online payment platform Alipay or Tencent-operated WeChat Pay.

"TPG and Carlyle are trying to take a piece of the fintech, payment market in China which is basically a duopoly at the moment by Tencent and Alibaba," said Ryan Roberts, an analyst at Hong Kong-based financial services advisory MCM Partners.

He expected Baidu to focus more on other FinTech services, such as micro loans, robo-advisory and insurance products.

FSG also owns several small financial licenses such as a third-party payment licence and a fund sales license.

Baidu will be left with a roughly 42 percent stake in the spun-off unit. The rest of Du Xiaoman would be owned by the consortium that includes Taikang Group and ABC International Holdings Ltd, Baidu said.

Baidu FSG plans to use part of the proceeds raised to invest in domestic financial institutions as well as to replenish working capital, said the person with knowledge of the matter.

(Reuters contributed to this article)