LOS ANGELES _ Electronics giant Vizio Inc. has been foiled by the Chinese economy again.
The company announced Monday that it scuttled a proposed $2 billion cash acquisition by Chinese technology company LeEco. Vizio cited "regulatory headwinds," which certainly includes increased scrutiny from the Chinese government on overseas corporate investments. The acquisition had yet to receive approval from Chinese officials.
The proposed acquisition, which had sprouted from discussions early last year, emerged after Vizio delayed plans for an initial public offering. The company, headquartered outside Los Angeles, decided not to go forward because concerns about China's economic growth had created instability in the stock market.
The sale promised to raise Vizio's global standing and reward longtime employees and investors, but there was doubt from the beginning about whether the pairing really added up to what executives called "a love affair."
"LeEco's pullback from the Vizio acquisition isn't surprising," said Thilo Hanemann, an economist for Rhodium Group, a research firm. "Chinese capital controls currently make it difficult to move $2 billion offshore and a company with LeEco's problematic balance sheet should have tremendous difficulties raising funds for such a deal."
Vizio said Monday that though the sale isn't happening, it reached a partnership agreement that will lead to technology collaboration with LeEco. But the company declined to specify financial details and rejected requests to interview executives.
Vizio had been considering an IPO or acquisition to give its 400 employees and manufacturing partners a chance to cash out their stock. Vizio Chairman and Chief Executive William Wang owned 54 percent of the firm as of September 2015. Taiwanese manufacturing partners AmTran and an affiliate of Foxconn held nearly 30 percent combined ownership.
What alternative the company might pursue now is unclear.
Wang founded the company in 2002 as an answer to what he deemed overpriced TVs. Funded by venture capital and a home loan, Wang kept costs low by leaning on Asian hardware manufacturers. Vizio found success after landing a major deal to distribute sets at Costco.
The company has seen rising profits. The latest available public data show Vizio brought in $2.2 billion in revenue and $44.3 million in profit during the first nine months of 2015.
With LeEco's help, Vizio had hoped to increase international sales of TVs and speakers. It also planned to spin out a potentially fast-growth business centered on selling TV viewing data to advertisers.
The data business is rife with privacy and security obstacles. In February, Vizio agreed to a $2.2 million Federal Trade Commission fine over allegations that the company didn't warn its 11 million users that their behavior was being monitored.
The failed acquisition isn't likely to result in noticeable changes immediately for Vizio buyers, said Colin Dixon, who runs digital media consulting firm NScreenmedia.
But without new ventures, Vizio could see stiff competition chip away profits and its long-term viability challenged. Leading TV makers Samsung and LG sell smartphones, fridges and dozens of other gadgets, allowing them to hedge against shifts in the TV industry.
Chinese rivals TCL and Hisense could make bids to bolster Vizio, though they might face the regulatory hurdles too.
LeEco's troubles are far from behind it. The company has faced scrutiny from both U.S. and Chinese officials over its finances. Questions still loom about whether the company and its billionaire founder Jia Yueting are overextended with both debt and wide-ranging ambitions. Yueting is also behind the electric car company Faraday Future.
His conglomerate pursued Vizio for several years with the intention of rolling out its online video streaming app and other services on Vizio TVs in the U.S. At a gilded event in Hollywood last July, LeEco unveiled it had finally reached a deal.
Without the ample cash to compete with a Samsung or LG on advertising, LeEco saw a partnership with Vizio as an affordable way to make a name for itself outside of China.
Those hopes haven't been fully dashed. The new agreement with LeEco "enables distribution" of its content on Vizio TVs, the companies said. In exchange, Vizio gets help with reaching consumers in China. LeEco also may share a portion of revenue with Vizio, analysts speculated.
Whether LeEco gets "great positioning on the Vizio TV" is the big question, Dixon said. Without it, the company, which opened a pop-up store at a LA-area shopping mall last fall, may continue to struggle to draw U.S. buyers to its hardware or apps.
A LeEco spokeswoman declined to comment.
This isn't the first high-profile Sino-U.S. deal to fall apart this year amid the stricter Chinese regulatory climate. Last month, a $1 billion bid by Dalian Wanda Group to buy Dick Clark Productions was scuttled.
Chinese policymakers have been reining in capital outflows after the country saw a quarter of its foreign reserves dwindle in the past three years. Chinese companies and households have sought to store their wealth overseas to guard against China's weakening currency, which has dropped 12 percent against the dollar since a high in 2014.
The ferocity of the outflows has troubled regulators, who now scrutinize outbound deals far more strictly.
"China has always encouraged overseas investment, but more needs to be done to ensure it occurs in a more rational manner," said Pan Gongsheng, head of the State Administration of Foreign Exchange, according to Chinese state media.
"Overseas mergers and acquisitions can be like a bunch of roses: They can prick with their thorns," Pan continued. "Companies need to carry out thorough due diligence."
Chinese regulators said they would frown upon outbound investments centered on real estate, sports and entertainment. Acceptable deals are those that help bring in technological know-how and benefit Chinese workers and a Chinese company's core business, said Chis Dong, a research director for IDC.
LeEco's deal was not only too expensive, but also too risky given its need to compete with the likes of Netflix and Amazon Video to deliver content on its phones and TVs, Dong said.
"The deal would only grow the company's U.S. market," Dong said. "It may not have contributed anything to China. It's not their core business."
