A non-binding proposal was put to Baidu in February by Baidu chairman Robin Li and iQIYI founder Gong Yu to buy the streaming unit.
Baidu said in a filing on Monday that it had not been able to reach an agreement on the structure of the possible deal nor on the price. Li and Gong offered $2.8 billion for iQIYI. The deal was being examined by a specially established committee within Baidu, with financial advice from JP Morgan.
Last week other shareholders’ dissatisfaction with the proposal burst abruptly to the surface when U.S. hedge fund Acacia Partners wrote to Baidu and published an open letter which it circulated to the investment community.
iQIYI was founded in 2010. Baidu has owned 80.5% of iQIYI since 2012, when it bought in to the company. Gong holds the outstanding minority.
The Chinese online video sector is highly competitive, and competition for content has kept all of the major operators as loss makers. But they have quickly become highly influential media companies, often replacing conventional TV as the most watched video platform for many users, and have built colossal audiences. As major media players, they hold out the prospect of riches after either a period of consolidation or period of rights price stability. Earlier this year Alibaba paid $4.8 billion to buy up roughly 80% of Youku Tudou, which like iQIYI also makes claims to be the market leader.
Although it will have to continue to shoulder losses from iQIYI, Baidu put on a brave face after the withdrawal of the takeover proposal.
“Online video is an important vertical for Baidu, in which iQiyi remains a key strategic partner. Baidu will continue to support iQiyi in its continued growth and leadership in the industry,” the company said in a statement.
“The short-term improvement to Baidu’s earnings produced by iQiyi’s sale is trivial compared to the potential long-term value created for Baidu shareholders by owning iQiyi within Baidu,” it said.
iQIYI recently claimed 20 million paying subscribers which would make it by far the leader in the segment. It also recently quoted April statistics from iResearch showing that 295 million people access iQIYI via its mobile app, and 360 million people use iQIYI via personal computers.