Hong Kong’s largest wireline operator PCCW has confirmed that it is selling a 20% stake to the Chinese fixed line telco China Netcom. After months of talks, which at one point appeared to have broken down, Netcom has agreed to pay HKD7.93 billion (USD1 billion) in cash for the PCCW stake. It is acquiring 1.34 billion newly issued shares at HKD5.90 each, a 25.5% premium on PCCW’s last traded share price of HKD4.70. The deal is subject to the approval of PCCW shareholders.
Netcom says it intends “to be a committed investor in PCCW” and will take three seats on the Hong Kong company’s board, with one of these installed as Deputy Chairman. Netcom’s general manager, Zhang Chunjiang, commented: “We are most excited that this is a win-win transaction which will create growth opportunities for both parties.” He added that he expects PCCW’s experience in the Hong Kong market to be of benefit to Netcom’s own business and marketing strategies in China.
PCCW’s chairman and largest shareholder, Richard Li, said: “The main purpose of this strategic relationship with China Netcom Group – a major Chinese state-owned telecommunications company and a broadband leader – is to create long-term value for our shareholders through actively pursuing new business opportunities. This transaction will lay the foundation for PCCW to participate in the high potential and fast growing telecommunications market in China. At the same time, the capital injection will further strengthen our financial fundamentals.” The two companies say they have earmarked HKD5 billion to pursue opportunities in mainland China’s expanding telecoms sector.
PCCW is Hong Kong’s largest fixed line operator, with 2.66 million main lines in service and a 70% share of the market by mid-2004. Advanced services are becoming increasingly important for PCCW and the company had 753,000 broadband customers at the end of June, up from 559,000 18 months earlier. Meanwhile, Netcom had more than 94 million wireline subscribers in China at the end of 2003.