China Unicom Buys China Netcom in $23.8 Billion Deal

HONG KONG (AP) — China pressed ahead with a restructuring of its telecommunications market Monday as mobile phone company China Unicom Ltd. announced plans to take over a fixed-line provider and sell off a mobile business.

The country’s No. 2 mobile operator said it would aquire China Netcom Group Corp. Ltd in a share swap valuing the fixed-line operator at 185 billion Hong Kong dollars ($23.8 billion). That represents a 3 percent premium over Netcom’s last closing share price.

Separately, China Unicom and its parent said they would sell the code division multiple access, or CDMA, mobile network and accompanying business to China Telecom and its parent for 110 billion yuan ($15.86 billion). China Telecom is the country’s biggest fixed-line operator.

The moves were expected as part of a government-mandated shake up of China’s telecommunications sector unveiled late last month. That plan called for the country’s six telecom companies to combine into three groups in a bid to create a more competitive industry and prevent a dominant operator from monopolizing the market.

The deals could help China Unicom and China Telecom compete with the country’s cell phone heavyweight, China Mobile, the world’s largest mobile provider by subscribers. China Telecom could expand its new mobile business with its current fixed-line customers; China Unicom could grow its current mobile business with the new fixed-line subscribers.

”China Mobile, as everyone has talked about, would have more competition,” said Jackson Wong, investment manager at Tanrich Securities in Hong Kong.

Still, even China Unicom Chairman and CEO Chang Xiaobing suggested that a close rivalry was far off.

Asked at a news conference when his company might surpass China Mobile, Chang grinned.

”It’s hard to say when the new company will become the largest mobile operator in China,” he told reporters. ”Frankly, I still believe there is a significant gap between the new company and China Mobile.”

Under the transactions unveiled Monday, each existing China Netcom share will be swapped for 1.508 new China Unicom shares.

In its latest filing with the U.S. Securities and Exchange Commission, China Netcom said it had about 6.674 billion shares outstanding as of Dec. 31. Based on China Unicom’s closing price of 18.48 Hong Kong dollars on May 23, the offer would value Netcom’s shares at 186 billion Hong Kong dollars, or $23.8 billion. China Unicom said its offer represented a 3 percent premium over Netcom’s closing price on May 23, the last day of trading in Netcom shares.

Unicom said the deal would create a company with a combined value of 439.17 billion Hong Kong dollars ($56.3 billion).

China Unicom Chairman Chang said at a news conference the company expects the deal to close by the end of 2008.

In a separate statement to the Hong Kong stock exchange, China Telecom said its parent, China Telecommunications Corp., will acquire the CDMA network from China United Telecommunications Corp. for 66.2 billion yuan and will buy China Unicom’s CDMA operations for 43.8 billion yuan. The CDMA technology is popular in the U.S. and Asia.

China Telecom said the move will allow the company to branch out into the mobile business.

”It will provide the company with a solid foundation upon which to build and develop the next generation mobile business and service,” it said.

China Unicom is the only CDMA service provider in China, with 42 million subscribers by the end of 2007.

The CDMA business posted a pretax profit of 1.2 billion yuan ($173.4 million) for 2007 and 240 million yuan ($34.7 million) for the three months ended March.

Shares in China Unicom, China Telecom and China Netcom had been suspended from trade since May 23 pending ”price-sensitive” announcements.

The three companies said Monday that trading will resume Tuesday.

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