As FinanceAsia reported, SK Telecom issued a statement on Monday saying it had signed a share purchase agreement (SPA) to buy 38.89% of Hanaro for a total of W1.09 trillion ($1.2 billion).
But Hanaro Telecom, South KoreaÆs biggest broadband provider, surprised the market when it subsequently issued a statement to the Korea Stock Exchange denying that any such SPA had been signed with SK Telecom.
The shares, which represent a controlling interest in Hanaro, are currently owned by a consortium of private equity investors comprising American International Group (AIG), Newbridge Capital and TVG.
"We have been informed by the AIG-Newbridge-TVG consortium that at this moment, there is no share purchase agreement with SK Telecom," stated the Hanaro filing to the stock exchange made late on Monday. The filing was Hanaro's response to a query from the exchange following the SK Telecom announcement.
SK Telecom, the South Korean mobile telecommunications operator controlled by the SK Group, consistently maintained that an agreement had definitely been signed with Hanaro, and that it was following up on government approval procedures.
ôWe made the public announcement of our acquisition on Monday and now have five working days to file to the Financial Supervisory Service,ö said Lauren Kim, manager at SK Telecom's public relations office on Tuesday. ôWe are also currently sending co-operation requests to Hanaro regarding documents for the approval processes, which we plan to send to the government by mid-December.ö
The twist in the tale came yesterday when Hanaro declared that the SPA was now signed, in line with the terms originally released by SK Telecom, and that the deal would go ahead.
So what happened?
There is media speculation that LG Group filed a late offer for Hanaro after SK Telecom had been declared the preferred bidder. The LG Group offer was reportedly 40% higher than that of SK Telecom. If this is indeed true, the Monday announcement by SK Telecom could well have been an attempt to strong-arm the sell-side into a deal by releasing information on the transaction prematurely.
The sellers, who are financial investors and hence generally indifferent about the identity of the buyer, may have been hopeful that they could abort the deal if SK Telecom failed to meet agreed deal deadlines and could then legitimately pursue LG GroupÆs more lucrative offer. There is no clarity on why LG Group did not bid when Hanaro adviser, Goldman Sachs, ran the auction for the asset.
But SK Telecom was not willing to give up so easily on a deal which most analysts agree is a good step for the Korean firm. The acquisition will provide SK Telecom with fixed-mobile bundling services, helping the company to acquire new subscribers and retain existing subscribers in its own mobile telecommunications arena, according to Fitch. The deal will also allow it to gain exposure to the IPTV (internet protocol television) industry without bearing the start-up costs of such an investment.
Hanaro announced in early November that the company had reached the breakeven point in the third quarter and posted record-high quarterly revenues of W466.7 billion and net income of W7.4 billion, eliminating most of its accumulated deficit.
ôWe accomplished a turnaround one quarter earlier than planned, laying the groundwork for solid profit generation,ö said chief financial officer, Janice Lee, in a press release at the time. ôNext year, we aim to achieve net income large enough to pay dividends, maximising shareholder valuation.ö
SK Telecom enjoys a 50.5% market share in the telecom sector, with 22 million subscribers.
And SK Telecom's persistence paid off as it managed to complete the Hanaro deal. SK Telecom already owns a stake in Hanaro and will now become its largest shareholder with a total stake of 43.59%. The deal is subject to government approval.
The current private equity investors, who may not be able to pursue LG's higher offer, are still on track to make a healthy return on an asset they are said to have paid around $500 million for in 2003.
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