SK Telecom inks agreement for Hanaro

Korea's SK Telecom has signed an agreement to acquire Hanaro Telecom, the country's second largest broadband provider. SK Telecom was the selected preferred bidder announced a few days ago by Goldman Sachs, the adviser to the deal.

SK Telecom will purchase 38.89% of Hanaro for a total of W1.09 trillion ($1.18 billion). SK Telecom already owns a stake in Hanaro and will now become its largest shareholder with a total stake of 43.59%. SK Telecom will acquire management rights of the company, currently held by a consortium of American International Group (AIG) and Newbridge Capital. The deal is subject to government approval.

Ratings agency Fitch comments that the transaction 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. 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.

ôSK TelecomÆs acquisition of Hanaro Telecom will lead to greater market competition, which in turn will bring more benefits to customers," says SK TelecomÆs CEO, Shin Bae Kim, in a written statement. "Building on our strong expertise in the convergence business, we will strive to create new global business models such as developing wired and wireless integrated services with Hanaro.ö

Fitch also notes that Hanaro will benefit, not only from the positive credit implications of having a strong parent but also, in the longer term, from access to SK TelecomÆs 22 million subscribers. The agreement will also allow Hanaro to offer various bundling services, sharing SK Telecom's retail distribution network for a much more affective promotion of services. Further, it will eventually be able to use SK Telecom's or SK Network's backbone and intra-city networks.

Media reports state that HanaroÆs shares dropped 6.6% to W11,400 as investors took profits on heavy gains following the announcement. The company saw a 40% jump in its shares last month when the transaction was first rumoured.

Meanwhile, yesterday KoreaÆs KT Freetel and JapanÆs NTT DoCoMo announced that they will jointly invest in MalaysiaÆs U Mobile. The two firms will commit $100 million each and acquire a 33% stake in the new 3G mobile operator, which is scheduled to launch commercial services in 2008. Each will own 16.5% of U Mobile's shares with voting rights, and jointly participate in U MobileÆs management to enhance its competitiveness.

KT Freetel and NTT DoCoMo aim to develop international roaming services through U MobileÆs 3G network for their customers travelling through Malaysia.

KT Freetel has 13.6 million mobile subscribers in Korea, while NTT DoCoMo claims to serve 53 million customers.

In a report released yesterday, Moody's states that it believes diversified integrated telecommunications operators will continue to pay attention to shareholder remuneration and make selective cross-border acquisitions, mainly in emerging markets. "There will be some consolidation and acquisitions among altnets," says the report.

Korean companies are being forced to pursue M&A as a means to grow revenues and profits in one of Asia's most developed telecommunications markets. For SK Telecom, Hanaro provides an avenue to diversify its revenue stream. KT Freetel and NTT DoCoMo hope to participate in growth in less developed, and hence higher growth, telecom markets.

Simultaneously, Korean companies, across sectors, are starting to pursue opportunities for large, strategic cross-border acquisitions. In the last few months, Doosan was successful in its $5 billion bid for Ingersoll Rand's Bobcat division and STX Corporation spent $800 million to become the largest shareholder in Norwegian Aker Yards.