Three quarters of the payment, or $25.5 billion, will be paid in the form of new shares to China Mobile Communications, which will thereby retain its 75% stake in Hong Kong-listed China Mobile. The company will issue an additional $4.1 billion new shares to the public. The new shares represent less than 10% of China Mobile's outstanding shares. The company will also issue $600 million in convertible bonds including a greenshoe, and take out a $1.4 billion syndicated loan in yuan.
The acquisition will give China Mobile phone companies in Beijing, Tianjin, Shanghai, Lianoning, Hebei, Shandong and Guangxi, bringing its subscriber base to more than 32 million. A roadshow to help sell the new shares is tentatively scheduled to begin October 16. Goldman Sachs, Merrill Lynch and China International Capital Corporation are managing the sale.
Against the grain
The acquisition of such a small stake by Vodafone goes against the UK-based mobile phone company's preference to take majority stakes in companies where it can exert some management control. Analysts say that for Vodafone the acquisition is likely a marker that it can parley into a bigger stake following China's accession to the World Trade Organization.
"It's more of a gesture of goodwill that it hopes will give it a head start ahead of WTO," says Edison Lee, head of Asian telecoms research at Credit Lyonnais Securities in Hong Kong. "China Mobile will need a big strategic investor by 2002 when China issues its 3G licenses."
On accession to the WTO foreign companies will be able to acquire 25% of China's telecoms companies. That rises to 35% after five years and 49% after six years. Vodafone's move follows a similar strategic investment in China's second-biggest mobile phone company, China Unicom, by Hong Kong tycoon Li Ka-shing's ports-to-retailing conglomerate Hutchison Whampoa. Hutchison paid $400 million for a roughly 2% stake in Unicom as part of its initial public listing in New York and Hong Kong earlier this year.
While Vodafone's acquisition may give it a leg up as China's market opens to competition, it also faces the danger of becoming tied up in a minority holding that it can't get out of, analysts say. Vodafone is already stuck in several investments where it is difficult to increase its holding and difficult to get out. It's trying to sell its 11.7% stake in Shinsegi Telecom, Korea's third biggest mobile phone company, and it can't upgrade its stake in J-Phone, Japan's third largest mobile phone company.
Once China Mobile has acquired the seven operators covered by its latest agreement, it still has another 13 that it could potentially buy from its parent. The company would ideally like to have acquired them all at once, but some networks, especially in the west, aren't in as good a condition as China Mobile would like. It would require too much money to upgrade them.
The company will hold a press conference after briefing analysts at 7:15 this evening, Hong Kong time.
