China Mobile buys it all

China Mobile Hong Kong is to acquire the entire equity interest in eight mobile communications companies for $10.2 billion.

China Mobile Hong Kong (CMHK) Limited has signed a conditional sale and purchase agreement to acquire a 100% equity interest in Anhui Mobile, Jiangxi Mobile, Chongqing Mobile, Sichuan Mobile, Hubei Mobile, Hunan Mobile, Shaanxi Mobile and Shanxi Mobile from China Mobile Hong Kong (BVI) Limited, CMHK’s controlling shareholder.

CMHK will pay a total consideration of $8.573 billion to acquire the entire equity interest in each of these eight mobile communications companies, and will assume the total net debt (long term and short term bank loans and other borrowings less cash and cash equivalents) of the eight companies.

As of December 31, 2001, these companies had a total net debt of approximately $1.627 billion. Taking into account the above net indebtedness and the total purchase price of the acquisition, the enterprise value of the eight target companies is $10.200 billion.

CMHK also announced today that CMHK and Vodafone have entered into a Subscription Agreement pursuant to which Vodafone agreed to subscribe CMHK ordinary shares for a total consideration of US$ 750 million. The proceeds from the issue of such shares will be used to finance part of the cash portion of the acquisition consideration.

Anhui Mobile, Jiangxi Mobile, Chongqing Mobile, Sichuan Mobile, Hubei Mobile, Hunan Mobile, Shaanxi Mobile and Shanxi Mobile currently operate GSM cellular networks, and are the leading mobile telecommunication service providers in each of their respective service areas.

As of December 31, 2001, the companies had a total number of subscribers of 20.93 million with an average market share of approximately 74%.

Despite the large subscriber base and the substantial growth experienced by these mobile companies in recent years, the cellular penetration rates in the eight regions, averaging 6.8% as of December 31, 2001, are still low compared to those of other more mature international markets and the more economically advanced coastal regions in Eastern China.

Completion of this acquisition is conditional upon, among other things, obtaining the approval of CMHK’s independent shareholders and of the relevant government departments. CMHK plans to convene an Extraordinary General Meeting of shareholders on June 24 and the acquisition is expected to close soon after the shareholders’ approval is obtained.