Telstra snaps up all of PCCW's mobile arm


Telstra CEO Ziggy Switkowski wants to use Regional Wireless Company for more Asian acquisitions

By Geoff Hiscock
CNN Asia Business Editor

SYDNEY, Australia (CNN) -- Australia's dominant telco Telstra has moved to full ownership of Hong Kong mobile phone operator CSL, buying out the 40 percent stake held by Pacific Century CyberWorks for $614 million.

Telstra said Monday that after accounting for 40 percent of the cash in CSL, the "effective acquisition value" of the stake was $475 million.

The deal means Telstra controls the only profitable mobile company in Hong Kong's crowded market, where six operators battle to service about 5.7 million customers.

Shares in Telstra are higher in early trade Monday, up about 0.64 percent to A$4.69.

Telstra paid $1.68 billion when it bought a 60 percent stake in CSL's parent Regional Wireless Company from Richard Li's PCCW in February last year.

But the slump in telco valuations means it has had to pay far less for the remaining 40 percent.

Reach still 50-50

The other alliance between Telstra and PCCW, their Reach wholesale data communications business, remains a 50-50 joint venture.

Telstra CEO Ziggy Switkowski has said previously that Regional Wireless Company and its CSL arm would be the vehicle for Telstra's Asian expansion ambitions.

He confirmed that Monday, noting that CSL was profitable, debt-free and had a strong reputation in Asia.

"CSL will be a major spearhead for our wireless growth strategy in Asia," he said.

Telstra has already looked at Singapore's No. 2 mobile player, M1, but could not reach agreement on price.

As part of the 2001 deal involving CSL, Telstra agreed to buy a $750 million convertible note from PCCW.

In a statement to the Australian Stock Exchange Monday, Telstra said that PCCW has redeemed the note in full.

With interest of $54 million, this implies a value of $804 million.

$190M convertible note

Telstra said it has used the proceeds from this note to buy PCCW's 40 percent stake in Regional Wireless Company, and to subscribe to a three-year $190 million convertible secured note.

The note converts to about 2 percent of PCCW shares but PCCW can redeem it for cash at any time.

The Australian telco said its accounts will reflect a value of $560 million for the 40 percent stake in CSL.

"After adjusting for 40 percent of the cash in CSL, the effective acquisition value of the 40 percent in RWC is $475 million," it said.

PCCW said Monday the transaction would substantially cut its debt and reinforced its focus on "its core fixed-line, broadband and IT&T businesses".

PCCW chairman and chief executive Richard Li said: "Our corporate priorities are based around deleveraging the company's debt and improving our credit fundamentals.

"This transaction will effectively bring the HK$38.22 billion ($4.9 billion) net debt remaining at the PCCW level down to approximately HK$32.37 billion ($4.15 billion)."