SK Telecom to Acquire Hanaro Controlling Stake for US$1.2 bil.

SK Telecom (SKT) will become Hanaro's largest shareholder with a 43.6% stake after the deal. A consortium, led by American International Group and private equity fund Newbridge Capital, bought the 38.9% stake for US$500 million in 2003 and picked SKT as the preferred buyer in November 2007. The deal is conditional and subject to government approval.

"The takeover will help us develop new business models based on a convergence of wired and wireless technology," SKT said in its 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 Telecom," said SKT Chief Executive Officer Kim Shin-Bae. A bundled service will be made available in the second quarter of 2008 at the earliest, according to SKT spokesman Ko Chang-Kuk.

Outlook and Implications

• Convergence Synergies: The takeover will significantly enhance SKT’s competitive edge in Korea’s highly mature telecoms market, where the mobile penetration level has exceeded 80%. The country’s largest mobile operator now controls more than half of the mobile market, but lacks the ability to offer fixed-line services. Following the acquisition of Hanaro, SKT will be able to enhance customer royalties by offering bundled services of mobile, fixed-line, broadband internet, and internet TV services. Hanaro currently offers a video-on-demand (VOD) service through high-speed internet connections and it is planning to provide IP TV in the future, once the Korean government approves commercial operations of IP TV. The two parties will also be able to lower operational costs by jointly marketing their services and dealing with content providers.
• Industry Consolidation:The deal will increase the pressure on competitors of SKT and Hanaro in both the fixed-line and mobile segments, and could trigger further consolidation in the telecoms industry. For example, fixed-line leader KT Corp and its mobile unit, KT Freetel, could be seeking to reach further operational integration. The two companies have remained largely independent on the operational front so far.
• Overseas Expansion: While expanding its businesses in the domestic market, SKT is also aggressively venturing into the overseas market. The company said in October 2007 that it was seeking to buy a stake in an unidentified Pakistani telecoms company as part of its efforts to expand its presence in South Asia, including India and Indonesia. In August 2007, it became the second-largest shareholder of China Unicom, the smaller of China’s two mobile operators, after it converted US$1 billion of the bonds it purchased last year into 6.6% equity. The company also has a wireless joint-venture in Vietnam. Last week, it emerged that SKT had partnered with other investors to acquire a stake in the U.S. wireless services provider Sprint Nextel, but the offer was reported to have been rejected by Sprint (see United States: 30 November 2007: Sprint Rejects SK Telecom-Led Investment—Reports). In the United States, SKT has already invested in Helio, a wireless joint venture with EarthLink that rents space on Sprint's network.