Hong Kong’s PCCW to buy back CSL New World Mobility for $2.4 bn from Telstra

Hong Kong's media and telecommunications holding company PCCW Ltd has agreed to buy back CSL New World Mobility Ltd (CSL), which it sold to Australia's Telstra over decade ago aiming to expand the company's mobile communications business.

Australia's leading communications provider Telstra holds 74.6-per cent stake in CSL, while the remaining 23.4 per cent is held by New World, a Hong Kong-based property development and telecommunications company.

In a filing with the Hong Kong Stock Exchange, PCCW said its wholly-owned subsidiary HKT Ltd will acquire the interests for $2.42 billion (H$18.9 bn) of which $1.85 billion is payable for Telstra's stake, while $572 will be paid to New World.

HKT Ltd is Hong Kong's premier telecommunications service provider offering a wide range of services including local telephony, local data and broadband, international telecommunications, mobile, and other telecommunications businesses such as customer premises equipment sale, outsourcing, consulting, and contact centers.

HKT chairman Richard Li said, ''The proposal is in line with HKT's objectives of investing in businesses which provide holders of share stapled units with stable and regular distributions as well as long-term distribution growth.''

The company's group managing director Alex Arena, said, "We are pleased to be able to make a proposal to bring CSL back into the HKT family. This transaction will enable us to grow HKT and also enable us to provide better service to customers of both HKT and CSL."

Through the acquisition, HKT expects to expand the company's market share to 31 per cent by adding CSL's mobile brands 1010 and one2free.

Although HKT does not believe that there would be any significant competition concerns over the proposed deal, the company has voluntarily offered certain measures to the competition authorities.

These include a commitment to maintain the wholesale services provided by HKT and CSL to resellers, mobile virtual network operators as well as network sharing arrangements.

In addition, HKT has offered to return to the government an additional 2x5 MHz block of 3G spectrum, which is over and above the 2x10 MHz that the government proposes to take back from HKT and CSLNW, when the spectrum licenses expire in 2016.

HKT said that it would also not participate in the bidding for 3G spectrum to be returned by itself or other operators.

The agreement carries a break fee of $75 million payable by HKT under certain specified conditions.

Telstra expects to make a profit of $600 million through the sale and the company said that the net proceeds would increase its free cash flow guidance to $5.1 billion from $4.6 billion.

CSL has been a strongly performing business for Telstra with a compound annual sales growth rate of 9.4 per cent over the past three years. In the year up to 30 June CSL grew by 17.6 per cent to $1 billion. adding 425,000 new customers.

Telstra's chief executive David Thodey said, "We are proud of CSL's achievements. It has established itself as a premium brand and strong player in the market, last year adding 425,000 mobile customers."

"However, there are a number of dynamics in the Hong Kong mobiles market that means this is the right opportunity for Telstra to maximise our return on this successful asset," he further stated.

Thodey said Asia would remain an important part of Telstra's strategy and the company intended to be in the region for the long term.

"It is a very diverse region, with each market in Asia having its own characteristics and opportunities, and we need to consider these individually as we look to maximise value for our shareholders," he said.

The exit from CSL comes just a week after Telstra increased its stake in Autohome Inc, the leading Chinese online website for $1.9 billion.