Previous Story: NetSuite launches price war against Salesforce.com
Next Story: AOL expands search services, desktop function to come

China Netcom takes stake in Hong Kong's PCCW
By Sumner Lemon

China Network Communications Group Corp. (China Netcom), China's second-largest fixed-line telecommunications carrier, will buy a 20 percent stake in Hong Kong's dominant fixed-line operator, PCCW Ltd., the companies said in a joint statement on Thursday.

After months of negotiations between the two companies, China Netcom has agreed to pay HK$7.9 billion (US$1.01 billion) in cash for a 20 percent stake in PCCW, the companies said.

"The logic (behind the deal) is not that apparent," said Duncan Clark, managing director of BDA China Ltd., a telecommunications consultancy in Beijing.

The two companies are looking for ways to help each other expand their respective markets, Clark said. PCCW wants to expand out of Hong Kong and reach into China, while China Netcom wants to expand beyond its base in northeastern China and tap into southern China's lucrative market, he said.

However, it's not immediately clear to what extent the tie-up will help either company realize these objectives or in what areas they hope to cooperate, Clark said. "Caution is the watch word for this deal," he said.

The deal between PCCW and China Netcom is subject to the approval of PCCW's shareholders. PCCW will announce plans for a shareholder meeting to approve the deal at a later date, the statement said.

If the deal is approved by shareholders, China Netcom will be an active investor in PCCW and help shape the future strategy of the company, the two companies said in the statement. China Netcom will nominate three directors to join PCCW's board of directors and one of those directors will also become a deputy chairman of PCCW, it said.

For its part, PCCW will set aside up to HK$5 billion for telecommunication-related investments in China and will create a business development committee for China comprising two PCCW executives and two China Netcom executives, the companies said.

They did not say in the statement when the committee would be established.

Posted January 20, 2005 04:39 PM |