Telefonica to Boost Holding in China Unicom

Spain's Telefonica is to invest around EUR 800 million (US$1.16 billion) to maintain its holding in China Unicom. The Chinese operator is merging with landline operator, China Netcom in a government mandated program, and Telefonica will end up with 5.5% of the merged company.

Telefonica has a 5% stake in China Netcom, which was facing being heavily diluted by the merger with China Unicom.

According to the Wall Street Journal, under the terms of the transaction, Telefonica will increase its stake in China Netcom to 9.91% for a payment of EUR 368 million. Following the completion of the all-stock merger between Unicom and Netcom, Telefonica will then increase its holding again to bring it up to the agreed 5.5% stake.

Last year, unconfirmed reports suggested that Telefonica had gained informal approval to eventually raise its stake in the enlarged China Unicom to 10%.

Telefonica first acquired a stake in Netcom in 2005, when it bought 2.99 per cent of the company and increased this to 5 percent later. It announced plans to buy a further 2.2 percent of the company last year. The total investment tops US$1 billion so far. If the company had not increased its investment in the merged group, then its holding would fall to around two percent.

China Unicom sold it's CDMA network and subscriber base to China Telecom for US$15.9 billion - then now is acquiring China Netcom Group for US$56.3 billion in a share swap deal. Under the arrangement, China Netcom will be delisted and will become a wholly owned unit of China Unicom.

On the web: Wall Street Journal

Posted to the site on 14th May 2009