Merger to form HK$439b telecoms giant in mainland revamp China Unicom, the smaller of the nation's two mobile-telephone operators, will take over smaller fixed-line operator China Netcom Group Corp in a share swap valued at up to HK$182.77 billion, the companies announced yesterday. The transactions between the Hong Kong-listed companies are a direct result of the central government's attempt to restructure the telecommunications industry into three full-service operators. Unicom will swap one Netcom share for every 1.508 of its own shares, resulting in 10.1 billion new Unicom shares being issued. The reference acquisition price is HK$26.78 per Netcom share, based on Unicom's latest market price of HK$17.76, which represents a 4.36 per cent premium over Netcom's last traded price of HK$25.66. 'It's a little bit disappointing that no cash is involved in the deal,' said Kelvin Ho, an analyst at Nomura International. 'The share prices of both companies will be linked in the market under the share-swap arrangement.' The merged entity would be valued at HK$439.2 billion, based on the companies' outstanding shares and the reference last-traded prices, the companies said. Netcom will be delisted after the merger and folded into Unicom. Unicom's parent, China United Telecommunications Corp, will hold a 40.92 per cent stake in the merged entity, in which China Netcom Group will own 29.49 per cent. The balance of 29.59 per cent will remain in public hands. 'We focus on the merger of the listed companies at this time,' Unicom chairman Chang Xiaobing said. 'The parent companies' merger will come later at an appropriate time.' An analyst said keeping the status quo of the parent companies would ensure that the deal went through in the general meetings. 'The parent companies are treated as independent parties so the merger is not a connected transaction,' an analyst said. Under the arrangement, Unicom's shareholders, including parent China United Telecommunications, will vote to pass the resolutions for the merger and the issuance of new shares by a simple majority of more than 50 per cent. However, the deal needs the approval of at least 75 per cent of Netcom's shareholders with not more than 10 per cent voting against. Both companies will hold extraordinary general meetings in September to seek shareholders' approval, allowing the merger to be completed as early as October. SK Telecom, South Korea's leading mobile operator, will keep its stake in the merged Unicom. Spain's Telefonica, which holds a stake of about 7 per cent in Netcom, would accept the share swap offer in exchange for a stake in the new Unicom, Mr Chang said. Despite the merger, Unicom's operations will remain below the scale of China Telecom Corp and China Mobile. Going by last year's data, the new Unicom's revenue would have been 150 billion yuan, compared with 178.7 billion yuan for China Telecom and 357 billion yuan for China Mobile. The enlarged Unicom will operate GSM mobile business with more than 120 million subscribers as well as fixed-line business in the 10 northern provinces, with more than 100 million subscribers. It also will have 20 million broadband subscribers. Separately, Unicom also made public the disposal of its CDMA mobile business to China Telecom, the top fixed-line operator, for 43.8 billion yuan, booking a gain of 39.3 billion yuan.