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Far EasTone in talks to take over rival KG Telecom

Far EasTone Telecommunica-tions Co (遠傳電信), Taiwan's No. 3 mobile-phone service operator, said yesterday that the company is in talks to take over smaller rival KG Telecommunications Co (和信電訊).

"There have been discussions regarding a possible business merger between the two companies," said Yvonne Lan (藍綺萍), spokesperson for Far EasTone.

"The transaction is still under discussion and no agreement has been reached," she said.

Lan made the announcement yesterday after Chinese-language media reported that Far EasTone plans to merge with KG Telecom in a share and cash swap that would total NT$30 billion.

If the deal is completed, it would be the largest ever merger case in the nation's telecommunications industry.

The acquisition values KG Telecom at NT$17 per share or one Far EasTone share for 0.65 KG Telecom share, according to the media reports.

For shareholders not accepting Far Eas-Tone shares, NT$12 per share in cash will be offered, the reports said without citing sources.

Shares of Far EasTone fell NT$0.30, or 1.1 percent yesterday, to close at NT$26.50 on the TAIEX.

Analysts were not surprised about the merger, saying consolidation is an inevitable trend.

"The nation's mobile phone service market is nearly saturated," said Nathan Lin (林宗賢), an analyst at SinoPac Securities Corp (建華證券).

"Severe competition has left second-tier players no room to expand or to profit," Lin said.

KG Telecom, the only mobile service operator in the red last year, suffered a net loss of NT$1.19 billion last year.

As of last July, the nation's mobile-phone-service penetration rate was over 100 percent, surpassing that of Luxembourg to rank the highest in the world, according to the Directorate General of Telecommunications.

The acquisition of the smaller company is expected to boost Far EasTone's customer number from 4.34 million to 7.68 million after incorporating 3.34 million KG Telecom users.

"Far EasTone will make a leap and be able to compete with the market leaders [via the deal]," said Alex Wu (吳興國), an telecom analyst at China Securities Corp (中信證券).

As of last month state-run Chunghwa Telecom Co (中華電信) had some 7.8 million users, accounting for some 30 percent of the mobile service market.

Taiwan Cellular Corp (台灣大哥大) has nearly 8 million users or 32 percent of the market, after it added some 1 million users from its subsidiary TransAsia Telecommunications Inc (泛亞電信).

In May 2001, Taiwan Cellular paid NT$13.5 billion in cash to acquire approximately 97 percent shares of the Kaohsiung-based TransAsia.

Meanwhile, Wu said KG Telecom may be forced to sell out due to pressure from NTT DoCoMo.

The Japan-based telecom giant owns 21.42 percent shares in KG Telecom.

"DoCoMo is interested in linking up with big players, so they can make massive inroads with its `i-mode' service into Taiwan," Wu said.
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