Taiwan Cellular Corp (台灣大哥大) took a bite out of the competition yesterday -- by buying it. The largest mobile phone service company in Taiwan paid NT$13.5 billion (US$410 million) in cash for approximately 97 percent of TransAsia Telecommunications Inc (泛亞電信), a Kaohsiung-based firm.
The acquisition fattened Taiwan Cellular's customer base by 684,000 subscribers, pushing the total to over 6.1 million users and further securing the firm's lead in the market.
The remaining 3 percent stake in TransAsia that Taiwan Cellular did not purchase, "belongs to the employees of TransAsia and they have the option to sell off those shares together with the major shareholders, or they also have the option to keep those shares. We have every intention to take TransAsia public," said Joseph Fan (范瑞穎), president of Taiwan Cellular.
PHOTO: CHEN CHENG-CHANG, TAIPEI TIMES
In turn, Taiwan Cellular plans to keep TransAsia running as a separate entity, therefore customers need not change SIM cards or mobile phone numbers.
Although the acquisition is still subject to regulatory approval, the stock market reacted favorably to news of the purchase. Taiwan Cellular shares rose as much as NT$1.37, or 3.8 percent, to NT$37.80 but ended the day at NT$37.40 on Taiwan's TAISDAQ.
"I think it's a good deal for Taiwan Cellular, the price is fair," said Alex Wu, telecom analyst at China Securities Corp (中信證券). "TransAsia has enjoyed high earnings in the past year, probably generated an EPS of over NT$4.56, which is the second highest in Taiwan in terms of the mobile phone service providers. It's very profitable." EPS, which stands for earnings per share, is calculated by dividing the profit by the number of shares.
Wu said any price over NT$40 per share would have been too high, and the deal signed yesterday shaved pretty close -- NT$39.9 each for nearly 340 million shares of TransAsia.
Carl Berrisford, a telecom analyst at Hong Kong and Shanghai Banking Corp, pointed out the timing of the deal also favors Taiwan Cellular. Telecom markets worldwide have sagged since the hype of mobile Internet systems like third generation (3G) deflated late last year. "Now is the perfect time for mergers and acquisitions in the sector," he said.
Speculation over continued consolidation in the industry turned toward Taichung-based Mobitai Communications Corp (東信電訊), another small telecom player. TransAsia has been sought after all year for its position in southern Taiwan and its 684,000 subscribers. Similarly, Mobitai has around 518,000 customers in the middle of Taiwan.
Taiwan Cellular currently claims to have 5.5 million users and holds 28.5 percent of the entire market of 18,620,794, according to figures from the Ministry of Transportation and Communications. Second in Taiwan is Chunghwa Telecom Co's (中華電信) mobile division, with a 25.7 percent share of the market, followed by KG Telecommunications Co (和信電訊) at 21.1 percent and Far EasTone Telecommunications Ltd (遠傳電信) with 19.7 percent.
Without making a bid for Mobitai, these firms will likely find it even more difficult to catch up with Taiwan Cellular in terms of subscribers.
Subscriber base is critical for mobile phone service providers. The more subscribers, the better possibility for revenue increases in the future, especially as consumers are expected to use their phones more with 3G services.
The combined revenues of Taiwan Cellular and TransAsia will likely challenge NT$60 billion according to analysts. Last year, TransAsia registered total revenue of NT$8.2 billion and net income of NT$1.6 billion, while Taiwan Cellular brought in revenue of NT$45.2 billion and earned NT$14.2 billion.
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