Chunghwa Telecom Co (CHT, 中華電信), the nation’s biggest telecoms operator, yesterday said the board has approved a proposal to buy up to a 5.47 percent stake in China Airlines Ltd (CAL, 中華航空) for NT$3.5 billion (US$117 million) by subscribing to the nation’s biggest airliner’s new share offering.
That would make Chunghwa Telecom the third-largest shareholder of CAL. It would also be part of a strategic partnership formed by the telephone company with CAL given the companies have signed a memorandum of understanding to foster tourism, according to a filing to the Taiwan Stock Exchange yesterday.
Cash-rich Chunghwa Telecom said that the cooperative move was part of the company’s broader program to offer travel information and logistic services via cloud-computing technology.
However, not everyone was convinced the move made strategic sense.
“While the acquisition is small in relation to CHT’s market value, we believe investors could be concerned with the lack of obvious synergies between a telecom service provider and an airline,” UBS analyst Ling Vey-sern said in a report yesterday.
The NT$3.5 billion investment would be about 1.6 percent of the telecoms company’s annual revenue and 0.5 percent of the stock’s capitalization.
“We believe shareholders were attracted to CHT’s stable core business, defensive cash flows and high dividend yield, not its ability to invest in non-core businesses,” Ling said.
At the end of the third quarter last year, Chunghwa Telecom held approximately NT$50 billion in cash on its balance sheet.
Shares of Chunghwa Telecom fell 1.92 percent to NT$97, bucking the uptrend of the broader stock market.
Chunghwa Telecom said in the filing that it planned to buy 299 million common shares of CAL at NT$11.73 per share, which represented an 18 percent discount, compared with CAL’s closing price of NT$14.3 yesterday.
The phone company, however, said it would scrap the investment plan if CAL’s average stock price fell below the company’s net value of NT$10.57 in the five trading days before concluding the deal.
Ling retained his “buy” rating on Chunghwa Telecom, with the 12-month target price unchanged at NT$107.
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