Following the signing of a Letter of Intent on July 17, 2003, Far EasTone (“FET”) (OTC Ticker: 4904) and KG Telecom (“KGT”) today executed a definitive agreement to form a new leader in the Taiwan wireless industry.
The merger between FET and KGT will transform the competitive landscape of Taiwan’s telecommunications market. At present, FET and KGT have a combined subscriber base of approximately 7.75 million mobile users, which positions the merged entity as one of the top three players in Taiwan. Combined operating revenue in the first half of 2003 exceeded NT$ 29.3 billion (KGT: NT$11.6 billion + FET NT$ 17.7 billion), representing approximately 32% of the total market revenue. In addition, the combined company will have the largest mobile service distribution platform in Taiwan through 460 sales outlets, representing 37% of the market, substantially ahead of its peers. The customers of FET and KGT will enjoy enhanced service offerings, seamless network coverage and convenient customer services through leveraging the superior quality network and customer service centers. It is expected that the merged entity will generate significant synergies.
Douglas Hsu, Chairman of FET said “Far EasTone and KG Telecom both boast a large and loyal customer base, a sound brand image, a premium network as well as innovative and diversified product and service offerings. Going forward, the combined company will proceed with a dual-entity, dual-brand strategy to fully leverage the advantages of both companies to capture maximum potential synergies through brand and market segmentation. In addition, FET will establish a close partnership with NTT DoCoMo, a world-class leading mobile operator. This relationship will add tremendous value to our multimedia mobile services and future 3G related developments.”
Leslie Koo, Chairman of KGT emphasized, “We believe that after assessing the overall industry environment, FET is the perfect match for KGT in terms of our business philosophy, committement to customers, focus on talents, and our visions for the future mobile business. KGT is very pleased to be able to reach agreement with FET on all merger-related issues in a short period of time. Both of us are highly confident about our furture performance and will commit to expediting business integration to realize synergies early on, and bring premium quality mobile services and products to all customers in Taiwan.”
The transaction is technically structured in two stages in order to ensure undisrupted services for KGT subscribers. In step 1, a newly established subsidiary of FET, Yuan Ho Telecommunications (“Yuan Ho”), will assume all KGT assets and liabilities, and complete the business integration. During this phase, FET and KGT will set up a coordination committee, led by Jan Nilsson, President of FET, to oversee the integration process. In step 2, the merged company will complete a share exchange with FET.
According to the Merger Agreement, each KGT shareholder will receive NT$6.72 in cash and 0.46332 FET shares for each KGT share. In total, KGT shareholders will receive approximately 806 million FET shares and approximately NT$11.7 billion in cash.
FET has scheduled an extraordinary shareholders’ meeting on November 25 to approve the transaction, after which government approvals will be sought from relevant authorities, including the Fair Trade Commission, the Directorate-General of Telecommunication, the Ministry of Telecommunication and Transportation, the OTC Securities Exchange, the Securities and Future Commission and the Ministry of Economic Affairs. The parties expect to complete the first stage integration by January 2004 and close the transaction by March 2004.
