Hong Kong fiber network operator HKBN and its indirect subsidiary HKBN Group (HKBNGL) have signed a share purchase agreement with New World Development Company and its direct subsidiary New World Telephone Holdings (NWTHL). HKBNGL has conditionally agreed to acquire the telecommunications and online marketing services businesses owned by New World Telephone.
HKBNGL will acquire New World’s telecoms and online marketing business for HKD 650 million cash on a cash-free, debt-free basis, financed through a debt facility, with an additional cash rebate for services provided by HKBNGL and the target business to New World Telephone and related parties based on 50 percent of settled invoices up to HKD 50 million in aggregate.
New World Telephone’s fixed line and broadband telecoms business generated revenue of HKD 613 million for the year ended 30 June 2015. The company’s telecoms business is run through a network covering approximately 491 commercial buildings in key business districts around Hong Kong. Services include international voice services (IDD services), data centre services, as well as other fixed line and broadband services. NWTHL’s online marketing services include search advertising, online display advertising and social media services catering to commercial customers.
The combination will result in a business with more than HKD 3 billion in total revenue and more than HKD 1 billion in ES revenue. The acquisition is expected to strengthen HKBN’s presence and capabilities in the ES market and create the necessary scale to compete with incumbent players of the broader enterprise telecommunications market.
The transaction is expected to allow HKBN to more than double its ES business. New World Telephone’s business is an ES focused business with more than 94 percent of telecommunications services revenue generated from commercial customers.
The acquisition also expands HKBN’s customer base in medium-sized enterprises, allowing HKBN to accelerate its growth in the SME segment. HKBN’s current enterprise customers are mostly small businesses, while NWTHL’s customer base primarily comprises medium businesses. The transaction expands HKBN’s reach by adding nearly 200 commercial buildings and provides additional route diversity for overlapping coverage buildings.
The deal also creates synergy opportunities including savings of 5 to 10 percent on cash operating expenses from the year ending 30 June 2017 onwards, capital expenditure savings from the acquisition of fibre coverage owned by the Target Business and revenue upside from cross-selling, HKBN said. The transaction also offers the potential to sell a network hub site property owned by the Target Business valued on behalf of HKBN at approximately HKD 67 million.
The acquisition will be financed by a 5-year bullet term loan facility of up to HKD 700 million underwritten by JPMorgan Chase Bank.
