Telstra's HK CSL and New World PCS to merge

Stan Beer
Monday, 12 December 2005 17:08

IT Industry - Strategy

Telstra announced today that its Hong Kong mobile subsidiary CSL Limited and competitor New World PCS Limited will be merged, in a move that will give Telstra control of the leading mobile player in the HK market, according to the carrier.

Telstra says the merged company will become HK’s largest mobile business with 34% market share, creating scale benefits.

Telstra will own 76.4% of the merged company and receive HK$244 million in cash (A$42 million) for effectively contributing 23.6% of CSL to the new joint venture, whilst New World Mobile Holdings (NWMHL) will own 23.6%.

Telstra can nominate four directors to the Board of the merged company (including the chairman) and New World, two directors. CSL’s CEO, Hubert Ng, will be the CEO of the merged business – to be called CSL New World Mobility Limited

All of CSL’s and New World’s brands will be retained as they target different market segments, with CSL targeting high value customers and New World the budget market. Telstra and NWMHL believe that they can achieve significant synergies and cost savings through rationalisation of networks, IT systems and corporate support.

Telstra’s CEO, Sol Trujillo, said, “The merged business will have first mover advantage in the long-awaited consolidation of the HK cellular market.

“A merged CSL and New World is well placed to provide leading services in Hong Kong’s dynamic, competitive market.

“The two customer bases are complementary - CSL predominantly operates in the higher value customers, while New World has achieved 17 per cent market share by targeting value-conscious subscribers through a low cost business model,” he said.

Telstra CFO, John Stanhope, said, “CSL is already Hong Kong’s No.1 mobile operator in terms of revenue per customer – this merger will also make it No.1 in terms of revenue, profitability and subscriber numbers market. This merger is expected to deliver over A$400m of cost savings.

“The merger meets Telstra’s acquisition criteria. It is cash flow positive and EPS accretive from year one; and its ROIC exceeds consensus WACC in year two,” he said.

The merger is subject to the approval of the NWMHL shareholders and consent of the Telecommunications Authority of Hong Kong with completion of the transaction targeted for 31 March 2006.