TEF & Unicom Completes Share Swap

Spanish Telecom giant Telefonica (TEF - Analyst Report) and the second-largest Chinese carrier China Unicom (CHU - Analyst Report) have reportedly concluded their cross investment as the companies have finished the $1 billion stake purchase in each other’s stock. As per the agreement terms, Telefonica has bought 693.91 million shares in China Unicom at HK$11.17 (US$1.44) each while China Unicom purchased 40.73 million Telefonica shares at €17.24 (US$25.8) each.
 
With the completion of this share swap transaction, Telefonica’s stake in China Unicom increased to 8.06% from 5.38%, further strengthening its foothold in the Chinese telecom market. On the other hand, China Unicom purchased 0.87% of Telefonica, making it the first Chinese carrier to invest in a leading European telecom company. Telefonica plans to further expand its stakeholding in China Unicom to 10%.
 
Additional stake purchase in China Unicom has further consolidated Telefonica’s position as the largest overseas investor in the Chinese company. Korean operator SK Telecom (SKM - Analyst Report), which has been the second-largest investor with 3.8% share for three years, recently decided to divest its stakeholding in China Unicom under a $1.3 billion deal. This represents a part of the Korean operator’s business restructuring process as it plans to focus more on 3G and the convergence business.
 
Telefonica’s strategic collaboration with China Unicom began in 2005 with the Spanish carrier’s investment in fixed-line operator China Netcom. China Unicom acquired China Netcom in early 2009 following the restructuring of the Chinese telecom industry.  Telefonica and China Unicom recently expanded their collaboration to jointly work on several strategic areas including R&D, roaming, procurement of equipment, infrastructural development and development of mobile services. 
 
This extended collaboration is expected to offer significant technological and operational synergies. Both Telefonica and China Unicom operate their 3G networks based on the popular WCDMA technology. This will enable them to jointly develop WCDMA based services. Moreover, the companies will have greater market coverage with a combined subscriber population of 550 million, representing roughly 10% of the global population.