This content is from: Local Insights

Telecoms merger

On March 18 2009, the Korea Communications Commission (KCC) finally authorised the merger of KTF into KT. KT is the largest communications company in Korea and is engaged in communications businesses including wire telephone and high-speed internet; KTF is the second largest wireless phone company in Korea and is a subsidiary of KT, which holds 54.3% of the total number of issued shares of KTF.

KT has been considering merging with its subsidiary, KTF, for a long time, with the aim of becoming an internationally competitive power as a total communications service provider, offering integrated services covering wire and wireless communications. On January 21 2009, one week after the appointment of a new CEO, the board of directors of KT passed a resolution for the merger and submitted an application to the KCC for approval. Under the Telecommunications Business Act of Korea, any person that intends to merge with an operator of a key communications business, such as the wireless phone business, must first undergo consultation with the Korea Fair Trade Commission (KFTC) and then obtain approval from the KCC.

Competing wireless phone operators such as SK Telecom strongly objected to the merger and attempted, in every aspect, to prevent the KCC approval from being granted, alleging that the business combination of KT and KTF would restrain competition due to the transfer of the market-dominating power of KT in the wire telephone market to the wireless market. Consequently, the business combination of KT and KTF became a social, and not just a business, issue that even resulted in a parliamentary hearing.

At the end, the KFTC concluded on February 26 2009 that there would be no anti-competitive concerns (such as the transfer of the market-dominating power in the wire telephone market to the wireless phone market after the combination) and unconditionally approved the business combination and notified its determination to the KCC. This is in contrast with the acquisition by SK Telecom of Hanaro Telecom, where the KFTC imposed detailed conditions on frequency and roaming. Then, on March 18 2009, the KCC also found that the merger of KTF into KT would not have a special effect on the competition of the communications market, and finally granted its approval of the merger. In terms of any conditions attached to the approval, which were of primary interest to competitors, related parties and new CEOs, the KCC imposed only a few conditions including requiring the submission of an improvement plan for the provision of essential equipment held by KT and the existing number portability procedures. These conditions are regarded as minor and will not fundamentally influence the synergy effects of this merger.

Through this merger, KT expects to build a foundation to become a global total communications service provider offering wire and wireless communications services. On March 27 2009, KT and KTF convened extraordinary general meetings of their shareholders and approved the merger agreement, and are expected to register the merger on June 1 2009.

KT's revenues in 2008 amounted to W11.8 trillion ($9.02 billion), and KTF's revenues amounted to W8.3 trillion. So this merger is a mega deal with a value exceeding W19 trillion, the largest in Korea between 2008 and 2009. In this merger, Bae Kim & Lee (BKL) represented KT and successfully obtained approval of the merger after fierce debates with competing mobile communications operators..

Yang Ho Oh and Kwang Hyun Ryoo

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