China Business News, 5/28/08
A source in China Netcom (NYSE: CN; 0906.HK) management has revealed that in the merger between China Netcom and China Unicom (NYSE: CHU; 0762.HK; 600050.SH), Unicom will take a leading role. A source inside Unicom revealed that the company will keep the funds from the sale of its CDMA network and users for use in its future development, meaning that the company's transaction with Netcom will be primarily in stock.
Sinolink analyst Chen Yunhong believes that Unicom's red chip company will issue new shares in exchange for the stake held by Netcom's original shareholders. One method of resolving the problem of Unicom's A-share listed company holding a smaller stake than Unicom's red chip company following the merger, might be for Unicom's red chip company to return to A-shares and issue new shares, acquiring through an exchange of stock the share originally held by Unicom's A-share company. Another method would be for Unicom's listed company to raise funds through issuing new stock in order to increase its stake in the new Unicom red-chip company. Following the completion of the merger, the Unicom Group will own a total of between 62.16% and 63.31% of the listed Unicom company.
Chen Yunhong predicts that Unicom H-shares will exchange at a rate of 1.45 Unicom H-shares to 1 Netcom H-share; in addition, China Unicom will pay between RMB 3.2 and 4.8 bln in cash to China Netcom. Following the exchange of stock, China Netcom will delist. The specifics of the operations will begin following the completion of the sale of China Unicom's CDMA network.