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. Last Updated: 07/27/2016

Asian Telecoms Pursue Merger




HONG KONG -- Shares in big Hong Kong and Singapore telephone companies soared Tuesday on news that they may merge, and analysts said the move could be a valid way to fight back against growing competition in their home markets.


Singapore Telecommunications Ltd. was up by about 4.6 percent and Hong Kong's Cable & Wireless HKT climbed by 2.6 percent in early dealings Tuesday as investors cheered news of their negotiations.


The companies said overnight they were contemplating a "merger of equals" to create a telephone giant worth almost $60 billion. Executives were declining any comment on details.


Analysts said Tuesday the move seems sensible, at a time when both Cable & Wireless HKT and SingTel must confront increasing competitive pressures as their markets open to new players who will probably try to win customers by slashing prices.


"It's good. They will be getting bigger and hopefully trimming costs a bit by firing some redundant staff," said Stephen Leung, a telecommunications analyst in Hong Kong for Daiwa Securities.


The two companies are strong medium-sized players, both operating in highly developed telecommunications markets that cater to the big financial industries in Singapore and Hong Kong, which are typically portrayed as fierce rivals on the Asian business battlefield.


Although some analysts raised questions about whether bigger is necessarily better, others said the similarities between SingTel and Cable & Wireless HKT could provide any merged entity with useful synergies in dealing with corporate clients throughout the region.


The merger talks were made public just three days after Singapore's government surprised the industry by saying it would open its local telephone market to full competition in April - two years ahead of schedule. It sent SingTel's shares into a tailspin.


"I wouldn't categorize this as desperation, but they are under pressure to diversify," said Ali Naqvi, head of Singapore research at investment bank CS First Boston.


David Leow, associate research director at HSBC James Capel in Singapore, said SingTel was wise to be "going regional."


Hong Kong's government last week took the latest step in opening its telephone market - which is already more liberalized than the one in Singapore - by granting telecommunications licenses to 17 companies.


Five plan to operate wireless networks serving residential and business customers, while the other 12 will operate international services via satellite - ending Cable & Wireless HKT's monopoly in that market.


Cable & Wireless HKT, which is 54 percent held by Cable & Wireless PLC of Britain, had previously lost its local services monopoly.


Telecommunications buyouts have dramatically reshaped the telephone industry in the United States and merger mania recently spread to Europe.


Such activity has been more muted in Asia, but analyst Leung noted that that could change if the Hong Kong-Singapore deal flies and other sizable companies see a need to seek out partners.


"The trend is popular everywhere," he said.