SK Telecom to Buy Control of Hanaro for $1.18 Billion

Dec. 3 (Bloomberg) -- SK Telecom Co., South Korea's biggest mobile-phone operator, agreed to buy control of broadband-access provider Hanarotelecom Inc. for 1.09 trillion won ($1.18 billion) to expand its Internet business and challenge KT Corp.

SK Telecom will acquire 91.4 million shares for 11,900 won each, increasing its stake in Hanaro to 44 percent, the Seoul- based company said in a filing today. The price is 2.5 percent lower than the stock's close on Nov. 30 and 13 percent higher than on Nov. 14, when SK Telecom was selected as preferred bidder.

Hanaro would give SK Telecom access to a quarter of online users in a market where nine out of 10 homes have high-speed Internet connections. The purchase, subject to regulatory approval, would also enable SK Telecom to expand into markets such as Internet television programming and offer products that combine fixed-line and wireless services.

``The positive effects from this tie-up would more than offset the cost for the acquisition,'' said Yang Jong In, who has a ``buy'' rating on SK Telecom as a telecommunications analyst at Korea Investment & Securities Co. in Seoul. ``I expect the SK- Hanaro group to be a leader in new media services.''

The offer price is in line with market expectations, Korea Investment's Yang said.

SK Telecom rose 1 percent to 250,500 won, its highest close since Nov. 14 on the Korea Exchange. Hanaro shares fell 6.6 percent, the most in more than three months.

Best-Performing Group

The sub-index of Korean telecommunications stocks has been the best-performing group in the benchmark Kospi during the past month as SK Telecom's planned acquisition spurred optimism it will lead to further consolidation in the industry.

UBS AG raised its credit rating on Hanaro's debt to ``buy'' because of SK Telecom's ``superior'' finances, Edwin Chan, a Hong Kong-based analyst, wrote in a report today. Lehman Brothers Holdings Inc. analyst Stanley Yang recommended investors buy Hanaro shares, he wrote in a note to clients today.

At the end of September, Hanaro had 3.7 million broadband subscribers. Its 25 percent market share was second to Seongnam- based KT's 45 percent, according to government data. LG Powercom Corp. was third with 11 percent.

A group led by American International Group Inc. and Newbridge Capital LLC is selling the stake. The group bought the shares in Seoul-based Hanaro in 2003 for about 585 billion won, or about $500 million at the time.