A bidding war for the ownership of Hong Kong Broadband Network (HKBN) is on the horizon as China Mobile has made a formal offer of approximately 6.86 billion Hong Kong dollars (US$882 million), while private infrastructure investment firm I Squared Capital has submitted a "non-binding preliminary indication of interest" to acquire 100% of the outstanding shares of the Hong Kong broadband provider.
HKBN disclosed the tender offer from China Mobile and the acquisition interest from I Squared Capital in separate stock exchange filings on Monday.
Trading of HKBN shares on the Hong Kong Stock Exchange was suspended on Monday pending both announcements. Trading resumed on Tuesday.
HKBN is one of the city's two major broadband providers, with an all-fiber network serving 2.6 million homes and 932,000 residential broadband subscribers. It has also built an enterprise business, which is now its largest segment.
Discussions underway
In its stock exchange filing, HKBN confirmed that it is in talks with I Squared Capital about a possible sale, which was first reported by Bloomberg over the weekend.
"The company and I Squared Asia Advisors are in discussions on the terms of the proposal, including the price," HKBN said, adding that if the deal goes ahead, it will be conducted through HGC Global Communications, which is owned by the US-based infrastructure fund.
Citing people familiar with the matter, Bloomberg said I Squared's bid could be at HK$5 to HK$6 per HKBN share, or slightly higher than the bid made by China Mobile last month.
It remains to be seen whether the second time will be the charm for I Square Capital after its failed attempt to negotiate a sale with HKBN last year. Disagreements over valuation reportedly scuttled the deal.
Established in 2012, Squared Capital invests in the energy, utilities, transportation and logistics sectors, among others. The company bought HGC Global Communications, then known as Hutchison Global Communications, for HK$14.4 billion ($1.85 billion) in 2017. HGC Global Communications competes with HKBN by providing similar services in Hong Kong.
An $882 million buyout bid
Meanwhile, China Mobile has moved a step closer to acquiring HKBN by making a formal cash offer of approximately HK$6.86 billion ($882 million), less than two weeks after discussions about a potential deal began.
According to HKBN's stock exchange filing, the state-owned carrier, which is the city's largest mobile operator by subscribers, has offered to buy the company for HK$5.23 ($0.67) per share, representing a premium of approximately 41% to HKBN's undisturbed share price.
China International Capital Corporation is acting as the financial advisor to China Mobile on the transaction.
China Mobile has received commitments from two of HKBN's largest shareholders to accept the offer. Canada Pension Plan Investment Board and TPG Wireman, which together hold nearly 25% of the company, have given irrevocable undertakings to China Mobile to accept the offer for all their shares.
China Mobile's tender offer provides shareholders with a unique opportunity to fully monetize their investment in a market with limited liquidity.
"The Offeror notes that the trading liquidity of the shares has been at a low level for a sustained period of time…Such sustained low trading liquidity has created significant challenges for shareholders, particularly those with large holdings, to execute substantial disposals in the open market without adversely impacting the share price. The share offer provides a rare opportunity for all shareholders to fully realize their investments in return for cash that can be deployed elsewhere," HKBN said in its stock exchange filing.
HKBN's stock price has been on a downward spiral in recent years, down 68% since 2019 largely due to broadband saturation and its struggles to gain enterprise market share.
In its latest full-year results, the company reported an adjusted net profit of HK$190 million ($24.4 million), down 2% from the previous year. Revenue fell 9%, with sales flat or down in all segments. The company cut 570 jobs, or 13% of its total workforce.
According to HKBN's stock exchange filing, China Mobile plans to help HKBN strengthen its financial position by reducing its interest expenses after the transaction is completed. HKBN will become an indirect subsidiary of China Mobile after the deal closes, although the state-backed carrier has "no plans to make any material changes" to HKBN's business.
"Following completion of the offers, the offeror will continue to consider how best to support the group's future development and expansion, as well as integration within the China Mobile Group to maximize synergies," HKBN said in its stock exchange filing.
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