SK Telecom remains cautious on CJH deal

Top mobile firm says plan to complete CJH deal unchanged

By Kim Yoo-chul, Yoon Sung-won

SK Telecom remains cautious over the possible effects of its ambitious proposed takeover of CJ HelloVision (CJH).

But the company said its plan to acquire a controlling stake in Korea’s top cable TV operator remains unchanged despite growing uncertainties surrounding the plan.

“We may fail to complete or integrate our new acquisitions and joint ventures and may fail to realize the anticipated benefits,” SK Telecom said in a statement to the U.S. Securities and Exchange Commission on April 28, a copy of which was obtained by The Korea Times, Tuesday.

The statement by SK said it continues to seek opportunities to develop new businesses that the company believes are complementary to its existing products and services portfolio and expand the company’s global business through selective acquisitions.

SK Telecom’s public relations office said the filings to the U.S regulator included all materials and information related to company management to give foreign investors a better understanding of the company.

“We put all possible management risks in the filings. Still, our stance to complete the CJH deal was unchanged,” said the company spokesman.

Last November 2, SK Telecom struck a share purchase agreement with CJ O Shopping to acquire a 30 percent interest in CJH for an aggregate purchase price of 500 billion won.

Upon the acquisition of CJH, SK Broadband will be merged with and into CJH, giving SK Telecom a 78.3 percent equity stake in the merged company.

The statement said the CJH acquisition plan is subject to certain closing conditions, including obtaining regulatory approval from the relevant authorities.

“We may be delayed in obtaining, or fail to obtain, the necessary regulatory approvals, and in such case we may not be able to complete the acquisition and subsequent merger as planned,” said the statement.

The Fair Trade Commission joined with the Korea Communications Commission (KCC) and the Ministry Of Science, ICT and Future Planning (MSIP) to review the validity of the proposed acquisition plan as SK’s two local rivals ― KT and LG Uplus ― in addition to terrestrial broadcasters strongly oppose the deal, claiming that it will hurt fair competition and limit consumer choice.

SK Telecom is urging the government agencies to approve the proposal as early as possible as the merger will help it realize an “economies of scale” in the relevant content business, which will eventually benefit both the related industries and consumers.

The mobile carrier stressed its growth strategy calls for “significant investments” in new businesses and regions, including businesses and regions in which that the firm has limited experience.

“We seek growth through investments in new businesses. While we believe that entering into new businesses enables us to diversify our business portfolio, we may be exposed to additional risks,” said the company.

Chip business, another headache?

The growing signs of a downturn in the global chip industry were cited as an additional risk factor that may hamper its business expansion, according to the statement.

SK Telecom is the biggest stakeholder in SK hynix, the world’s second-biggest memory chipmaker after it acquired a 21.1 percent stake in Hynix Semiconductor in 2012.

“From time to time, the memory semiconductor industry has experienced significant and sometimes prolonged downturns, which often occur in connection with a deterioration of global economic conditions, and is subject to intense competition,” said the statement to the U.S. regulator.

SK hynix and its subsidiaries incurred net losses of 158.8 billion won and 56 billion won in 2012 and 2011, each, due to increased supply and weak demand for semiconductor products.

“Although the memory semiconductor industry has recovered since then and SK hynix has been recording net profits since 2013, the industry is subject to cyclical fluctuations and we anticipate future downturns in the industry,” according to the filings.

SK Telecom implied it would implement heavy cost-cutting measures to minimize the effects of the expected industry downturn.

“SK hynix’s operating results would be adversely affected if it fails to compete or decrease manufacturing costs by an adequate level,” it said.

“Entering into new businesses and regions in which we have limited experience may require the company to make substantial investments, and despite such investments, we may still be unsuccessful in these efforts to expand and diversify,” the statement said.