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Multiple investors have purchased a 35.2% stake in China's second-largest operator, China Unicom, for CYN61.7bn ($9.3bn). The deal was essentially brokered by the government, part of its industry-wide negotiations to "invite" investors into numerous state-owned enterprises adversely affected by slower economic growth. The stake sold is higher than what was speculated in the industry. Moreover, no single internet player, such as Tencent, Baidu, or Alibaba, emerged with more than a 5% interest, limiting potential collaboration opportunities.
Last week, it was announced that several investors had agreed to purchase 35.2% of Unicom, including insurance firm PICC (the largest of the new investors, with a 10.2% stake), Tencent (5.2%), Baidu (3.3%), and Alibaba (2.0%). Parent firm China Unicom Group now holds 36.7% of the company, while 25.4% is owned by public shareholders.
In late 2016, speculation on the mainland was that around 20% would be sold in Unicom, and that Alibaba was the likely buyer of the entire stake. Under the final deal, Alibaba and other noteworthy internet companies – Tencent (owner of WeChat) and search engine Baidu – have emerged with very small stakes. These players operate their own successful telco-like businesses (e.g., OTT messaging) and compete directly with Unicom in other areas (e.g., m-commerce).
In our report The "Super SMART" Player, we argued that having an internet player as a partner would solidify Unicom as Super SMART, provided synergies could be leveraged. The Super SMART player is the merger of a very large communication service provider (CSP) that plays aggressively in five areas – services, management, applications, (customer) relationship, and technology – plus the internet player. An outfit is deemed Super SMART because it vertically integrates the CSP's assets (network, large customer base, cash flow) with the services and platforms of the internet player.
However, under the sale, no internet company has emerged with a big enough stake to influence Unicom. Chinese media report that stakeholders from the new private companies will be members of the board, so they might have some influence over the company's long-term development.
Overall, though, we do not believe any major synergies that will be enough to change the current operator landscape will emerge. Hence, we would not categorize Unicom as a Super SMART player in the wake of this deal. At best, this deal really gives Unicom a cash injection and room for some collaboration opportunities. But the new Unicom is still no match for its bigger rival, China Mobile.
The "Super SMART" Player, TE0009-001616 (March 2017)
Nicole McCormick, Practice Leader, Broadband and Multiplay
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