Haier Group, China's largest home appliances maker, has proposed injecting the washing machine business into mobile handset maker Haier-CCT for 1.1 billion yuan (HK$1.04 billion) in a back-door listing.
It said the asset injection is only the first stage and it plans to inject the rest of its white goods business, including air-conditioners and refrigerators, in the second stage.
Haier-CCT, in which Haier Group holds 29.94 per cent, will pay HK$725 million in four billion new shares at 18 HK cents each, HK$260 million in convertible notes and HK$50 million in cash.
The price represents a 57.14 per cent discount to the closing price of 42 HK cents on March 5 before trading was suspended.
It is also a 14.65 per cent discount to Haier-CCT's net asset value of 21 cents a share at the end of 2002 and a 11.2 per cent discount to the company's 20.2 cents net asset value a share as of June last year.
Haier Group's stake in Haier-CCT, to be renamed Haier Electronics Group Co, will be boosted to 57.26 per cent immediately after the deal and to 60.72 per cent when all the notes are swapped into shares.
CCT Telecom's stake will fall to 24.45 per cent from 43.62 per cent when the notes are exercised. The asset injection ``will enable Haier-CCT to expand its product categories, broaden its revenue base and enhance the profitability of the combined group'', Haier-CCT chairman Clement Mak said.
``The initial acquisition will include the washing machine business and the Haier-CCT directors and the Haier Group directors intend that the rest of Haier Group's remaining white goods business will follow, if appropriate, in the second stage.''
Mak said the timing of further asset injections, including Haier Group's holdings in A-share listed units, depended on the progress of current restructuring. Haier-CCT hopes to ease its net loss, which swelled to HK$84.5 million for the first half of last year from HK$72 million in the combined full years of 2001 and 2002, through the inclusion of the home appliance business.
China's handset manufacturing market, which is crowded with both local and foreign players such as Ningbo Bird, Nokia and Motorola, is seeing lower profit margins amid stiffer competition.
Haier-CCT said, in order to beef up its mobile handset business, it will exercise the call options to buy the remaining 35.5 per cent stake in phonemaking unit Pegasus Qingdao from Haier Group for HK$468.6 million. It will be paid by shares at 20 cents each. ``The directors believe the successful integration of the leading position of Haier's brand in the PRC into Haier-CCT will not only establish Haier's name in the international capital markets, but also enhance Haier-CCT's profile internationally as well as its shareholder value,'' Mak said.
As public float will be diluted to about 15 per cent after the deal, Haier-CCT said ``reasonable commercial efforts'' will be used to ensure the float is restored to the required minimum of 25 per cent.
A waiver is being sought from the regulator to exempt Haier Group from making a general offer to buy all shares, and the deal is subject to independent shareholder approval as well.
From The Standard, Hong Kong