This is old (Jan. 20), but for anyone who missed it (pay special attention to the bold):
~~~
AWSJ: Softbank Buys A Web Vehicle In Hong Kong
By THOM BEAL
Staff Reporter
HONG KONG - Softbank Corp., Japan's Internet colossus, said it agreed to buy a majority stake in a Hong Kong-listed garment maker and dyestuffs distributor, Cheung Wah Development Co. Ltd., to turn the firm into an Internet investment vehicle.
The acquisition, which sent Cheung Wah's shares soaring more than sevenfold, gives Softbank a publicly listed company on Asia's second-biggest stock market for fund raising and investing, as well as a larger footprint in China. The deal comes two days after Softbank agreed to lead a syndicate investing US$20 million in Hong Kong-based Web-site operator Alibaba.com Corp.
Softbank said it would pay HK$207.5 million (US$26.7 million) in cash for a controlling 61.5% stake in Cheung Wah, which will be renamed Softbank Investment International (Strategic) Ltd.
In November, Softbank made its first investment in the greater China region, purchasing a 5% stake in techpacific.com, a technology acquisition consultancy in Hong Kong, to help it find new Internet investment opportunities throughout Asia. Softbank President Masayoshi Son predicted last month that China will have more Internet users by 2005 than the U.S. or Japan, making the world's most populated nation an integral part of Softbank's efforts to quadruple its global technology investments.
Taking Long View on China
Analysts said Thursday's announcement represented Softbank's attempts to regionalize its fund-raising and investment activities, with a long-term view on the potentially lucrative China market. By raising funds in Hong Kong, Softbank can also avoid selling stakes in its overseas holdings to fund new Asian investments. Profits realized from such sales can face a combined 60% tax rate imposed by the U.S. and Japan.
"If you seriously want to penetrate the China market you've got to be there, you've got to have a physical presence," said Pete Hitchen, vice president and regional Internet analyst for Salomon Smith Barney Ltd. in Singapore. "It's good business sense for them to decentralize their fund-raising and investment activities."
Softbank touts a market capitalization of about US$80 billion and a US$33 billion portfolio of investments in some 200 technology companies world-wide, including Yahoo! Inc., in which it is the largest shareholder. The company says it plans to increase the number of its investments to 800 within the next five years.
Cheung Wah, a family-owned and largely unprofitable garment maker and dye distributor, posted a loss of HK$10.3 million (US$1.3 million) in the six months ended Sept. 30, compared with earnings of HK$364,000 during the same period a year earlier. Its long-term debt was HK$14.6 million at the end of March. Softbank paid 18 Hong Kong cents each for 1.15 billion new shares in Cheung Wah.
Mirrors Hikari Deal
Shares of Cheung Wah soared HK$8.47 to HK$9.80 on Thursday after news of the acquisition was published in a legal notice. Softbank shares fell 5.5% to 85,900 yen (US$815.38), a drop of 5,000 yen.
Softbank's backdoor listing, so-called because such moves allow companies to secure a public listing with minimal red tape, mirrors a similar deal two weeks ago by Hikari Tsushin Inc., Japan's second-largest Internet company. Hikari acquired 51% of battery maker Golden Power International Holdings Ltd. for US$108 million. Pacific Century Cyberworks, a Hong Kong company run by Richard Li, also acquired 20% of the company, which was renamed Hikari Tsushin International Ltd.
Hikari Tsushin still has the jump on Softbank in greater China. In the past six months, the company has invested more than US$130 million in Hong Kong to expand its business interests in Asia, which represented about 30% of the company's investment last year.
Softbank officials said that although the Cheung Wah transaction was still subject to shareholders' approval, they hoped the company would soon expand into electronic commerce and other Internet-related activities.
"In the future, the businesses of the company will also diversify into investment into companies conducting Internet and Internet-related activities as well as investing in and providing consultancy services to off-line businesses in the Asia-Pacific region, which either are converting or have the potential to convert themselves into online businesses," said Joseph Tong, associate director of Softbank Investment International (Strategic) Ltd. "We have been looking at opportunities in China for some time."
Mr. Tong said Softbank currently has no plan to redirect the fixed assets of Cheung Wah, nor to inject any of Softbank's existing assets or businesses into the Hong Kong company. Cheung Wah's board of directors is expected to change upon completion of the deal in mid March, with Softbank's executive vice president and chief financial officer, Yoshitaka Kitao, expected to become its executive chairman. Softbank Director Junichi Goto will be appointed president of the board for the new company, Mr. Tong added.
Analysts in Hong Kong said they expected more Internet investment vehicles to gain listings this year through either the "back door" or through initial public offerings on Hong Kong's new Growth Enterprise Market, a Nasdaq-inspired second board for technology companies.
-------------------------------------------------------------------------------- |
