Reported in the Nikkei:
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February 28, 2000
Japan firms shop in Hong Kong Investors see companies in region as key pieces of Internet empires.
HONG KONG - Some of Japan's top companies are beginning to look for a piece of the action in Hong Kong's Internet sector. Among them is Sega Enterprises Ltd., which recently announced a capital tie-up with Cheong Ming Holdings Ltd., a printing company listed on the Hong Kong Stock Exchange.
"We will develop the Internet-game business in Japan, the rest of Asia, the U.S. and Europe," Sega President Shoichiro Irimajiri said at a press conference announcing the deal.
Sega acquired 32.97% of Cheong Ming Holdings through its U.S. subsidiary, Sega.com Inc., becoming the Hong Kong company's second-largest shareholder. Cheong Ming obtained 6.8% of a Sega-affiliated online-game company in exchange, leaving the value of shares changing hands at HK$137 million (US$17.6 million).
As Irimajiri's comment indicates, Sega's interest in Cheong Ming Holdings has nothing to do with printing. Instead, it views the Hong Kong company as a steppingstone for development of the Internet-game business in Asia.
Sega is the third Japanese company to establish a capital tie-up with a listed Hong Kong concern in recent months.
Late last year, Hikari Tsushin Inc., a major Japanese cellular-phone retailer, announced it would purchase Hong Kong battery-maker Golden Power International Holdings Ltd. jointly with local Internet-related company Pacific Century CyberWorks (PCCW) for HK$839.1 million. Hikari Tsushin is expected to use the new Hong Kong affiliate as a base for Internet-operations development in the region.
In January, Softbank Corp. revealed plans to acquire over 61% of Cheung Wah Development Co., a listed Hong Kong clothing producer, for HK$207.5 million. Just as in the Sega deal, Softbank has no interest in making clothes.
Once the acquisition is completed, Softbank plans to rename the company Softbank Investment International (Strategic) Ltd. and appoint Yoshitaka Kitao, a Softbank director, as chairman. The new subsidiary is expected to serve as Softbank's headquarters for Internet-related investments in Asia.
Each of the three Japanese companies acquired a company operating in a non-Internet industry and will use it as a foundation for Internet business in Hong Kong. The decisions to buy a company instead of setting one up from scratch reflect a desire to get into business quickly, probably to take advantage of opportunities in the larger overall Chinese market.
PCCW Chairman Richard Li, the son of Hong Kong tycoon Li Ka-shing, says the Internet revolution that started in the U.S. reached Hong Kong's shores in the latter half of 1999. It has fueled a boom in the prices of Net-related stocks. Demand grew even more overheated once it looked as if China might gain entry into the World Trade Organization. Hong Kong's importance as the gateway to China suddenly ballooned.
Analysts believe the sudden interest in Internet companies served as an extra incentive for the three Japanese company to buy into listed Hong Kong companies, because such companies were in good positions to procure funds. PCCW was actually one of the first companies to benefit from the local Internet stock rally.
Thanks to an investment in the telecommunications sector, PCCW finds itself with plenty of money for investing in Internet-related projects. Some people believe the recent moves by the three Japanese companies were strongly influenced by PCCW's good fortune.
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