Korea could miss out on one of the year's most anticipated corporate deals after the antitrust regulator on Tuesday rejected the proposed merger between SK Telecom and CJ Hellovision.
Voicing concerns that it would hamper competition in the telecommunications industry, Korea’s Fair Trade Commission (FTC) gave the thumbs down on the grounds that it would give SK monopoly-like status and excessive pricing power.
The potential W1 trillion ($865 million) deal to merge SK Telecom, Korea’s largest mobile operator with a 50% market share, with the country’s biggest cable TV operator CJ Hellovision would have created an industry behemoth.
The FTC decision, which was due on April 20 and is still subject to appeal, took longer than expected because of the complexity of the transaction. Other telcos including Korea Telecom and LG Uplus voiced their concerns over the merger proposal and indirectly lengthened the review process.
As the FTC ruling is one of the pre-conditions for proceeding with the merger, the deal is technically lapsed although SK Telecom and CJ Hellovision have both hinted that they will appeal against the decision.
CJ Hellovision's share price fell by 13.3% on Tuesday in the wake of the FTC setback, while SK Telecom's fell by 1.1%.
Complex
According to the proposal announced in November, SK Telecom was set to take control of CJ Hellovision in a two-phase merger.
Initially it would acquire a 30% stake in CJ Hellovision from CJ O Shopping for W500 billion and merge it with its subsidiary SK Broadband. That was then to be followed by the purchase of an additional 23.9% stake through put and call option agreements.
The complexity of the transaction was highlighted by the involvement of four listed companies.
Morgan Stanley is an advisor to SK Telecom while Credit Suisse is advising CJ Hellovision.
SK Telecom has pursued the merger with CJ Hellovision in order to strengthen its position in the highly-competitive Korean telecommunciaions market, JP Morgan analyst Stanley Yang said in a note in November last year after the merger announcement.
According to Korea’s Ministry of Science, ICT and Future Planning, the telecommunications sector has recorded two consecutive years of revenue decline as a result of cut-throat competition, after reaching a record W2.4 trillion in 2013.
If the deal eventually collapses, it would be a blow for Korean bankers in what has so far been a relatively tepid year for mergers and acquisitions.
Korea's total M&A deal volume in the first half of 2016 was $31.3 billion, which is 53% down on the previous year, according to Dealogic.
