Hong Kong-based IT services provider Armada Group Limited has entered into a purchase agreement to acquire a 45% stake in China Satellite Mobile Communications Group (CSMCG) for approximately HK$469.1m (US$60.5m). The sellers are a group of eleven…
Hong Kong-based IT services provider Armada Group Limited has entered into a purchase agreement to acquire a 45% stake in China Satellite Mobile Communications Group (CSMCG) for approximately HK$469.1m (US$60.5m). The sellers are a group of eleven separate stockholders.
CSMCG is the parent company of China Mobile Satellite Communications Group, a Hong-Kong-based developer of satellite mobile phones and ancillary equipment with a licence to operate in China.
Under the terms of the transaction, the selling shareholders will receive 920 million Armada shares at 7.5 cents each, HK$25m in cash and loan notes worth HK$20m. The issue price of the shares represents a discount of approximately 13.3% to Amada’s share price of 25 March 2011, the last day preceding the data of the purchase agreement.
Armada also has a call option, to be exercised at the company’s discretion, to purchase the remaining 55% of CSMCG from those same shareholders for HK$645.1m. Again this would be split between the issue of new Armada shares (1.28 billion in total), HK$25m in cash and HK$30m of loan notes.
At the time the agreement was signed, Amada’s share capital comprised approximately 1.08 billion shares although a further 50 million shares are due to be issued to fund the acquisition of a 25% stake in China RFID Limited that was agreed at the end of last year. This means that the CSMCG shareholders will collectively become the majority shareholder in Armada if the call option is exercised. However, Armada stated that it would only proceed with this option if CSMCG achieves certain target milestones connected to the sale of satellite phones in China.
A key condition to the proposed acquisition is that Shanghai Jianhua Satellite Communications Co. Ltd will be rolled into the restructured China Mobile Satellite Communications Group. Jianhua holds a number of licences and permits to own and operate mobile satellite telecommunication services in China. It uses Ku-band capacity from AsiaSat to provide its services and is majority-owned by Zhang Jian Hua, who is one of the shareholders selling their stake in CSMCG.
By taking control of both Jianhua and CSMCG, Armada has effectively become the only qualified mobile satellite communications operator in China. This is quite a departure from its former business model where it provider IT and professional services to the Chinese banking and financial services industry.