GILBERT & TOBIN, in conjunction with the Hong Kong firm Arculli Fong and Ng, negotiated a complex variety of regulatory clearances for a consortium of investors in its US$402 million ($526 million) purchase of Asia Netcom from one of China’s four main state-owned telcos.
Asia Netcom was bought from China Netcom Group and China Netcom HK by a group of private equity firms led by Ashmore Investment Management Limited, Spinnaker Capital Limited and Clearwater Capital Partners.
Asia Netcom owns an undersea cable network that connects several countries across East Asia, including Korea, Japan, Taiwan, Hong Kong and the Philippines. The deal also included the sale of the company’s international service unit for US$169 million ($221 million).
Lead partner in the deal, Peter Waters, said one of the challenges was the need to negotiate with several different jurisdictions, each with its own competition and regulatory regime.
Different competition regulations, varying political pressures and the fact that some countries in Asia have very rudimentary regulatory systems combine to make international deals in the region more difficult.
“Many lawyers from North America and Europe regard [gaining regulatory approval there] as a difficult process … but it’s one in which the national jurisdictions are actually pretty uniform in how they do it,” Waters said.
“It seems simplistic to say this, but Asia is a very different kettle of fish — it’s extremely variable.”
Waters said regulators are always concerned when two competitors are reduced to one. In this case, the same purchaser had also already bought C2C, another cable network covering a similar area.
“We had to deal with that almost intuitive view that fewer competitors means less competition,” he said.
“We had to explain to these regulators that really this rationalisation … is about creating stronger competitors, and that’s what they should be focused on, not on the fact that there might be a reduction in the number of competitors.”
Following massive investment in undersea cables during the technology boom, Waters said there was a “huge overhang” of unused capacity on telecommunications networks spanning the region.
“We had to convince them … that you were seeing a natural correction in a market that had really become dysfunctional.”
As well as Waters, David Olds from Hong Kong and Jennifer Barron from Sydney assisted on the deal.
Skadden Arps acted on the mergers and acquisitions aspects of the deal for the acquiring consortium.