03/12/2009 ( Source: http://online.wsj.com )

LG Telecom Merger Wins Antitrust Approval

South Korea's Fair Trade Commission approved the planned merger of three telecommunications units under LG Group, paving the way for mobile operator LG Telecom Co. to compete better against its bigger rivals.

Telecommunications firms in South Korea have been seeking various ways to boost profits in the one of the world's most saturated and fiercely competitive markets, by developing converged products and bundling fixed-line, mobile and Internet services.

Under the plan, LG Telecom, South Korea's smallest mobile operator by revenue, will absorb fixed-line operator LG Dacom Corp. and Internet-service provider LG Powercom by Jan. 1.

The antitrust regulator said in a statement that the planned merger isn't likely to hurt free competition in the market and that it decided to allow the plan without conditions. However, "the FTC will continue monitoring the market conditions and will take strict actions when any illegal activities [by the LG telecommunications units] are detected," it added.

The regulator said it expects the merger to help the LG telecommunications units compete better with hometown rivals such as KT Corp. and SK Telecom.

Analysts agreed the merger would spur competition and said they were optimistic about the outlook for the merged entity, which they expect to make further investments in its business.

"Even after the merger, the company would still be the smallest among the three," said Jonathan Park, an analyst at Hanwha Securities. But, he added, the merger will yield synergies that will help LG Telecom's valuation.

Following the merger, Mr. Park said the market expects LG Telecom's stock price to rise as much as 13,000 won ($11.27), compared with the Thursday's closing price of 8,280 won.

KT Corp. became the country's largest fixed-line operator and second-largest mobile carrier by revenue after absorbing its wireless affiliate KT Freetel Ltd. in early June. SK Telecom Co. is the largest mobile carrier with a 51% share in the local wireless market.

Under the merger plan, shareholders of LG Dacom and LG Powercom will receive 2.149 common shares and 0.742 of a common share, respectively, of the new entity for each share they own in the two companies. LG Dacom will cancel its entire 40.87% stake in LG Powercom.

Shareholders of LG's three telecommunications units last month approved the planned merger, which is now awaiting final approval from the Korea Communications Commission, a government agency that oversees telecommunications and broadcasting regulations.

An official at the FTC said the final approval from the KCC is expected early next week.