On the 14th, the KCC authorized of the conditional merger of the three subsidiary companies. As a result, LG Telecommunications will take the appraisal on the 17th and commence a merger on January 1st, 2010. SK Dacom and SK Powercom will stop all trade starting from the 29th to January 14th, and enlist as a merger on January 15th.
The conditions of the merger is the following: to submit a plan to develop a broadband information network for fishing and farming villages within 60 days, further activation of wireless internet, and further implementation of the IPTV business plan.
The first issue that has surfaced due to the merger is the difference in price between stocks and and the price to exercise appraisal rights. The yesterday closing price of LG Powercom stocks were worth 6100 won, which is 500 won less than the exercise price of appraisal rights worth 6674 won. LG Telecom stopped at 8,520won, and LG Dacom at 18,200won which is a 228won and 1,503won difference respectively to the exercise price of appraisal rights.
Experts advise it would be wise to exercise appraisal rights at the cost of the difference in exercise prices and stocks. Experts also advised the purchase of stocks at a price lower than the cost of appraisal rights. Choi Nam-kon, analyst with Tong Yang Securities, explained that, "Institutional investors exercising appraisal rights will take their stocks back into funds after the merger and taking the point that dividend yields are at 4.2%, there is a factor of stock increase."
Kim Hong-shik, analyst of NH Investment & Securities, also agreed that LG Telecommunication will achieve its 900 billion operating profit after the merger and its stocks will reach 12,000 won. Kim, also agreed to the purchase the stocks. Kim stated, "The merger of LG Dacom and LG Powercom, and their recent rise in profits will forecast a rise in stock. The profit curve will decelerate, but the rise in profits in the field of high-speed internet and internetphones will bring high yield after 2010."
However, the forecast is not all bright. Byun Seung-jae, analyst of Daewoo Securities, stated that, "Unlike forerunners in the field, LG Telecom has a 20% access resin contribution rate from operating profits. Active rate cuts, a term of the merger, will put much pressure on sales performance." Byun forecasted stocks to reach a lower yield of 10,000 won.
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