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China Mobile, the larger of the country's two cellular operators, is reportedly about to announce its acquisition of Luxembourg-based cellular firm Millicom.

 

The acquisition, if realized, will be a big step in China Mobile's tentative overseas expansion efforts. But it will also be a huge risk for the firm, analysts said.

 

The deal is reported to be worth US$5.3 billion, the largest-ever overseas acquisition by a Chinese company.

 

Millicom, which has 10 million subscribers in 16 countries across Asia, Latin America and Africa, confirmed on Monday that it was in "advanced discussions" with an unnamed bidder.

 

A China Mobile spokesperson declined to comment.

 

Li Jing, an investment analyst with Beijing-based research house Analysys International, said the bidding of US$5.3 billion could be too high.

 

"A reasonable price might be around US$4 billion," she said, warning China Mobile needs to be "cool-minded."

 

NASDAQ-listed Millicom International Cellular SA shares closed at US$45.82 on March 26, compared to US$27 in January.

 

The lowest price the shares have been traded at in the past year is US$15.60.

 

"The stock price and the P/E ratio are much higher than the industry average, which makes the US$5.3 billion acquisition quite risky," said Li.

 

Li estimated that a return on investment will take 10 years if China Mobile increases the bidding to US$6 billion.

 

China Mobile would have to ensure Millicom maintain an annual revenue growth of more than 40 percent.

 

"That will be a tough job for China Mobile," said Li.

 

Given intense price competition and regulatory risks, global carriers are finding it harder to operate mobile phone networks outside their home countries.

 

Britain-based Vodafone Group PLC, the world's top cellular operator in terms of revenue, has been very aggressive in overseas expansion by acquiring operators in fast-growing emerging markets during the past year.

 

But shareholders are concerned that the company has in some cases overpaid amid intense bidding for these businesses, according to the Financial Times.

 

Vodafone CEO Arun Sarin said such merger and acquisition activities would be reined in.

 

Vodafone has sold the struggling Vodafone Japan to a wholly owned subsidiary of Japan's Softbank Corp for US$15.7 billion.

 

Despite the risks, analysts said cash-flush China Mobile needs to ramp up its overseas expansion efforts to improve its global competitiveness.

 

(China Daily June 1, 2006)