SK Broadband-CJ HelloVision merger rejected

[THE INVESTOR] SK Telecom faced a major setback on July 5 over the Fair Trade Commission’s rejection of its request to take over CJ HelloVision -- a 1 trillion won deal that was widely expected to give a major boost to the nation’s leading mobile carrier in expanding its media platform business.

The watchdog has notified SK Telecom that it will not permit the merger plan, saying the deal impedes fair market competition. The FTC also told the telecom giant that the two should neither carry out a merger, nor any stock trade, according to officials at SK Telecom.

Since November last year, SK Telecom has pushed to acquire CJ HelloVision, a cable TV network owned by food and entertainment giant CJ Group. It planned to have its subsidiary SK Broadband acquire a 53.9 percent stake in CJ HelloVision from its affiliate CJ O Shopping.

The merger would have allowed SK Telecom to secure around 4.2 million subscribers from CJ HelloVision in addition to the some 3 million IPTV subscribers that it already holds through its own internet TV service unit SK Broadband.

If the merger was allowed to happen, the firm’s gap with KT, the nation’s largest TV platform provider, would narrow. KT has around 8.1 million subscribers.

However, the FTC rejected the request, as the merger would make the company the leading service provider in 21 of the nation’s 23 broadcasting blocs, therefore allowing SK to have a monopoly.

The decision was sent to the telecom company on Monday, after a seven-month long assessment.

In the face of heated resistance from rivals within the industry, the regulator had been delaying its decision. The first deadline was April 1.

The watchdog’s disapproval of a merger and acquisition effort pursued by a local firm is rare, according to sources.

SK Telecom and CJ HelloVision expressed deep concerns, saying that the watchdog’s decision is hard to understand and was made contrary to the market economy.

“The FTC’s decision is a shocking case for SK Telecom,” the company said in a statement.

“We cannot help but express our deepest regrets for frustrating our efforts in making massive investments in content and network building for market development.”

The company is in the process of reviewing the FTC’s assessment and will come up with a number of follow-up measures. The company was asked to return its feedback on FTC’s report within two weeks.

In worst case scenario, SK could file an administrative suit against the FTC in defiance against the watchdog’s decision, a source said.

Meanwhile, a SK Telecom official told The Korea Herald that it is too early to conclude that the deal is being completely disapproved by the authorities.

The main role of the FTC was to examine whether the deal would damage market competitiveness. It does not hold the final authority for an approval, but the Korea Communications Commission and the Ministry of Science, ICT and Future Planning does.

By Cho Chung-un (christory@heraldcorp.com)