Digital China Holdings Ltd. (861), a distributor of technology products, said its information services unit will merge with Shenzhen Techo Telecom Co. (000555) in a 3.02 billion yuan ($492 million) all-stock deal.
Shenzhen Techo will absorb Digital China Information Service Co. in exchange for 319.6 million new shares, about a 74 percent stake of its expanded share capital, Digital China said yesterday in a Hong Kong stock exchange filing.
The merger gives Digital China a separate listing for its systems integration, applications software development and professional IT services business, according to the filing. Its distribution operations have been affected by a drop in consumer demand, Miles Xie, an analyst at Bocom International Holdings Ltd., wrote in a June report.
The deal is deemed a spinoff under Stock Exchange of Hong Kong rules and will require approval from the exchange, Shenzhen Techo shareholders and Chinese government regulatory agencies, Digital China said.
After the merger, Shenzhen Techo plans to discontinue its existing operations, the trading of liquid crystal film display panel products, according to the filing. Digital China said it will continue to distribute IT products and provide supply chain services.
Digital China, which now owns 61 percent of the services unit, will hold a 45.2 percent in Shenzhen Techo, according to the filing. Tianjin Xinrui Investment Partnership LP, which owns 18.6 percent of the unit, will get a 13.8 percent stake in Shenzhen Techo, the company said.
Unit investors China Singapore Suzhou Industrial Park Ventures Co., Infinity I-China Investments Israel LP and Nanjing Huiqing Tianxia Technology Co. will get stakes of 12.3 percent, 2.2 percent and 0.7 percent respectively, according to the filing.
Digital China gained 1.4 percent to HK$8.64 at the close of Hong Kong trading yesterday, before the announcement. The stock has slumped 35 percent this year, compared with the 2.5 percent decline in the city’s benchmark Hang Seng Index. Shenzhen Techo has been suspended from trading in Shenzhen since May 6.