Local telco StarHub will be buying a majority 50.1 per cent stake in rival Internet service provider MyRepublic's broadband business for residential and enterprise customers in Singapore.
For now, the deal is worth $70.8 million.
Announcing this yesterday, the two companies said the proposed transaction will consolidate and strengthen StarHub's position in the Singapore broadband market by "steering long-term business growth".
It will also expand StarHub's broadband market presence here from 34 per cent to 40 per cent. This translates to more than 578,000 subscribers in total, going by June 30 figures.
Competitor Singtel, Singapore's largest telco, had 655,000 subscribers for the same period.
StarHub said it sees clear value in MyRepublic's "profitable and growing" broadband business in Singapore, which is "expected to be accretive to our earnings".
Mr Nikhil Eapen, StarHub's chief executive, added that the telco stands to benefit from MyRepublic's "lean operating model and experiences in regional markets".
MyRepublic said the capital raised from the deal will be used to hasten plans to expand regionally.
Co-founder and CEO Malcolm Rodrigues said StarHub's investment and partnership with MyRepublic "validate the vision of digital transformation we set out to bring to the industry, in Singapore and beyond".
The broadband business was started about 10 years ago.
Prior to MyRepublic, Mr Rodrigues was a former vice-president for StarHub's international and wholesale business.
He added that the deal would propel MyRepublic in its "journey towards an initial public offering (IPO)". The IPO has been delayed a few times. In 2019, the firm said it had planned to go public in Hong Kong by the end of last year.
The acquisition deal is slated to close by December, subject to the fulfilment of mutually agreed conditions and regulatory approvals.
On why the companies are planning the deal, DBS Bank analyst Sachin Mittal said MyRepublic needs financial support and validation from a firm like StarHub.
StarHub, on the other hand, stands to learn a lot from MyRepublic to become leaner, said Mr Mittal, DBS Bank's regional head of telecom and technology research.
"It's quite amazing that the net profit margins of MyRepublic's broadband business are higher than StarHub's overall business," he said, stressing that StarHub is 25 times bigger than MyRepublic.
The two firms expect MyRepublic's broadband business to continue to operate independently.
"MyRepublic's existing senior management team will continue to manage the local broadband business, with StarHub having an oversight of the business," they said.
The firms also intend to "work on joint go-to-market strategies and cross-sell products and services between the two brands", to enhance their reach and optimise costs.
In future, MyRepublic's broadband customers stand to gain access to StarHub's products and services offering connectivity, over-the-top content, cloud gaming and other experiences.
Over-the-top services are generally offered directly over the Internet, such as Netflix and Facebook.
The acquisition involves a StarHub subsidiary, StarHub Online, buying a majority interest in a new business entity, MyRepublic Broadband, which holds MyRepublic's broadband business here.
If the deal goes through, MyRepublic Broadband will become a StarHub subsidiary.
Beyond StarHub's $70.8 million investment for MyRepublic Broadband shares, StarHub will consider investing up to $92 million more if future financial performance matrixes are met. So its total investment will be up to $162.8 million.
StarHub did not say if it planned to acquire stakes in MyRepublic's other businesses later, such as its mobile services here and overseas businesses.
The telco has also agreed to refinance $74.2 million of MyRepublic's debt for three years.
StarHub shares closed yesterday at $1.23, down slightly by 1 cent.
