China Mobile’s Fails To Excite With Thai Buy

China Mobile buys into Thailand’s True

The telecoms world is buzzing today on news that China Mobile (HKEx: 941; NYSE: CHL) has made a major acquisition in Thailand, marking only its second purchase outside its protected home market despite years of saying it wants to go global. While it’s nice to see China Mobile finally put some of its huge cash pile to work, this particular purchase doesn’t look too exciting since it will only acquire 18 percent of True Corp, one of Thailand’s top telecoms companies. The deal also looks like it’s being driven by politics rather than True’s desire for any real strategic partnership, which also makes it look less exciting.

There are a lot of things I like about China Mobile, especially under its new leadership team that seems interested in breathing new life into this state-run behemoth that for years has thrived due to government protection in its massive home market. But the company’s non-existent M&A policy has become a bit of a farce, especially since China Mobile has a huge cash pile that it could use to acquire carriers in many developing markets around the world.

Despite making several tries at M&A, China Mobile to date has only successfully bought a carrier in Pakistan. That market admittedly shares many qualities with China, but it’s also highly risky due to the country’s political instability. China Mobile’s most recent botched attempt at global expansion came last year, when it pursued but later abandoned a bid to start a new carrier in Myanmar in partnership with European giant Vodafone (London: VOD).

Now the company has announced its latest attempt at global expansion, which will see it pay nearly $900 million for the 18 percent of True. (company announcement; English article; Chinese article) China Mobile purchased the stake through a private placement, which was part of True’s broader effort to raise $2 billion to boost its financial position. The deal appears to have some political overtones, since True’s main backer also has numerous major business interests with big state-controlled companies in China.

None of those signs looks particularly encouraging from an investor’s perspective. For starters, it’s hardly a positive sign that China Mobile is buying its stake as part of a bigger cash-raising exercise by True. That implies that True is more interested in China Mobile’s money than its expertise, and that True is capitalizing on political connections to get what it wants.

The fact that True is raising $2 billion means that China Mobile won’t be the Thai company’s only strategic investor, setting the stage for possible conflicts with any other partner that True finds. China Mobile itself is well aware of the risks of being a minority partner, since for years it had its own similar tie-up after selling a small stake of itself to Vodafone. Company historians will know that Vodafone derived very little from that partnership, and ultimately sold the stake.

All of that said, I can’t really get too excited about this particular deal. On a slightly positive note, the deal shows China Mobile is still actively seeking global expansion opportunities, and could eventually use such expansion to reignite its growth that is rapidly fading as its home mobile market matures.

But if this deal is a sign of things to come, it certainly won’t do much to improve China Mobile’s bottom line. At the end of the day, this kind of investment is almost certain to end up as a purely financial arrangement with little or no managerial participation by China Mobile. The deal itself will also be hard to replicate in other markets due to its political nature, meaning it’s unlikely to act as a template for China Mobile in other M&A deals.

Bottom line: China Mobile’s Thailand acquisition looks like a smart move on the surface, but is likely to lead to disappointment in the longer term due to its structure and political overtones.

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