and Cristar Media announce they will enter into a strategic partnership that will take advantage of China's "Three Network Convergence" policy to provide Internet TV services in China and abroad. At the same time, UTStarcom's new President and CEO, Jack Lu, took the opportunity to communicate a new strategy which sees three shifts in UTStarcom's business model and the related role of the strategic partnership.
UTStarcom has signed agreements under which it will provide technology and service platforms to Cristar through entities affiliated with Stage Smart Limited ("Stage Smart"). UTStarcom is acquiring a 75% interest in Stage Smart for US$ 30 million. The total consideration UTStarcom intends to pay to Stage Smart has two parts: 1) US$20 million will be paid in cash to Stage Smart in exchange for preferred stock and used as working capital by Stage Smart. 2) US$ 10 million in shares of UTStarcom's common stock (the amount of UTStarcom shares to be paid will be calculated using the 30-day trailing average of the share price prior to the closing) will be paid to Smart Frontier Holdings Limited, Stage Smart's only shareholder. In exchange for this two part consideration UTStarcom will own a majority of the outstanding ordinary shares and all of the preferred stock of Stage Smart, which gives it control of the entity.
The strategic partnership's revenues are expected to come from technology and software licensing fees, subscription fees, as well as advertising. Although the investment is expected to dilute UTStarcom's earnings for the initial 1 or 2 years of operation (while the subscriber base and advertizing fees are ramped up) it is expected to be accretive to earnings thereafter.
UTStarcom also took the opportunity of the announcement of the strategic partnership to describe three critical shifts in the Company's business strategy:
- The first is a "return to China". With the move of the operational headquarters to Beijing, the Company will be able to increase focus on the Chinese and Asian markets that drive its business, while improving internal communications and lowering costs.
- The second is "the pursuit of telecom and cable network customers in parallel." Because UTStarcom's core-IP technology can be applied across different kinds of networks, the Company can pursue opportunities with operators of other networks, the most promising of which are in China's cable space.
- The third and final shift is "equipment AND services." Because of Three Network Convergence in China and UTStarcom's expertise in building and operating the technology & service platforms for IPTV and Internet TV, UTStarcom will see new opportunities to sell more end-to-end solutions to service providers in this space.
The closing of the acquisition of shares of Stage Smart is subject to customary closing conditions. Formal establishment of the strategic partnership with Cristar is subject to customary conditions, including receipt of regulatory approvals. For more information on commitments entered into by UTStarcom, please see the Company's 8-K filed with the SEC today.