will enter into a partnership that will take advantage of China's "Three Network Convergence" policy to provide Internet TV services in China and abroad.
UTStarcom has signed agreements under which it will provide technology and service platforms to Cristar through entities affiliated with Stage Smart Limited. UTStarcom is acquiring a 75 percent interest in Stage Smart for $30 million.
The total consideration UTStarcom intends to pay to Stage Smart has two parts:
- $20 million will be paid in cash to Stage Smart in exchange for preferred stock and used as working capital by Stage Smart.
- $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.
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.
"Three Network Convergence" is the name of a Chinese central government policy directed at improving the capabilities and effectiveness of voice/music, video and data communication services across all of the communications networks: telecom, cable TV and broadband Internet. The Chinese central government targets to complete Three Network Convergence by 2015.