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Press Release
As we have announced, SK Telecom is considering the purchase of an office building and surrounding commercial real estate lots owned by SK Global. We want to take the opportunity to explain to our stockholders the reasons for our need to acquire additional property and the manner in which the terms of an agreement with SK Global were or will be determined.
Currently, most of SK Telecom?s employees are located in its current headquarters as well as the Green Building (what PSPD refers to as the ?old building?), which is located in Nam Mountain. In addition, other employees are scattered throughout several other rented buildings in the vicinity. With the acquisition of STI and our organization of 3-G Consortium, SK Telecom is faced with the need to significantly increase its office space. The current headquarters is completely filled by the 1,100 SK Telecom employees and the employees of the other tenants, including SK Corporation, currently working in it, but we need space to accommodate our current 2,500 employees at one consolidated location. The rapid growth of SK Telecom has exacerbated this space shortage problem.
Once it became apparent to us that we had outgrown the current headquarters, we began to examine all of the other alternatives. We considered the purchase of other existing buildings, but were unable to find any of the size and nature that fit our future needs. We were aware of the real estate owned by SK Global and its location and size are ideal for SK Telecom. Our intention is to construct on this site a new building that will enable SK Telecom to consolidate all of its current and future headquarters employees in one location and to utilize within the new building SK Telecom?s cutting edge technologies. This not only will greatly increase the efficiency of SK Telecom?s operations, but it also will allow SK Telecom to project its unique image to the world. We believe that real estate prices were unusually depressed by the IMF crisis and will rise during the next few years, and accordingly didn?t rush to sell the Green Building at a fire sale price. Our plan is to sell it when we are most likely to be able to realize the best value for our shareholders, but in any event, we anticipate the sale to take place on or around the date on which construction of the new building is completed.
We have discussed with SK Global to purchase the property at its fair market value. This price will be determined by an independent third party appraisal expert, not only to ensure that SK Global is paid a fair price, but also, and importantly, that SK Telecom pays no more than what the property is worth. Likewise, all of the construction contracts will be entered into with reliable contractors at fair market value prices. We are especially aware of the FTC regulations concerning intra-Group transactions, and will be careful to ensure that both the purchase of this property and the construction of the new building will be in full compliance with both the letter and the spirit of these regulations.
We anticipate the cost associated with the new building to be 400 billion Won. This will be financed in part through our sale of the current headquarters, the Green Building and our other office buildings. We anticipate being able to obtain 280 billion Won from these sales, so the incremental cost is only 120 billion Won. SK Corporation, which is the co-owner of the current headquarters, has indicated that it wishes to purchase the building at a price at least equal to its full cost to SK Telecom.
There also has been a question raised about the sale of information technology assets to SK C&C. It is our belief, a belief shared by many in the business world, that a company should focus on those areas that are its strength, and that areas within a business that do not draw upon or support these strengths should be considered for divestiture. As a result, throughout the world, companies are continually acquiring and shedding businesses. The recently announced split of AT&T into four separate companies illustrates this trend.
Many of the companies within the SK Group, including SK Telecom, determined that information technology was a field in which they had assets, and which required management?s continued attention, but which was not strategic to any of their businesses. Accordingly, the various SK Group companies decided to transfer their information technology assets to SK C&C. The FTC fully investigated these transfers and the service contracts between SK C&C and each SK Group company, and agreed that all of them were in full compliance with applicable law. The assets transfers and the service contracts reflect in each case fair market value being paid to or obtained by each of the parties involved. As a result of our implementation of this strategy, SK Telecom is free to focus on its strategic business areas, but through its relationship with SK C&C it is assured that its information technology needs will be met.
Finally, as a significant shareholder in SK C&C, we too are eager to see it implement its plan to enter into a joint venture with a foreign partner. SK C&C has diligently pursued negotiations with a number of potential partners, but a partnership must be fair to both parties in order to be successful, and so far SK C&C has not received such an offer. Nevertheless, SK C&C will continue to vigorously pursue its efforts to form a joint venture with a reputable foreign company.
Sincerely,
Hyo Sup Song
Vice President
Finance Planning Team
Currently, most of SK Telecom?s employees are located in its current headquarters as well as the Green Building (what PSPD refers to as the ?old building?), which is located in Nam Mountain. In addition, other employees are scattered throughout several other rented buildings in the vicinity. With the acquisition of STI and our organization of 3-G Consortium, SK Telecom is faced with the need to significantly increase its office space. The current headquarters is completely filled by the 1,100 SK Telecom employees and the employees of the other tenants, including SK Corporation, currently working in it, but we need space to accommodate our current 2,500 employees at one consolidated location. The rapid growth of SK Telecom has exacerbated this space shortage problem.
Once it became apparent to us that we had outgrown the current headquarters, we began to examine all of the other alternatives. We considered the purchase of other existing buildings, but were unable to find any of the size and nature that fit our future needs. We were aware of the real estate owned by SK Global and its location and size are ideal for SK Telecom. Our intention is to construct on this site a new building that will enable SK Telecom to consolidate all of its current and future headquarters employees in one location and to utilize within the new building SK Telecom?s cutting edge technologies. This not only will greatly increase the efficiency of SK Telecom?s operations, but it also will allow SK Telecom to project its unique image to the world. We believe that real estate prices were unusually depressed by the IMF crisis and will rise during the next few years, and accordingly didn?t rush to sell the Green Building at a fire sale price. Our plan is to sell it when we are most likely to be able to realize the best value for our shareholders, but in any event, we anticipate the sale to take place on or around the date on which construction of the new building is completed.
We have discussed with SK Global to purchase the property at its fair market value. This price will be determined by an independent third party appraisal expert, not only to ensure that SK Global is paid a fair price, but also, and importantly, that SK Telecom pays no more than what the property is worth. Likewise, all of the construction contracts will be entered into with reliable contractors at fair market value prices. We are especially aware of the FTC regulations concerning intra-Group transactions, and will be careful to ensure that both the purchase of this property and the construction of the new building will be in full compliance with both the letter and the spirit of these regulations.
We anticipate the cost associated with the new building to be 400 billion Won. This will be financed in part through our sale of the current headquarters, the Green Building and our other office buildings. We anticipate being able to obtain 280 billion Won from these sales, so the incremental cost is only 120 billion Won. SK Corporation, which is the co-owner of the current headquarters, has indicated that it wishes to purchase the building at a price at least equal to its full cost to SK Telecom.
There also has been a question raised about the sale of information technology assets to SK C&C. It is our belief, a belief shared by many in the business world, that a company should focus on those areas that are its strength, and that areas within a business that do not draw upon or support these strengths should be considered for divestiture. As a result, throughout the world, companies are continually acquiring and shedding businesses. The recently announced split of AT&T into four separate companies illustrates this trend.
Many of the companies within the SK Group, including SK Telecom, determined that information technology was a field in which they had assets, and which required management?s continued attention, but which was not strategic to any of their businesses. Accordingly, the various SK Group companies decided to transfer their information technology assets to SK C&C. The FTC fully investigated these transfers and the service contracts between SK C&C and each SK Group company, and agreed that all of them were in full compliance with applicable law. The assets transfers and the service contracts reflect in each case fair market value being paid to or obtained by each of the parties involved. As a result of our implementation of this strategy, SK Telecom is free to focus on its strategic business areas, but through its relationship with SK C&C it is assured that its information technology needs will be met.
Finally, as a significant shareholder in SK C&C, we too are eager to see it implement its plan to enter into a joint venture with a foreign partner. SK C&C has diligently pursued negotiations with a number of potential partners, but a partnership must be fair to both parties in order to be successful, and so far SK C&C has not received such an offer. Nevertheless, SK C&C will continue to vigorously pursue its efforts to form a joint venture with a reputable foreign company.
Sincerely,
Hyo Sup Song
Vice President
Finance Planning Team