PacificNet (PACT.PK) has completed the acquisition of 51% majority and controlling interest in Shenzhen GuHaiGuanChao Investment Consultant Company Limited, a wholly-owned foreign enterprise registered in China also known as ChinaGoHi.

On October 3, PacificNet announced an agreement to acquire Hitching International Corporation, the former beneficiary owner of ChinaGoHi, subject to the completion of due diligence and the approval of the wholly-owned foreign enterprise (WOFE) structure by China's Industry and Commerce Department.

As a result of the completion of the due diligence process and receipt of Chinese government's WOFE approval, PacificNet and HIC agreed to revise the previous Sale and Purchase Agreement to allow PacificNet to have direct ownership of ChinaGoHi through the acquisition of 51% ownership of Lion Zone Holdings Limited, the direct owner of ChinaGoHi.

The acquisition is expected to expand PacificNet's position as a leading provider of outsourced call center, telemarketing, CRM, and value-added telecom services in Greater China.

PacificNet expects to significantly increase its call center telemarketing revenues, profits, and its Chinese operations. PacificNet believes that the acquisition should be immediately accretive to the company's earnings per share in 2005 and 2006. Company plans to issue an updated guidance soon.

ChinaGoHi has been awarded by the Chinese tax bureau as one of the "Top 100 Tax-Paying Enterprises" in Shenzhen as recognition for profit generation, commercial leadership and government contribution. ChinaGoHi operates one of the leading Direct Response Television (DRTV) infomercial marketing companies for financial advisory services in China, with over 100,000 registered online users and 30,000 fee paying subscribers.

ChinaGoHi is headquartered in Shenzhen China with over 600 employees in its DRTV infomercial telemarketing call center. The DRTV call center, with about 400 phone lines, occupies about 35,000 sq. feet. Upon closing, the combined companies should become one of the largest providers of CRM services in China.

The purchase consideration for 51% of the equity interest of ChinaGoHi is US$10.2 million, valued at five times the anticipated future annual net profit of ChinaGoHi.

In the purchase agreement, ChinaGoHi guarantees to generate US$4 million annual profit, and provides for an adjustment to the purchase price in the event that ChinaGoHi does not achieve net profit of US$4 million for fiscal year 2006.

The purchase consideration is payable 35% in cash and 65% (or about 825,000 restricted shares) in restricted shares of PACT valued at $8 per share.

The purchase price is payable upon achievement of certain quarterly earn-out targets based on net profits. In addition, PacificNet has agreed to pay for ChinaGoHi's approximately US$7 million accumulated net cash profit from 2003 to 2005 (subject to completion of 2005 annual USGAAP audit) by issuing restricted shares of PACT based on 51% of the net cash divided by the 60-day volume weighted average price of PACT.


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