ARCH Arc Capital

    RNS Number : 1687D
  ARC Capital Holdings Limited
  10 September 2008
   



    ARC CAPITAL HOLDINGS LIMITED

    Pypo Group to Merge with Middle Kingdom SPAC


    10 September, 2008

    ARC Capital Holdings Limited ("ARCH") or ("the Company") (AIM: ARCH), the AIM quoted investment company focused on investment in the
retail and consumer sectors principally in China, is pleased to announce that on 5 September 2008 it has entered into a share exchange
agreement with the other shareholders of Pypo Digital Company Limited ("Pypo"), to merge Pypo with Middle Kingdom Alliance Corp. ("MK"), a
US SEC registered special purpose acquisition company quoted on the OTC:BB. Post-merger, ARCH will hold approximately 30% of the surviving
entity, which will be redomiciled to the Cayman Islands as Pypo China Holdings Limited, and intends to list the surviving entity on NASDAQ
as soon as practicable thereafter. Pypo's current management team will remain in place to run the business following the completion of the
merger.
    Pypo, established in October 2003 and headquartered in Beijing, is a leading national distributor for Samsung mobile phones in China;
Samsung is currently the number two mobile phone brand in China in terms of market share by sales volume. Pypo's nationwide distribution
network currently covers about 350 cities, 3,500 retail accounts and 9,500 retail outlets.  For  the fiscal year ended March 2008, Pypo's
total net revenues were US$378.3 million, a 28.6% increase year-on year.  Net income was US$30.2 million, up 110.6% year-on-year in the same
period.
    Under the terms of the agreement, MK will issue Pypo's current shareholders 45 million common shares, plus an additional 23 million
common shares under the terms of an earn out for the fiscal years ending March 2010 and 2011.  Post-closing and before accounting for earn
outs, warrants or underwriter's purchase options, Pypo shareholders will hold 90.9% of the merged entity.  All shares received by ARCH will
be subject to a 12 month lock-up from the time of receipt. Pypo's shareholders will also receive 3.4 million warrants at a strike price of
US$5. Of these, ARCH will receive:
    *     On completion, 14.85 million ordinary shares and 1.7 million warrants
    *     10 million shares if Pypo achieves US$53 million Adjusted Net Income in the fiscal year ending March 2010
    *     13 million shares if Pypo achieves US$67 million Adjusted Net Income in the fiscal year ending March 2011
    *     Both earn out awards are "all or none" but with a one-year grace period to achieve either earn-out target
    *     The Adjusted Net Income excludes the impact of merger expenses, acquisition accounting adjustments including goodwill and
intangibles, SOX compliance and any taxes resulting from the merger transaction
    Completion of the merger transaction is subject to customary closing conditions, including the approval of MK's Class B shareholders in
a vote to be held no later than 13 December, 2008.
    Pypo seeks to list its business on NASDAQ as part of its retail acquisition strategy to use its equity as consideration in roll-up
acquisitions, to access new capital required for further acquisitions, and to provide transparency and credibility with respect to its
strong underlying financial performance.  ARCH supports Pypo's rationale to secure a listing through a merger with a special purpose
acquisition corporation that minimizes dilution.

    The Chinese government announced in May 2008 a substantial restructuring of its wireless telecom sector that was intended to create
several strong competitors to challenge China Mobile's near-monopolistic position. Pypo believes increased competition among carriers for
new and existing subscribers will encourage them to seek partnerships with distributors and retailers of significant scale, dramatically
enhancing the strategic value of such companies.

    Pypo has begun to acquire several mobile phone retail chains with substantial scale, and is also further expanding its well-established
distribution network to position for success in this high-growth sector. 

    Commenting on the results, Allan Liu, Managing Partner of ARC Capital Partners Limited, said:

    "The merger of MK and Pypo confirms our strategy to cultivate new opportunities in the high growth consumer and retail categories. The
Chinese mobile phone sector is currently experiencing phenomenal growth and Pypo is well-positioned to capture market share in the highly
fragmented market. Pypo has already built a strong business in China's dynamic mobile phone sector and has begun to acquire several mobile
phone retail chains with substantial scale.". 



    For more information please contact: 

 MANAGER:


 Clement Kwong
 ARC Capital Partners Limited
 Tel: +86 21 61135811
 ckwong@pacific-alliance.com.cn
 NOMINATED ADVISER:                                                     BROKER:


 Philip Secrett                                          Hiroshi Funaki/ Claire
 Grant Thornton UK LLP                                               Heathfield
 Tel: +44 20 7383 5100                                 LCF Edmond de Rothschild
 Philip.J.Secrett@gtuk.com                                          Securities 
                                                         Tel: +44 20 7845 5960 
                                                         Fax: +44 20 7845 5961 
                                                            h.funaki@lcfr.co.uk

 MEDIA RELATIONS:                                  LEGAL COUNSEL: 


 Sophie Hoggarth                                   Jon Lewis
 Pacific Alliance Group                            Pacific Alliance Group
 Tel: +86 21 61135818                              Tel: +852 29180088 
 shoggarth@pacific-alliance.com                    Fax: +852 29180881
                                                   jlewis@pacific-alliance.com
 Ed Gascoigne-Pees/ David Cranmer
 Financial Dynamics
 Tel: +44 20 7269 7217
 david.cranmer@fd.com








    About ARC Capital Holdings Limited 

    ARC Capital Holdings Limited (AIM: ARCH) is a US$ 583.8 million closed-end investment company whose shares were admitted to trading on
the AIM Market of the London Stock Exchange in June 2006. ARCH makes and holds investments in the retail, consumer goods and consumer
services sectors, principally in China but also in neighboring Asian countries.  Target investments include regional hypermarkets and
supermarkets, dominant consumer brands, specialty retail chains, retail property assets and retail and consumer service providers.

    For more information about ARCH, please visit: www.arch-fund.com

    ARC Capital Holdings Limited is member of Pacific Alliance, the Asian alternative investment fund management group.

    For more information about Pacific Alliance, please visit: www.pacific-alliance.com

This information is provided by RNS
The company news service from the London Stock Exchange
 
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