Li Bids For Stronger Hold On PCCW
Having tried and failed three times to sell all or part of his telecommunications holdings, Hong Kong tycoon Richard Li is leading a US$2 billion effort to exert greater control over the business.
Mr. Li's Singapore-listed holding company and state-run China Network Communications Group Corp. late Tuesday offered to buy the part of Hong Kong fixed-line operator PCCW Ltd. they don't control for 4.20 Hong Kong dollars (54 US cents) a share, a 53% premium to its last closing price. The transaction, which values the entire company at HK$28.4 billion (US$3.7 billion), would cement Mr. Li's control over a company with a dominant position in Hong Kong's traditional landline telephone business.
But the deal faces a potential showdown with PCCW's other shareholders. Analysts were expecting an offer of about HK$5 a share and could see the Li-led offer as opportunistic. Through a spokesman, Mr. Li declined to comment.
Under the deal, the Li-related entities and his listed Singaporean holding company, Pacific Century Regional Developments Ltd., would holds two-thirds of PCCW. Currently, the holding company, known as PCRD, and Mr. Li own a combined 28.3% of PCCW. The Chinese company, known as China Netcom and being taken over by rival China Unicom Ltd., would increase its stake to one-third of PCCW's outstanding shares from the 19.84% stake it currently holds.
PCRD and China Netcom 'have worked together to present a serious offer in a difficult market,' the companies said in a statement. 'In this environment, we believe that shareholders will value the opportunity for liquidity presented by this offer.'
Few think Mr. Li has suddenly grown fond of the business he has been trying to sell for so long. Financiers close to the 41-year-old son of Hong Kong billionaire Li Ka-shing believe he may be buying at a cheaper price now to take advantage of weak equity markets. David Webb, a Hong Kong shareholder activist, believes the younger Mr. Li wants to buy the company so he can resell it at a higher price later on. Whether that is allowed 'will be up to shareholders,' Mr. Webb said.
One veteran merger banker says Mr. Li and PCCW's managing director, Alex Arena, may try to reshape the company and wait out the credit crunch to find a new buyer in two to three years.
A takeover would also make a sale easier to pull off, by giving Mr. Li greater control over the assets. Earlier attempts to sell all or part of the company were foiled in part by other shareholders.
Mr. Li owns 77% of PCRD, meaning he has control over the buying and selling of its subsidiaries. The Singapore entity also has capital and a share structure in place, making it the ideal vehicle for him to secure debt and quickly launch the offer.
Trading in PCCW's shares has been suspended since Oct. 14 as Mr. Li and China Netcom negotiated the terms of the offer. The stock closed at HK$2.75 on Oct. 13.
Since then, the benchmark Hang Seng Index has fallen 12% as investors have sold off holdings, withdrawn money from managers, and fled the markets to cope with the uncertainties of the global credit crisis. Others may be looking to cash out of their investments, complicating the debate over the fair value of PCCW's shares.
PCCW's long-term base of retail investors may be reluctant to part with their shares, said Francis Cheung, head of Asian telecommunications research at CLSA Asia-Pacific Markets. A former high-flier that traded for well over HK$100 a share at the end of the technology boom seven years ago, PCCW spent years trading near HK$5 a share until the recent downturn. It lost its blue-chip status in May when it was removed from the Hang Seng Index.
'He saw the share price crash so made an opportunistic offer,' Mr. Cheung, who expected an offer of around HK$5 a share, said of Mr. Li.
To succeed, Mr. Li will need to secure the support of 75% of minority shareholders casting votes, and those voting against must account for less than 10% of votes. At least half of the minority shareholders must participate in the voting.
Institutions listed among major shareholders, such as Fidelity Investment Management Ltd. and Matthews International Capital Management in San Francisco, declined to comment.
Mr. Li spent more than two years trying to figure out a way to extricate himself from running PCCW's staid business. He has broadcast his interest in trying new media ventures and expanding PCCW's interest in markets outside Hong Kong, including plans to build its business in the Middle East.
The maneuvering is the latest chapter in a saga that began with PCCW trying to enter the China market in 2005.
Seeking growth on the mainland, Mr. Li sold a 20% stake to China Netcom that year. The next year, after the share price fell, he entertained bids of more than $7 billion from U.S. buyout firm TPG and Australia's Macquarie Group Ltd. to buy the company's main telecommunications and media assets. But Beijing scotched the deal, unhappy about letting Hong Kong's 'strategic' assets fall into the hands of foreigners, according to people involved in the deal at the time.
A subsequent offer that involved Mr. Li's father failed. Last month, PCCW also ended talks to sell a 45% stake in its main telecommunications and media assets, saying buyout offers weren't sufficient.
Buyers that have looked at PCCW say it produces significant amounts of cash, making it easier to load debt onto the company. PCCW earned HK$1.5 billion in net profit last year on HK$23.7 billion in revenue.
HSBC Holdings PLC is advising PCRD, and Royal Bank of Scotland PLC's ABN Amro arm is advising China Netcom. |
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