No more soap opera please: Derailing buyout offer now will send its shares into free-fall
By Goh Eng Yeow 6 February 2009
Investors could be forgiven for wondering about the almost schizophrenic reactions kicked up here and in Hong Kong over tycoon Richard Li’s latest efforts to buy the rest of telco PCCW.
It was all sedate here when local shareholders of Pacific Century, a Singapore-listed firm controlled by Mr. Li, met to vote on a move to raise the offer price for PCCW from HK$4.20 to HK$4.50.
The low-key gathering backed the proposal with barely a murmur of protest, even though Pacific Century had to fork out another HK$1 billion (S$194 million) for the Hong Kong telco, valuing it at HK$30.5billion.
But it was a dramatically different story in Hong Kong on the same day. Investors there were treated to seven hours of shenanigans, at times resembling a Hong Kong TV soap opera.
It came complete with shareholders competing for the microphone and jeers that routinely drowned out the meeting’s chairman, Sir David Ford.
There were even allegations before the meeting that unknown parties had tried to rig the vote by giving hundreds of insurance agents free shares in return for their support at the meeting.
It cannot be good for Hong Kong’s financial reputation to have such a charade played out in the full glare of the international media.
Of course, much of the intensity of the media frenzy has to do with the fact that the buyout deal was being orchestrated by Mr. Li, the son of Hong Kong’s richest man, Mr. Li Ka-shing.
But at the heart of the matter is the deal itself and whether it is a fair one.
It is no secret that Mr. Li had been looking for ways to exit PCCW after paying an astronomical HK$218billion in cash and shares for the firm at the height of the dot.com bubble in 2000.
He failed to sell PCCW’s core telecoms assets to foreign bidders, including United States private equity fund TPG and Australia’s Macquarie Bank in 2006.
That same year, unhappy shareholders of Pacific Century derailed his bid to sell the firm’s 23per cent stake in PCCW to a group of investors, including his father, and Hong Kong financier Francis Leung, a close friend of the older Mr. Li.
Mr. Li’s latest move - this time to buy up the rest of PCCW he does not own - marked a dramatic U-turn in his intentions towards the telco.
It came amid yet another failed attempt in October to sell a 45per cent stake in HKT, a special holding vehicle for PCCW’s telecom and broadband assets.
Mr. Li now wants to own the telco outright, perhaps to give him the option of selling it later. And, to be fair, he may be doing PCCW investors a big favour by offering what appears to be a decent price for their shares under excruciating market conditions.
When he proposed to buy the rest of PCCW shares at HK$4.20 a piece last November, the telco was languishing at around H$2.80. Mr. Li then jacked up the offer to HK$4.50 to quell gripes that the price was too low.
Since then, there has been widespread carnage on global financial markets. Wall Street has slipped another 15per cent from its already depressed levels, Hong Kong has lost 8per cent and Singapore is down 9.6per cent.
Derailing PCCW’s buyout offer now will send its shares into free-fall.
There is a carrot, too, for shareholders of Pacific Century, Mr. Li’s Singapore-listed firm.
Pacific Century has always traded at a steep discount to its break-up value because traders would bypass it and buy into PCCW directly. So the buyout would enable the company to enjoy a broader appeal. If investors wanted to buy PCCW, for example, they would have to do it via Pacific Century.
As Mr. Li’s Singapore flagship firm, it will also reap rewards from his skills as a consummate dealmaker.
Take the sale of Pacific Century’s Hong Kong-listed insurance arm two years ago. Without much fanfare, Mr. Li sold it to Fortis Insurance International at a hefty 41.5per cent premium over its last traded market price.
Some will say that PCCW shareholders are kicking up a big fuss over the buyout price because they are afraid that they may be short-changed by any future deal made by Mr. Li to later sell the telco at a far higher price.
But rather than try to stop the horse from bolting, they should take the payout and reinvest in Pacific Century - and go along for the ride when Mr. Li embarks on his next big corporate adventure.
That is a far sounder course to take than yet more of the corporate soap opera we witnessed in Hong Kong this week.
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PCCW saga: Investors should go along for ride
No more soap opera please: Derailing buyout offer now will send its shares into free-fall
By Goh Eng Yeow
6 February 2009
Investors could be forgiven for wondering about the almost schizophrenic reactions kicked up here and in Hong Kong over tycoon Richard Li’s latest efforts to buy the rest of telco PCCW.
It was all sedate here when local shareholders of Pacific Century, a Singapore-listed firm controlled by Mr. Li, met to vote on a move to raise the offer price for PCCW from HK$4.20 to HK$4.50.
The low-key gathering backed the proposal with barely a murmur of protest, even though Pacific Century had to fork out another HK$1 billion (S$194 million) for the Hong Kong telco, valuing it at HK$30.5billion.
But it was a dramatically different story in Hong Kong on the same day. Investors there were treated to seven hours of shenanigans, at times resembling a Hong Kong TV soap opera.
It came complete with shareholders competing for the microphone and jeers that routinely drowned out the meeting’s chairman, Sir David Ford.
There were even allegations before the meeting that unknown parties had tried to rig the vote by giving hundreds of insurance agents free shares in return for their support at the meeting.
It cannot be good for Hong Kong’s financial reputation to have such a charade played out in the full glare of the international media.
Of course, much of the intensity of the media frenzy has to do with the fact that the buyout deal was being orchestrated by Mr. Li, the son of Hong Kong’s richest man, Mr. Li Ka-shing.
But at the heart of the matter is the deal itself and whether it is a fair one.
It is no secret that Mr. Li had been looking for ways to exit PCCW after paying an astronomical HK$218billion in cash and shares for the firm at the height of the dot.com bubble in 2000.
He failed to sell PCCW’s core telecoms assets to foreign bidders, including United States private equity fund TPG and Australia’s Macquarie Bank in 2006.
That same year, unhappy shareholders of Pacific Century derailed his bid to sell the firm’s 23per cent stake in PCCW to a group of investors, including his father, and Hong Kong financier Francis Leung, a close friend of the older Mr. Li.
Mr. Li’s latest move - this time to buy up the rest of PCCW he does not own - marked a dramatic U-turn in his intentions towards the telco.
It came amid yet another failed attempt in October to sell a 45per cent stake in HKT, a special holding vehicle for PCCW’s telecom and broadband assets.
Mr. Li now wants to own the telco outright, perhaps to give him the option of selling it later. And, to be fair, he may be doing PCCW investors a big favour by offering what appears to be a decent price for their shares under excruciating market conditions.
When he proposed to buy the rest of PCCW shares at HK$4.20 a piece last November, the telco was languishing at around H$2.80. Mr. Li then jacked up the offer to HK$4.50 to quell gripes that the price was too low.
Since then, there has been widespread carnage on global financial markets. Wall Street has slipped another 15per cent from its already depressed levels, Hong Kong has lost 8per cent and Singapore is down 9.6per cent.
Derailing PCCW’s buyout offer now will send its shares into free-fall.
There is a carrot, too, for shareholders of Pacific Century, Mr. Li’s Singapore-listed firm.
Pacific Century has always traded at a steep discount to its break-up value because traders would bypass it and buy into PCCW directly. So the buyout would enable the company to enjoy a broader appeal. If investors wanted to buy PCCW, for example, they would have to do it via Pacific Century.
As Mr. Li’s Singapore flagship firm, it will also reap rewards from his skills as a consummate dealmaker.
Take the sale of Pacific Century’s Hong Kong-listed insurance arm two years ago. Without much fanfare, Mr. Li sold it to Fortis Insurance International at a hefty 41.5per cent premium over its last traded market price.
Some will say that PCCW shareholders are kicking up a big fuss over the buyout price because they are afraid that they may be short-changed by any future deal made by Mr. Li to later sell the telco at a far higher price.
But rather than try to stop the horse from bolting, they should take the payout and reinvest in Pacific Century - and go along for the ride when Mr. Li embarks on his next big corporate adventure.
That is a far sounder course to take than yet more of the corporate soap opera we witnessed in Hong Kong this week.
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