OT: PCCLF. Just got this in in-tray. I agree.
Pacific Century CyberWorks Hong Kong Telecom
It now seems certain that a new entity ? a combination of Richard Li?s Pacific Century Cyberworks and HK Telecom ? will emerge as the dominant Asian broadband operating company.
The deal:
HKT shareholders can take all PCCW shares (1.1 PCCW share for each HK Tel share), or cash and PCCW shares (HK$7.23 plus 0.7116 PCCW share for each HK Tel share), valuing HK Tel at between HK$ 22.95 and HK$ 24.4 per share.
Cable & Wireless will take shares in PCCW, holding between 11% and 21% of the enlarged PCCW, of which C&W plans to sell 4% of its PCCW holding after completion. PCCW will take on up to US$ 8 billion of debt; easily manageable in view of the US$ 70 bn market cap of the combined company, and the US$ 1.9 bn positive cashflow generated by HK Tel. HK Tel?s mobile operation could possibly be sold for US$1-2 bn to reduce PCCW?s gearing.
The other significant minority shareholders in PCCW post-completion will be China Telecom, the HK government, CMGI and Intel.
Strategic Consequences:
The deal creates a dominant New Economy entity in Asia. The role played by the Chinese Government, which supported Pacific Century?s bid, means that the new entity should be able to access mainland China ? the key future market for PCCW?s online content. PCCW?s recent tie-up with the dominant mainland PC company ? Legend ? reinforces PCCW?s mainland credentials. PCCW gets the most advanced broadband capability in Asia, plus a growing Hong Kong subscriber base from which to roll out its service into southern China.
The deal gives Cable & Wireless a very important broadband operator as a partner in Asia and at last places the company on-side with the Chinese authorities.
The Chinese Government ensures that HK Tel stays in Hong Kong Chinese hands and also gains some influence over a key Chinese media company.
Most importantly, the deal demonstrates the vision and execution ability of PCCW?s CEO Richard Li.
Recommendation:
We strongly recommend that investors gain maximum exposure to PCCW, either by taking the all share offer in exchange for holdings of HK Tel, or by buying PCCW shares when they resume trading. |
