PCCW (1186) Won Takeover Battle - A salute to Richard Li the magician
int.quamnet.com
2000-03-01
A salute to Richard Li the magician. With the acquisition of C&W HKT (8), he has transformed Pacific Century CyberWorks (1186, PCCW), formerly Tricom, a money losing ninth-line company with a market cap of less than $300 million, into a HK$520-billion Internet business empire. Cable & Wireless plc (C&W) has agreed to sell a 54% stake in HKT, the local telecom giant, to PCCW at $7.23 and 0.7116 share in PCCW for every share in HKT. Other minority shareholders may follow C&W's suit on the same terms, but they can also choose to exchange every share in HKT for 1.1 shares in PCCW. When the merger is completed, the combined company, to be renamed PCCW-HKT, will break the record to become the biggest corporate merger in Asia outside Japan. With a market-cap of over $520 billion, PCCW-HKT will also surpass Richard Li father's Hutchison Whampoa (13) to become the third largest listed company in Hong Kong. There seems to be no reason for the combo telecom-Internet giant not to be invited as a member of the Hang Seng Index family, though HKT will be delisted first. As we said in our yesterday's commentary (Click here for reference), the financial burden to PCCW will be extremely high as if a boa contractor is trying to swallow an adult elephant. The maximum cash outlay for PCCW will be US$11.3 billion (HK$87.9 billion). PCCW has promised to distribute the remainder of the US$11.3 billion cash to other shareholders who want as much cash as possible. There is at least one such shareholder, Cable and Wireless. The interest expense on the merger will be as high as HK$8 billion per year, which may eat up almost every dollar of the profit generated from HKT. That's not a problem to shareholders of PCCW as the company has not yet earned a dollar, but whether the deal is fair to shareholders of HKT is questionable. C&W seems to be very eager to cash out of the Hong Kong scene, and now they have got the chance. One may question whether C&W looked after the interests of minority shareholders when they signed the agreement. In the eyes of the shareholders of PCCW, however, Chairman Richard Li is their hero. He has changed a company that was virtually no more than a shell into a solid blue chip with a leading position in the telecom and Internet field. HKT is number one in the local fixed-line business with 1.5 million subscribers. Netvigator, the ISP subsidiary of the company with 410,000 registered users, is also the biggest Internet Services Provider. HKT is also in leading positions in mobile phone services and long distant call operations, though it is losing its market share to other new comers. Every time when a merger battle settles, the share prices of both parties gradually lose their respective glows. The most spectacular bull-runs for both PCCW and HK seem to have come near an end now. |
