Pacific Century Drops in Wake of Cable and Wireless Deal
nyt.com
March 1, 2000By MARK LANDLERNYT Update, 10:00 a.m.
HONG KONG, March 1 -- Shares of Pacific Century CyberWorks Ltd. swooned today, as the Internet start-up suffered a hangover on the morning after its takeover bid for Hong Kong's flagship telephone company was accepted by the company's British parent, Cable and Wireless P.L.C. Pacific Century's stock declined 7.9 percent to 20.40 Hong Kong dollars, or $2.63, a share. That had the effect of slicing $3 billion from the value of its $38.1 billion stock offer for Cable and Wireless HKT. Pacific Century's stock-and-cash offer of $35.9 billion, which analysts said Cable and Wireless and other HKT shareholders were more likely to accept, declined in value by $1.9 billion. Pacific Century's bruising ride on the stock market did not surprise analysts here, who expected the company's shares to tumble as investors digested the mammoth size and expensive terms of the acquisition. The shares had been suspended for two trading sessions while the company waged a high-stakes bidding war for Cable and Wireless HKT against Singapore Telecommunications. "Once a new-economy company buys an old-economy company, its stock price adjusts to old-economy values," said Marc Faber, the head of an investment firm here. He said he expected Pacific Century stock to fall to $1.93 a share by the end of the week and $1.29 a share within six months. Mr. Faber, however, is renowned for his saturnine views. Other analysts said Pacific Century's shares would be bolstered in the short run by being added to two influential stock indexes: Hong Kong's Hang Seng and a regional index of Morgan Stanley Capital International. And regardless of the gyrations on the stock market, Pacific Century's 33-year-old founder, Richard Li, has assumed the mantle of one of the power players in Asia's Internet future. Rupert Murdoch's News Corporation, which had thrown its last-minute support behind Singapore Telecommunications in the form of a $1 billion investment, was eager to extend an olive branch to Mr. Li today. "We've had a relationship for a long time with Richard," said James Murdoch, Mr. Murdoch's 27-year-old son, who oversees News Corporation's Internet ventures. James Murdoch had a drink with Mr. Li here on Wednesday evening to discuss the future of a pay-television and Internet venture between Cable and Wireless HKT and Star TV, which is owned by News. Because News Corporation had backed Mr. Li's foe in the bidding war, many analysts said they expected the joint venture to fall apart after Mr. Li takes control of Cable and Wireless HKT. Pacific Century has done little to dispel those expectations. On Tuesday, a senior executive, who asked not to be identified, said, "we don't know whether the joint venture is even worth keeping." Executives at News, however, said it would be hard to unravel the venture without substantial financial costs. Mr. Murdoch said, "I can't imagine a scenario in which Pacific Century would want to forgo all the content we bring, and our expertise in starting the world's only fully digital service." News Corporation does own a treasure trove of programming, through its Fox television network, film studio, and sports rights. And it has agreed to set up a similar Internet and interactive television joint venture with Singapore Telecommunications. But the fact that one of the world's mightiest media conglomerates is making overtures to stay in business with nine-month-old Pacific Century is a testament to how, overnight, Mr. Li has become a giant on the Asian landscape. By taking over Cable and Wireless HKT, Pacific Century obtains a network of high-capacity phone lines that passes one million homes in Hong Kong. HKT has signed up only 90,000 customers for its interactive TV service. But analysts said Mr. Li could boost that with better marketing and a more compelling service. Before Mr. Li can set about building the future, however, he must close the deal with Cable and Wireless. His stock may come under more pressure as investors dissect the balance sheet of the combined entity. Pacific Century borrowed $13 billion in loans to finance its bid, meaning the merged company will lumber under a heavy debt load at a time when its core telephone business is under attack. Cable and Wireless HKT's shares plummeted 12 percent, to 22.75 Hong Kong dollars, or $2.93, a share, as the stock adjusted downward to reflect the value of the Pacific Century offer. Those shares had also been halted for two days. "It will take time for people to absorb the full consequences of the deal," said David Webb, editor of Webb-site.com, an Internet site for investors. "Then they will realize they own the world's most expensive utility stock." |
