Pacific Century CyberWorks to Buy
Hutchison Whampoa Satellite Unit
By Gren Manuel
Staff Reporter of The Wall Street Journal
HONG KONG -- Richard Li's Pacific Century CyberWorks Corp. plans to buy a satellite-communications concern from a company controlled by Mr. Li's father, Li Ka-shing, for 803 million Hong Kong dollars (US$103 million) in CyberWorks shares.
The deal, announced Thursday, will give the younger Mr. Li a profitable business without having to pay out cash that Cyberworks is carefully conserving to repay borrowings and fund planned Internet investments.
The transaction calls for Hutchison Whampoa Ltd. to sell its wholly owned Hutchison Telecommunications Technology Investments Ltd. unit to CyberWorks at a price accepted as reasonable by CyberWorks' financial advisor, N.M. Rothschild & Sons. The new CyberWorks shares to be issued to Hutchison Whampoa will represent 0.83% of CyberWorks' enlarged share capital.
Linus Cheung, CyberWorks' deputy chairman, in an interview, said: "This was all done at arms-length. They [Hutchison Whampoa] wanted to dispose of it anyway."
A Hutchison Whampoa spokeswoman said, "We don't need this business and [Cyberworks] wants this business and we got a good price to dispose of it." She said Hutchison Whampoa has been concentrating on wireless mobile communications and had sold its other major satellite business in 1997.
A key aspect of the purchase for CyberWorks is Hutchison's acceptance of shares as payment at a time when CyberWorks is strapped for cash. Mr. Cheung acknowledged that "It's quite critical for us to pay in shares."
Hutchison said it was prepared to accept payment in shares because it believed the Cyberworks stock had potential to rise. Cyberworks' share price has declined 75% since the company took control of Hongkong Telecommunications Ltd. in August. However, the Hutchison spokeswoman said "We believe that in the long term it will give a good return for our shareholders."
Ironically, Hutchison Telecommunications Technology's main asset is the satellite business founded by Richard Li in 1994. After launching it with much fanfare, Mr. Li's Pacific Century Group sold that business to Hutchison Whampoa in 1995 for HK$581.10 million in what some corporate analysts characterized at the time as a move by Mr. Li Ka-Shing to assist his son. Pacific Century didn't make a profit on the transaction; the satellite business was sold at cost.
The business, now called Hutchison Corporate Access, uses satellites to provide international communications to multinational firms with sites in remote locations, allowing them to create "private networks" for far-flung operations, mostly in Asia and the Middle East.
Richard Li said that he sold out in 1995 because he perceived a looming conflict of interest. Hong Kong media, at the time, quoted him as saying "We found that executives of the two groups were bidding for the same tenders, and the judgment of the Pacific Century Group executives at that time was that the potential criticism wasn't worth it."
In 1995, Richard Li was building up his Pacific Century business while remaining vice chairman of Hutchison Whampoa, a key element in his father's business empire. However, after the younger Mr. Li's Cyberworks took control of Hongkong Telecom last year, he severed all links with Hutchison.
Mr. Cheung said Thursday that Hutchison Telecommunications Technology would advance CyberWorks' ambitions to break out of Hong Kong and become a regional telecommunications player. The Hutchison satellite business made a HK$14 million profit in its last financial year on revenue of about HK$308 million, according to a CyberWorks statement.
As in the 1995 deal involving father and son, the transaction announced Thursday doesn't require approval from shareholders of either group. Under stock-exchange rules, the value of the proposed sale in comparison to the size of the companies is too small to require a shareholder vote. Hutchison must keep the CyberWorks shares for 12 months, but won't put a director on CyberWorks' board.
CyberWorks has been restructuring since taking over Hongkong Telecom last year, attempting to grow through partnerships with other companies and reduce its debt load.
Separately on Friday, Hutchison anounced that is to pay US$120 million to increase its stake in cellular operator Hutchison Telephone Co. Ltd. to 81% from 55.9%, Group Managing Director Canning Fok said.
The 25.1% stake will be bought from U.S. telecom equipment maker Motorola Inc., Mr. Fok said. He added that Hutchison Telephone currently has 1.7 million subscribers, and is valued at US$530 million per subscriber.
Write to Gren Manuel at gren.manuel@awsj.com
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