End of Adventures of Li in La La Land? PCCW (8) Changes Could Be In the Works
May 18, 2001 - 13:43:47 HKT
QuamResearch
Will Richard Li step down? Such rumors yesterday were said to be the reason behind an early 10 cent rise in the beleaguered stock, a 3.7% jump. By the end of the day, however, the stock had closed up just 2.5 cents, less than 1%, to $2.725. PCCW said Li was staying.
Management -- The Person or the People?
At issue for many investors is Richard Li's management of PCCW. When the stock was soaring -- a distant memory now -- he could do no wrong, and critics were harshly criticized for lack of vision. The critics' visions, however, were generally that the young Mr. Li did not have the experience, nor talent, to run a huge, world class organization such as HKT. That opinion was amplified by the problems that HKT itself was having at the time, a view born out by Cable & Wireless' now apparent eagerness to exit the operation.
Whether that vision has been vindicated is a matter of opinion, but with PCCW's stock price trading at lows below what even the most pessimistic of pundits -- except Quam, of course -- had predicted, the management team of this magnificent beast has been under fire for some time.
Mr. Li and his management team do not know how to effectively handle this new attention, having been born and bred on the silver spoon of friendly media frenzy. Cast now in a more humbling role, the PCCW boys are getting angry and baring their teeth, with Alex Arena just three days ago lashing out at the media for "myths" about its activities.
Some of the lashing out deserves direct quotation. In our opinion, it suggests that even after the fall, the management does not want take responsibility but instead feels it must continue to resort to spin. This is the first part of their response to "Myth No. 2 - PCCW has no operational experience":
PCCW by virtue of its acquisition of 100% of Hongkong Telecom has acquired a proud legacy of over 130 years of operating telecoms service in Hong Kong. Indeed until recently HKT operated these services as a monopoly and is still undeniably the big gorilla in this market and its operating prowess is well respected throughout the Region. How can serious media write such preposterous drivel suggesting PCCW lacks operational experience - we are still one of HK's largest employers and the SAR's telecoms services are doing better than ever - or am I missing something?
Our response: yes, we feel you're missing something. Having "acquired a proud legacy" does not mean the key PCCW players inherited the expertise. Such a claim would be similar to, say, assuming that because one is the son of a genius or a great businessman that the intelligence or business acumen would automatically be passed on. Surely that is hogwash.
And as for the "SAR's telecoms services ... doing better than ever," in their recent results, wasn't it reported that overall telecommunications services revenue fell 7% year on year, largely due to a 34% decline in IDD revenues?
Headhunters Tasting U.S. Telecoms?
Considering the struggles that PCCW is happening -- with its debt, with its hurting local telecoms business, with questions having been raised over its various Telstra JVs -- perhaps it is time for a change at the top. The focus at the moment is on Mr. Li alone, but should it be? The timing for a shift is about right, after all, considering Mr. Li's little scandal involving a university education and since supporters of the gregarious rich kid are getting harder to find, except perhaps for stock pumpers on Internet bulletin boards.
Yesterday, it emerged that maybe it was just getting to be too much for him ... and his shareholders. There were rumors that a search was underway for a replacement as the Financial Times reported that PCCW had appointed headhunters to find a chief executive and that Li was expected to take a less operational role in future. The paper said PCCW wanted an experienced U.S. telecoms executive to take day-to-day responsibility for running the company, leaving Li to concentrate on strategy.
PCCW then came out, sometime around mid-morning, simply saying that "there are no present plans for Mr. Li to relinquish his current role as Executive Chairman." However, they didn't quite rule out the possibility, also saying that they are "continuously seeking to recruit top talent to drive the business of the company."
In their typical murky fashion, the company does not appear to have said a straight yes or no, but it does appear that the company is on the lookout. Richard Li was reported to have said that he had no immediate plans to change his role but might step back in six months if a suitable replacement could be found. Six months is a rather short time period to find a CEO for a multinational, so the time frame alone is a possible indicator that the search is on or soon will be.
To Step Down or Not to Step Down?
For investors the question is not that easy. Whether hubris was present in Mr. Li and his cohorts seems obvious to us, but hubris is not necessarily the cause of a fall, unless it resulted in faulty strategy.
The suggestion that Mr. Li will step aside and focus on strategy, then, is actually rather worrying to us. Frankly, strategy does not appear to be his strength.
However, besides this issue, any newcomer entering the enlarged PCCW-HKT will be faced with an organization that is saddled with debt, is equity negative, and whose local business is struggling. A new leader at the helm may be good for sentiment, but only if he is able to take complete, authoritative control, and that seems very unlikely as long as Mr. Li is in the picture, even in a less obvious role. A turnaround will take a substantial amount of time.
Thus our recommendation remains the same: this company is struggling, so new investors should not touch it, even with its sub-$3 share prices and its $60 billion cap. If a replacement is mentioned and the stock surges as a result, it will probably be a good time to get out, unless there is compelling evidence that a serious turnaround and improvement is in the works.
The daydream is over.
--------------------------------------------------------------------------------
Copyright 2000 Quam(IA) Limited, All rights reserved
quamnet.com |
