Cyberworks languishes as shareholders flee
2001-06-06
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Richard Li faces a tough climb ahead as he tries to pull his shaky Pacific Century CyberWorks out of the share price doldrums, down 90 percent from its high just over a year ago, and reassure nervous and angry investors.
Last year, Li, second son of Hong Kong tycoon Li Ka-shing, was hailed as a boy wonder. International news magazines called the 34 year-old "The Cyber Kid" after he sealed a deal for Cyberworks to take over Hong Kong's oldest telecommunications company Cable and Wireless HKT for a whopping $28.5 billion.
But the past 12 months have been disastrous for the Internet entrepreneur. At the company's annual shareholders meeting last month he was faced with angry investors' questions about directors lofty salaries and the nosedive of the share price.
One woman directed her anger at Deputy Chairman Francis Yuen, who is reputed to have received $36.2 million from Cyberworks last year, a large portion of which was from trading stock options.
"Why would you raise your directors' remuneration while we did not receive a cent of our dividend last year? Yuen Tin-fan is making hundreds of millions (Hong Kong dollars) in salary, is that fair?" she asked.
The company posted losses for 2000 of $886 million, much worse than analysts expected. But Li continued to promise profit and last March projected revenue in 2001 to climb in the "high single-digits" but his fellow company officials have since given no details as to how this would be achieved.
"The company looks like it still has problems," said Eric Tomter, telecommunications analyst with Dresdner Kleinwort Benson. "It will take at least 3 to 4 years before the share price recovers."
Just before the shareholders meeting, newspapers reported that CyberWorks was looking for a new chief executive officer to head the company. The share price then crept up marginally. CyberWorks then said Li had no intention of leaving as head of the company but if someone was found to run the telecommunications side and pull it together then Li would be able to focus on the firm's vision and direction.
Some analysts said the slight increase in the share price because of the report indicated that a new CEO would be comforting for investors -- though it would depend on how much freedom the new person was given.
"He (Li) doesn't have a history of running a telecommunications company," said Tomter. "But Richard Li would still be there. How could anyone refuse his wishes? There would be limited scope there for change."
It is Li who has proved most damaging to CyberWorks recently. Days before the losses were announced, a newspaper discovered Li had not actually graduated from Stanford University as his company's press information had claimed. His image took a public beating. Hong Kong reporters and analysts, weary from CyberWorks' relentless public relations machine telephoning complaints about stories on Li or the company, took their sweet revenge on the former star. Articles reveled in calling Li "a college dropout."
His PR department quickly responded saying no references to Li's academic qualifications had appeared on any legal documents. But an eagle-eyed Hong Kong financial analyst who had never agreed with the dot-com mania that led Cyberworks share price to dizzy heights found references to Li's fictitious Stanford degree in legal documents about deals CyberWorks had made with two Asian companies. CyberWorks insisted however that this was not a problem because the company's equity interests were fairly small.
Li eventually was forced to apologize, saying he hadn't meant to misrepresent himself.
"It will take a couple of years for Li and the company to regain credibility," said one analyst who declined to be named. "People won't forget the last 12 months easily. A new CEO would help, someone with a good track record and a clean pair of hands."
Li's troubles began shortly after the takeover of HKT. CyberWorks was left with $12 billion in debt and a sliding share price as technology stocks dipped across international markets. PCCW shareholders, many of them small-time individual investors, watched their investment sink and once-optimistic analysts began questioning the direction the company was taking. Investor and analyst confidence weakened as the stock price fell and little was heard from CyberWorks to support belief in its vision.
The vision behind CyberWorks, Li would explain, was to make the Internet available to everyone, even the poorest rice farmer in Laos. Critics questioned if there was any substantial money-making reality behind the dream.
CyberWorks' interactive television site Now was launched last June to a lukewarm reception and has been radically scaled back to cut costs. Critics said the site was difficult to use and lacked quality content.
According to analysts CyberWorks will release a document later this month detailing plans for the company's future. But it will have to provide real evidence of how it is going to pull off a magical recovery to draw investors back into the fold.
"I've been doing a lot of traveling around and meeting with potential investors and no one wants to hear about CyberWorks," said an analyst. "It's just not of interest to anyone these days."
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