Year in life of Richard Li
Saturday, August 18, 2001
HUI YUK-MIN and BEN KWOK
On the first anniversary of Pacific Century CyberWorks' takeover of Cable & Wireless HKT, there does not, on the face of it, seem much to celebrate with the company's share price having slumped almost 90 per cent.
The man at the centre of the storm, CyberWorks chairman Richard Li Tzar-kai, was a year ago feted as an audacious Internet visionary with the nerve to seize the future.
A year later, he has become the subject of many investors' anger. Formerly adoring analysts have shunned the firm and many accuse management of breaking promises.
Mr Li seems chastened by the experience.
"When I see people losing money in the stock market, I am, of course, not very happy. Reading newspapers used to be my favourite pastime, but not any more."
However, speaking to the South China Morning Post on the 42nd floor of his Quarry Bay headquarters, Mr Li showed no sign that the pressure had taken a personal toll.
"Since starting work as an investment banker in the early 1990s this is the time I find I can sleep most peacefully."
Having completed the takeover a year ago, Mr Li made - in hindsight - an optimistic promise to double the firm's market capitalisation over an unspecified period. Having previously peaked at HK$28.50, the stock closed Thursday trade at HK$1.99.
Mr Li defended the share price.
"For original PCCW shareholders, we have already increased value many times over.
"Think about this; when we first got listed [by taking over Tricom], our issue price was only 31 cents. Compared to that, the return is more than five times, in two years.
"Not many investments can achieve that return.
"In the current market environment, we can only protect our original shareholders' interest."
As for the rump of former C&W HKT shareholders who traded their steady, high-dividend counter for CyberWorks paper, the time horizon is longer.
"For the merged entity, I think we need to take more years, I can only say I'll try my best to achieve such a goal."
In laying out the criteria of future performance, Mr Li has exited the stock price prediction game.
"My definition of shareholder value [for the merged entity] is ebitda [earnings before interest, tax, depreciation and amortisation] revenue."
"We are setting ourselves up for growth in revenue over the next few years. We aim to double ebitda revenue, but it takes several years to achieve. Assume we are to grow ebitda revenue by 11 per cent, it will take us seven years to reach this target."
A year ago, Mr Li promised to build CyberWorks into the definitive Asian multimedia company, capitalising on the "convergence" trend of television, and Internet content through the firm's Network of the World (NOW) channel.
Having radically scaled down that plan to merely concentrate on the SAR market through NOW.com.hk, the change in emphasis is total.
"The merger itself took the management a lot of time, it's far more complicated than we thought. That's why we don't have much effort to develop the Internet business," Mr Li explained.
"Yes, we did drastically cut down our investment in Internet services. I think this was the right move, since online advertising dropped over 80 per cent."
Justifying the jettisoning of the CyberWorks Internet plan, Mr Li pointed to a radically changed investment climate.
"It was a prudent move for us to slash investment in Internet businesses ... in fact, our NOW [convergence TV] plan had yet to start."
Having acquired C&W HKT and written off the majority of its Internet investments, CyberWorks has essentially become an incumbent telecommunications firm with a large property project in the shape of the Government-backed CyberPort.
But Mr Li has no regrets at the turn of events that saw him trade his highly valued Internet paper for the real assets of C&W HKT.
"From PCCW's original shareholders' point of view, it definitely was the right step [to buy HKT]. If we hadn't acquired HKT and remained as a pure Internet company, our share price would have fallen even further.
"The share price of every Internet and telecoms company has collapsed in the past year. Yahoo! was the best performer in the sector but its share price still fell 92 per cent."
Yet, despite the share price loss, Mr Li clearly still takes pride in having secured control of the blue chip C&W HKT.
"For my career path, I always wanted to run a medium-sized company with about 5,000 staff and with a stable revenue of over US$1 billion. I targeted to achieve that in 10 to 20 years. By acquiring [C&W] HKT, I achieved that target in two years."
Looking back on the acquisition price of C&W HKT a year ago, a beaming Mr Li declared satisfaction with the transaction.
"Oh, surely it was [a good deal]. Everything is about multiples. We sold our shares at a very high multiple to buy relatively high-multiple assets. I think it was a good buy."
Yet, securing control of a major (now heavily indebted) firm has put Mr Li at the sharp end of gritty issues of SAR labour relations.
At the time of the takeover, Mr Li promised not to lay off staff for a year. Was that a correct pledge to make, and with rumours of mass layoffs swirling what are the firm's plans?
"No, for such a large company, it took a year to distinguish fat and muscle," he said. "We have to be very careful not to cut muscle by mistake.
"I surely have an idea on how much fat to cut, but I can't tell you my target. What I can say is we have no current plan for staff layoffs, but we need to continuously review the total cost of operation.
"I think the direction of staff layoffs will be very customer-led."
The post-merger integration with CyberWorks' management team would seem to be a work in progress.
"It was only six months ago that I found the executives from the two companies had developed a mutual respect for each other. The point to note is our merger is not a takeover of the telecoms monopoly, and it will take perhaps another two years for it to become a totally merged entity.
"What we hope is to leverage on each other's strengths so we get the best of both worlds, not the worst of both worlds," he said.
So what was the company's future strategy, given the bruising competition in a fully deregulated market?
"We face lots of competition. We have to be better than others. HKT had very good IT expertise and is very good at managing a big organisation. But they were not very commercialised.
"This is what we are good at. So we changed the organisational structure 90 degrees to make it consumer-driven."
A key component of the post-merger plan was the lucrative cash-raising joint venture with Telstra of Australia.
"We set up an alliance [with Telstra] in Reach and CSL, our mobile arm. When we look back, we think we have made a step in the right direction."
Not apologising for the leveraged nature of the buyout and subsequent problems refinancing the debt burden, Mr Li said: "We have converted short-term financing to medium-term financing, so we now have another three years before we have to conduct another financing.
"Except for AOL, we are outperforming our Internet counterparts. We are also a company with US$3 billion in revenue, and we are able to turn negative ebitda into positive ebitda. Our ebitda is about US$1 billion, with over six million business consumers, and we are serving 400 out of the Fortune 500 companies.
"Recently I had a conversation with a friend who runs a California-based company, whose market cap was double ours, but with a third less ebitda revenue."
Although Mr Li declined to identify the mogul, he was thought to be Jerry Yang, the co-founder of Yahoo!.
"He said in the current downturn he would rather be us."
Looking forward, Mr Li said he would focus on HKT's telecoms business and make it more customer-driven.
Yet perhaps the enduring image of Mr Li's year was the painful response to the Stanford University debacle.
When it was revealed that he had not graduated from the prestigious California institute as claimed in some company literature, his public image took a brutal knock.
In response Mr Li refused to talk about the affair but suggested it had been a difficult time. When asked about his regrets over the past year, he said: "Yes, there is one thing I did regret a lot, but I don't want to bring it up again. I'm sure you can guess what it was."
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Published in the South China Morning Post. Copyright © 2001. All rights reserved.
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