U.S. News

Richard Li Thwarted in Bid to Exit PCCW


Richard Li's plan to exit Hong Kong phone firm PCCW was defeated by shareholders on Thursday, closing the book on an eventful and controversial deal that one broker described as a "soap opera." 

The vote extends a tumultuous six years for the 40-year-old son of billionaire Li Ka-shing in control of Hong Kong's dominant fixed-line carrier. PCCW has lost 96% of its market value since striking a peak during the Internet bubble in 2000.

Shareholders in Richard Li's holding company Pacific Century Regional Developments (PCRD) rejected the planned sale of a 23% PCCW stake to a group led by financier Francis Leung.  Three quarters of the votes opposed the sale.

"It was quite an overwhelming vote against the resolution," said Peter Allen, Group Managing Director of PCRD. "PCCW is an excellent business and I think that shareholders have said today they want to remain in that business."

Shareholders at the meeting in Singapore blamed an inadequate offer price, the absence of a guaranteed special dividend, and not enough visibility about PCRD's future.

Several were disappointed that Li himself did not attend Thursday's meeting.

"I'm not convinced," said shareholder Raymond Poh. "I had not gotten enough information to make a choice that I should sell."

The outcome of the vote by holders of the 25% of PCRD that Li does not control was further clouded last week when Li told a Hong Kong newspaper he now hoped the deal would fail after his father emerged as a member of the buyout coalition.

Richard Li, whose one-time Internet startup paid US$28.5 billion in 2000 for Hong Kong's former phone monopoly, has long sought to establish himself outside the shadow cast by his father, known as "Superman" for his deal-making prowess.

Thursday's vote puts an end to a deal that had provoked concerns about interference by Beijing, competition worries -- and ridicule.

"It's a soap opera, said Francis Lun, general manager of Fulbright Securities in Hong Kong. "What next? Poor shareholders of PCCW get stuck with an owner and chairman who is not really interested in making the company a success," Lun said, predicting that shares in PCCW would fall on the news when they resumed trade.

"Richard Li will just have to get back to his desk and figure out what to do."

Leung, a long-time banker to Li Ka-shing with close China ties, offered HK$6.00 a share in July after Beijing baulked at Hong Kong's main fixed-line carrier falling into foreign hands.

Beijing's objection effectively ended the competing bids from U.S. buyout house TPG-Newbridge and Australia's Macquarie Bank which had respectively offered US$7.55 billion and US$7.3 billion, including debt, for PCCW's main assets.

If shareholders had approved the deal, it would have left state-controlled China Network Communications Group (CNC) as PCCW's largest single shareholder. The group still holds 20$ of PCCW, making it the number-two owner.

"We have to review whether it's worth giving PCCW a premium for its China business since the relationship with China Netcom Group has not been improved," said Kelvin Ho, telecom analyst at Nomura International.

Leung, a former Citigroup banker, had hoped to bring private equity partners into his PCCW bid but later said he was unable to do so.

Instead, two charitable foundations controlled by Li Ka-shing -- the richest man residing in Asia -- agreed to take a 12% stake in PCCW through Leung, while Spain's Telefonica signed on for 8%.

In an unusual statement last week, Leung said that he had offered to Richard Li to call off the deal because he had objected to his father's involvement in the buyout group.

The elder Li's role in the deal had already been disruptive after he had -- unbeknownst to Richard Li -- provided a HK$500 million (US$64.1 million) bridge loan to Leung. That prompted the Singapore bourse to block Richard Li from Thursday's vote, leaving the deal's fate in the hands of minority shareholders.

Li Ka-shing's involvement had caused worries it could lead to concentration of ownership of telecoms assets in Hong Kong.

The elder Li's Hutchison Whampoa controls fixed and mobile networks in Hong Kong through its Hutchison Telecommunications International.

Both Richard Li and Leung were unavailable for immediate comment on Thursday.