There is an almost
perfect yet absurd symmetry to the latest attempt to seize control of
PCCW, the former Hong Kong Telecom. It was once the largest listed
entity on the Hong Kong stock exchange but has slowly been reduced to
second-tier status since falling under the ownership of Richard Li,
the youngest son of Li Ka-shing, Hong Kong’s most powerful
In the latest episode
of the PCCW saga, Nelson Wong Kam-fu, the inventor of the Chinese
telephone paging system, announced a HK$68 billion ($7.8bn) bid for
PCCW on Tuesday 18 Sept. This compares with the HK$279.6 billion
($36bn) that Li Junior paid for the company in 2000.
Like Nelson Wong,
Richard Li made his bid by scrambling together a host of loans and a
plan to raise the balance of the cash from an expanded flotation of
the target company’s shares. And like Wong, he arrived at the
negotiating table claiming support of the authorities in Beijing and
armed with a small band of blue chip advisors who, in Li’s
case, successfully led the deal to a conclusion.
Unlike Richard Li,
Nelson Wong is not the son of Hong Kong’s most powerful
businessman. On the contrary he is a largely self-made man who earned
decent money out of his first big company, Star Paging
Communications, and subsequently faltered as paging went out of
fashion and he tried his hand at mobile telephony on the Chinese
mainland, then dabbled in bio-tech and then came up with a credit
card security system. Since then he has turned his attention to
energy financing and it is his Smart Rich Energy Finance Company that
has become the vehicle for
the current bid.
The bid is being
treated with considerable skepticism, not least by PCCW, which on
September 19 issued a statement saying that, “The company
wishes to clarify that Mr. Wong's statements are unsolicited”.
It added that PCCW had not received any credible acquisition proposal
from Wong or his advisers.
There is also some
doubt about whether Wong’s alleged advisers are acting on his
behalf; neither the Australian-controlled Macquarie Bank nor the
French based investment bank Societe Generale have confirmed their
participation in this deal.
However there is no
disguising Li’s recent desire to sell the company. In June 2006
he was in talks to sell the company to two consortia, one led by
Macquarie and the other by the American private equity company
TPG-Newbridge, the Asian investment arm of
Texas Pacific Group. These negotiations largely faltered due
to the opposition of the Chinese state-controlled but publicly listed
China Netcom Group, which acquired 20 per cent of PCCW in January
2005. It appears that Netcom was miffed that the takeover talks were
underway without its knowledge and this fueled its general disquiet
about the proposals.
Once these deals fell
through, Richard Li turned to the investment banker Francis Leung,
his father’s longtime advisor and business associate, to buy
his 23.6 per cent stake in PCCW through a consortium he was putting
together with the help of Li Senior. But there were few takers for
Leung’s plan, aside from the Spanish-based Telefonica group.
Li Junior suffered a
bout of extreme embarrassment when his father’s involvement in
the deal became known and ultimately the plan was vetoed by the
minority shareholders in the Singapore listed Pacific Century
Regional Developments which held the stake Richard Li was proposing
to sell in a complex transaction which would have allowed him to exit
put a HK$9.2 billion price tag on his bid, which values the whole
company at something like almost half the price now supposedly on the
table. Nevertheless the bid is roughly twice PCCW’s current
market capitalization, which stands at around HK$33 billion.
While there is furious
activity on the corporate front most analysts question whether there
is a real strategy for moving PCCW forward. It once held Hong Kong’s
fixed-line telephone monopoly but this has now disappeared. It
dabbled disastrously in an ambitious internet television venture that
was subsequently closed down and replaced by a far more successful
telephone cable-carried network that mainly broadcasts programs made
by US companies. Having sold its lucrative mobile telephone network
to Australia’s Telstra to raise cash, PCCW has bought a smaller
network to get back in the business just as competition is peaking
and rates of return are low.
Meanwhile almost all
its valuable property portfolio has been hived off into a separately
listed vehicle, Pacific Century Premium Developments.
price continues to flounder and by most measures it is the worst
performing stock in the blue chip Hang Seng Index. From a position at
the top of the Hong Kong market capitalization league PCCW now ranks
somewhere around the 90th mark.
Meanwhile and, rather
ominously, there is the statement from Wong declaring that he has
support from Beijing for his bid. When Li targeted Hongkong Telecom
one of the first things he did was to ensure that the Chinese
government was on board. The Hong Kong Special Administrative Region
is supposed to enjoy a high degree of autonomy from the government in
Beijing, especially in business matters, the affairs of PCCW tell
Following the debacle
of the three bids in the last two years Li declared his commitment to
developing the company and indicated that he was not looking for a
buyer. This declaration is being treated with almost as much
skepticism as Wong’s bid. Strange things happen at this company
so it is anyone’s guess what exactly is in store for PCCW.