Smart Rich's surprise HK$68b bid for PCCW faces rough sailing
A low-ball bid, lack of direction and the spectre of an obdurate Beijing make for a troubled way forward for an out of the blue attempt by a small businessman to take over Richard Li Tzar-kai's PCCW, market observers say.
Wong Kam-fu, the chairman of Hong Kong-listed Smart Rich Energy Finance (Holdings), said yesterday he would pay HK$68 billion to wholly own PCCW, Hong Kong's largest telecommunications company.
Mr Wong said he had arranged HK$38 billion in debt financing and would raise the remainder by spinning off PCCW's assets in an initial public offering.
A PCCW spokeswoman declined to comment. Mr Li said he had not received any credible proposals.
Insisting the deal was legitimate, Mr Wong said he was being advised by Societe Generale and Macquarie Group, which in summer last year was one of two international firms that separately offered up to HK$62 billion for PCCW's telecommunications and media assets.
Kenny Tang Sing-hing, an associate director at Tung Tai Securities, said the valuation of Mr Wong's offer was low despite being more than twice the firm's current market capitalisation of HK$32.8 billion. 'The current share price of PCCW undervalues the assets it owns,' he said.
The company's high cash flow from its fixed-line network should make the utility a popular stock, but investors have shunned PCCW because of market competition from mobile networks and the non-profitability of its Now Broadband pay-television network.
Mr Tang said the key to whether Mr Wong's proposal materialised was whether he could convince bankers and investors that the new PCCW could break into the mainland market.
'The problem with PCCW now is that it lacks a growth driver,' he said. 'The key to the deal depends on how good the relationship is between Mr Wong and the mainland and whether he could lead PCCW to operate in China.'
Mr Wong's announcement could restart a deal that collapsed nine months ago when minority shareholders of Pacific Century Regional Developments, a Singapore-listed firm controlled by Mr Li, spurned in December an offer from former banker Francis Leung Pak-to, two charities owned by Mr Li's father Li Ka-shing and Spain's Telefonica to buy his 23.6 per cent stake in PCCW for HK$9.2 billion. That would have allowed Richard Li to exit the firm, a long-held desire, said bankers, freeing him to pursue more entrepreneurial activities.
The Leung buyout offer was the finale of a complicated saga that began in June last year, when US buyout firm TPG-Newbridge and Macquarie made separate bids that failed largely due to Beijing's objections.
Prodded by the Hong Kong and Macau Affairs Office, China Network Communications, which owns 20 per cent of PCCW, made clear its opposition to any takeover that would give control over the city's dominant fixed-line operator to a foreign firm.
How Beijing might react to the proposal will have a large bearing on whether Mr Wong succeeds or not.
'I do not believe Mr Wong has been blessed by Beijing to acquire the PCCW stake,' said Chim Pui-chung, the legislative councillor who represents the financial services industry.