MERGERS
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Li Ka-shing

Li Ka-shing rejected: Power Assets minority shareholders block CKI merger

Votes representing some 49 per cent of shares owned by independent minority shareholders opposed the proposal

PUBLISHED : Tuesday, 24 November, 2015, 10:17pm
UPDATED : Wednesday, 25 November, 2015, 2:47pm

Minority shareholders of Power Assets have blocked a proposed merger between Li Ka-shing controlled Power Assets and its parent Cheung Kong Infrastructure (CKI).

Votes representing some 49.23 per cent of the shares owned by independent minority Power Assets shareholders opposed the proposal to swap each Power Assets share for 1.066 CKI shares, compared to 50.77 per cent who approved it, CKI and Power Assets said in a joint statement to the Hong Kong stock exchange on Tuesday.

The “yes” votes fell short of the 75 per cent threshold required for the proposal to be passed.

“We are disappointed at today’s voting result but respect the views expressed by shareholders,” a Power Assets spokesman said. “We will discuss internally to decide on the way forward, always bearing in mind the long-term objective to deliver greater value to shareholders.”

The spokesman did not comment on whether it planned to pay a special dividend.

We are disappointed at today’s voting result but respect the views expressed by shareholders
Power Assets spokesman

Power Assets chairman Canning Fok Kin-ning had told shareholders if it had not spent most of the HK$68 billion two years after the spin-off and stake sell-down of its Hong Kong power business early 2014, it might pay a special dividend. But it had no obligation to do so.

CKI is not allowed under Hong Kong securities regulations to launch another merger offer with Power Assets within 12 months.

A CKI spokesman said that while the voting result was disappointing, CKI “will continue to move forward in our own strategies for growth” and “will build on the strength of our existing infrastructure portfolio and balance sheet to pursue new opportunities for expansion”.

Power Assets’ minority shareholders complained at Tuesday’s shareholders meeting that the share-exchange ratio of 1.066 CKI shares for every Power Assets share was too low, and the proposed special dividend of HK$7.5 a share for all CKI shareholders post-merger was not attractive enough.

Power Assets’ independent financial adviser Platinum Securities had said the merger would broaden Power Assets’ investment scope and opportunities from energy to the wider infrastructure sector, adding the exchange ratio was fair and in line with those in two previous mergers among Hong Kong-listed firms.

But ISS and Glass Lewis, which provide corporate governance advice to fund managers, both issued reports advising Power Assets shareholders to vote against the merger offer, saying a higher exchange ratio – based on a longer reference period of historical share price ratios between CKI and Power Assets – would have been fairer to minority shareholders.

Trading of both CKI and Power Assets’ shares will resume on Wednesday after being suspended on Tuesday pending the voting. Analysts expected both firms’ shares to fall if the merger was voted down.

Citi head of Asia utilities research Pierre Lau wrote in a note last week the merger would unlikely be approved by Power Assets’ shareholders, adding if it was voted down, Power Assets’ share price might fall 3 per cent – the amount of out-performance over other Hong Kong-based utility firms since the merger proposal was announced.

Daiwa Capital Markets’ analysts, who first wrote about the possibility of a merger between the two firms back in July, said CKI’s offer was fair and Power Assets shares might see a “27 per cent value destruction” if the merger was rejected.

CKI shares closed on Monday at HK$69.05, up 4.4 per cent from the last closing price before the merger proposal was announced, while those of Power Assets closed at HK$72.65, up 7.5 per cent from before the proposal.