Cable & Wireless HKT's board has unanimously recommended Pacific Century CyberWorks' proposed merger offer. HKT chairman Brian Smith yesterday said the board had completed its analysis of the CyberWorks offer and was recommending shareholders to 'vote in favour of the scheme'. However, ING Barings, HKT's independent financial adviser, cautioned the operator's minority shareholders that the merged entity would have a significantly high-risk profile. It also warned CyberWorks shares might be subject to high volatility and advised risk-averse investors to reduce their exposure to the combined company by either disposing of some or all of their HKT shares before the last dealing day, August 1, if the share price was above their net realisable value under CyberWorks' proposed offer prices. Alternatively, if the shares were trading below the offer prices before the HKT election deadline on July 3, shareholders could take the offer and sell new CyberWorks shares in the market after the scheme became effective. ING Barings said the Internet-focused activities were 'largely unproven' and were 'expected to require substantial capital investment'. It advises HKT shareholders to treat the new company as a 'start up' with a high-risk profile instead of a rich, cash-reserve telecoms company. According to the document, although HKT and CyberWorks were cash flush with a combined HK$31.2 billion on hand, due to the US$12 billion syndicated loans raised by CyberWorks to finance the merger plan, the merged company would have pro forma net liabilities of HK$31.4 billion. One of the main risk factors highlighted in the document was that the combined company may face difficulties in obtaining adequate financing for significant required capital expenditures. Francis Yuen Tin-fan, deputy chairman of CyberWorks, said the company planned to reduce the new company's debt to a comfortable level. The debt would be reduced to US$5.5 billion after the completion of a US$3 billion IP backbone and mobile phone venture deal with the dominant Australian telecoms operator Telstra. Mr Yuen also said the company planned to spin off and list these two ventures in 18 months. Despite all the risk factors involved, ING Barings believes CyberWorks' offer to merge with HKT is 'fair and reasonable so far' as minority HKT shareholders are concerned. The independent adviser also recommended HKT's shareholders to vote in favour of the scheme of arrangement of the merger plan, according to the shareholders' document which will be posted to HKT shareholders today. Linus Cheung Wing-lam, chief executive of HKT, said that the telecoms firm's board had 'unanimously resolved to recommend to the company's shareholders' to accept CyberWorks proposed merger bid. Cable & Wireless, HKT's British parent with a 54 per cent controlling stake in the firm, is scheduled to vote on CyberWorks proposed merger bid on June 13. HKT shareholders will vote on the plan on July 3. Cost of the merger scheme is expected to amount to HK$1 billion, of which about HK$86 million would be borne by HKT. Alex Arena, group managing director of CyberWorks, said the merged firm would be restructured into seven units; including broadband business-to-customers services, business-to-business application services, data centres and web hosting businesses, IP backbone businesses, regional mobile services, fixed networks services and the investment arm CyberWorks Ventures. CyberWorks and HKT managements will begin a two-weeks international roadshow, starting on Monday, to convince C&W, HKT and CyberWorks' shareholders to accept the offer. Meanwhile, CyberWorks reported a first-quarter net profit of HK$20.18 million, compared with a HK$9.1 million net loss in the year-ago period.