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SCMP Reporter

Telecoms operator says major owner is free to sell out a year after stake sale

Richard Li Tzar-kai, chairman and controlling shareholder of PCCW, will be free to sell his stake in the company 12 months after the $7.9 billion deal with China Network Communications Group Corp  is completed,  PCCW announced  yesterday.

A lock-up clause in the acquisition agreement prevents Mr Li  from selling any PCCW shares for a year after the deal is sealed.

However, a source familiar with the deal said the  arrangement was standard practice  for major shareholders in merger and acquisition deals, and did not imply that Mr Li would walk away after the lock-up period expires.

The deal will dilute Mr Li's interest in PCCW to 25.53 per cent from 31.91 per cent.  China Netcom will hold 20 per cent of PCCW's enlarged share capital, for which it is paying $7.9 billion, or $5.90 a share.

The two partners have entered into anti-dilution agreements that allow both  and Mr Li to subscribe for additional shares or convertible notes  to maintain those shareholding percentages, should the company decide to issue new shares or equity-linked instruments in future.

Unlisted  Netcom already has a standing non-competition agreement in place with its Hong Kong-listed subsidiary,  requiring the two firms to negotiate and restructure proposed mainland business plans if they pose a competitive threat. The agreement between PCCW and  Netcom extends  the agreement to include PCCW.

While PCCW is not precluded from exploring business opportunities with mainland carriers other than  Netcom, the acquisition agreement requires it to first discuss  with  Netcom any business propositions that might place it in competition with the red-chip mainland carrier, and restructure the proposals in 'good faith' to avoid such competition.

PCCW must also obtain   Netcom's consent if it wants to dispose of more than 10 per cent of  its interest in the core fixed-line telephony business, PCCW-HKT Telephone, or more than 25 per cent  of the  broadband television business, PCCW VOD.

Although the alliance  offers PCCW a springboard to the world's fastest-growing telecommunications market,  investors  are so far unimpressed.

PCCW's shares fell 1.6 per cent  yesterday amid downgrades by brokerages.  The counter finished at $4.625, or 27.5 per cent lower  than  Netcom's agreed purchase price.



Deal locks up Li holding in PCCW