Our city has been gripped by the court drama over PCCW's HK$15.93 billion attempt at privatisation. It reached a climax yesterday when the Court of Appeal ruled in favour of the Securities and Futures Commission's bid to block the deal. Many people will take satisfaction from the court's decision - not just the minority shareholders who opposed the buyout plan.
Once a corporate icon, the telecom giant has become a byword for the destruction of shareholder value. Chairman Richard Li Tzar-kai and his trusted lieutenants have done well for themselves, but the company they have run for a decade has wiped out the stock value of many longtime shareholders. The latest buyout bid, if it proceeded, would complete the process of wealth destruction for many investors. However, there are indications that Mr Li will accept the court's latest ruling and allow the deal's financing to lapse. That would be a wise course to take - and fairer to minority shareholders. If this happens, there is nothing to stop Mr Li from offering another buyout - one that should offer better value to small shareholders and, hopefully, be clear of vote-rigging allegations. Such a deal would gain more legitimacy in the eyes of the public. This should be the lesson learned from the costly round of legal battles.
The court yesterday did not have time to write up the reasoning behind its judgment - this will be released later. However, Mr Justice Anthony Rogers' comments during the last few days of the hearing have been highly critical of the proposed deal; it is reasonable to assume they generally reflect the court's views. The three judges had wide latitude to decide whether the privatisation plan was fair and just; evidently, all three concluded it was neither. The appeal court took a very different stance from the one adopted by Madam Justice Susan Kwan Shuk-hing of the Court of First Instance when she sanctioned the buyout plan to proceed. It was right to do so.
Even leaving aside the allegations of vote-rigging, it was clear Mr Justice Rogers spoke for many people who have been observing the sorry corporate saga of PCCW, not only concerning the latest buyout deal, but since it was taken over by Mr Li at the height of the dotcom bubble. The judge described the privatisation scheme as an 'outrageous' attempt to squeeze out small shareholders and the HK$4.50 per share offer price as being too low. He questioned why majority shareholders - Mr Li's Pacific Century Regional Developments and China Unicom Group - should get a US$2 billion dividend after the deal. Some minority shareholders have argued - with good reason - that they should be entitled to a share of the dividend payout based on company profits. Instead, it is being used effectively to subsidise the buyout.
PCCW has pointed out that it has done nothing illegal and that it was unaware of any vote-splitting activity to rig the votes on the buyout plan. That may be so. The company's position was buttressed by Madam Justice Kwan's judgment early this month. She observed that vote-splitting is, in any case, not illegal in Hong Kong. But her ruling took an excessively legalistic stance and left many people uncomfortable. The appeal court has rightly reversed it.
With the latest court judgment, more minority shareholders may find emotional closure, but the financial losses they have incurred can never be recovered. Mr Li should now show goodwill and offer them a better deal.
