Li Ka-shing

Even Hong Kong’s richest man, Li Ka-shing, has to bow to activist shareholders

Failure to merge Power Assets with Cheung Kong Infrastructure shows minority shareholders are starting to gain greater clout

PUBLISHED : Friday, 27 November, 2015, 11:05pm
UPDATED : Friday, 27 November, 2015, 11:05pm

Li Ka-shing may be Hong Kong’s Superman, but he is not invincible. In his year-long restructuring of his business empire, the latest and last major reshuffle has hit a snag. Minority shareholders of Power Assets this week rejected a proposed merger between the power supply giant and its parent company, Cheung Kong Infrastructure (CKI).

The shareholder revolt is the latest indication that minority investors in Hong Kong, for a long time a passive lot, are learning to exercise their rights to gain better deals from dominant players. As such, it should be seen as a welcome development.

Li initially offered 1.04 CKI shares for each Power Assets share. After shareholders expressed displeasure at the low price swap, he sweetened it by offering to swap each Power Assets share for 1.066 CKI shares.

He also increased a special dividend by 50 per cent for CKI and Power Assets shareholders once the merger was completed.

But the total US$3.77 billion payout would eventually come from the US$7.5 billion net cash to which Power Assets investors had a claim anyway.

As one commentator wrote, that was like wooing children with their own candies. Both ISS and Glass Lewis, which advise fund managers, urged Power Assets shareholders to vote against the merger.

If the merger had been completed with the takeover of Power Assets by the Cayman Island-incorporated CKI, all of Li’s major assets would be domiciled outside of Hong Kong.

The failed deal means Li and his lieutenants cannot make another offer for another 12 months under the city’s regulatory regime.

The new Companies Ordinance introduced last year also helps boost shareholder protection.

For example, the threshold for minority shareholders to demand a poll at annual general meetings has been lowered. And a vote against a proposed scheme could succeed with 10 per cent or more of the shares.

The new law also allows a dissenting shareholder to challenge the proposed scheme in court without worrying about the legal costs, provided the challenge is not frivolous or vexatious.

Shareholder activism, long a prominent feature of Anglo-American capitalism, has not yet caught on in Asia or Hong Kong. But, given the rise of more assertive and informed investors, that may be just a matter of time.