Pacific acquires C&W HKT for $ 35.9 bn

Pacific acquires C&W HKT for $ 35.9 bn
DAVID LAWDER

HONG KONG, MAR 1: Pacific Century CyberWorks Ltd won the battle to buy Cable & Wireless HKT on Tuesday with a US $35.9 bilion cash-and-share deal, clinching Asia's biggest ever takeover and confirming the power of Internet companies to reshape the corporate world.

The nine-month old start-up beat rival bidder Singapore Telecommunications Ltd to an agreed offer with C&W HKT's 54 per cent shareholder Cable & Wireless Plc, transforming PCCW from an Internet pipe dream to telecoms powerhouse.

The takeover puts the future of one of Hong Kong's oldest and largest companies in the hands of a brash start-up founded by Richard Li, the 33-year-old son of Hong Kong's best known tycoon, Li Ka-shing, rather than with Singapore's cash-rich government-controlled phone company.

The deal offers a choice of all shares or a mixture including cash and will hand C&W about 5.0 billion pounds ($7.90 billion). Analysts expect the British company, with its global corporate Internet business, will become a takeover target once the deal completes around August. PCCW Group Managing Director Alex Arena, a former Hong Kong telecoms regulator, said the merger would create an Asian Internet, telecoms and multimedia giant with a market capitalisation of US$70-80 billion.

The deal mirrors America Online Inc's merger with Time Warner Inc in that it marries content provider PCCW with the Internet distribution infrastructure of C&W HKT. Like the AOL deal, it was only possible because of the high value of Internet shares and investors' willingness to accept the risk of such paper. PCCW has no profits, no track record and precious few assets to bring to a merger.

"Really, at this point, PCCW is just a concept. When they merge with HKT, they will get some real assets -- fixed-line, mobile and a broadband network," said Kim Eng Securities telecom analyst Alfred Li said.

PCCW offered US $ 38.1 billion in shares or US $ 35.9 billion in cash and shares for Cable & Wireless HKT. C&W said depending on the take up of the offer it will receive 3.8 billion to 7.1 billion pounds in cash and 11.2 to 20.9 percent of the new entity, to be called Pacific Century CyberWorks-Hongkong Telecom.

C&W HKT will in addition pay its shareholders a special dividend of US$ 700 million before the deal completes. The takeover topped the Bank of Tokyo/Mitsubishi Trust deal as the biggest ever in Asia, though its value could fall once PCCW and C&W HKT shares resume trading. The deal was put together in barely three weeks and finalised in three days of round-the-clock legal work, a person involved in the talks said.

C&W said it planned to sell four per cent of PCCW's shares as soon as possible but it would hold the remainder for six months and sell no more than 50 percent in the following six months. C&W Chief Executive Graham Wallace said the company hadn't decided whether to keep the stake beyond that, though it was interested in the potential access to China from the investment.

Cable & Wireless shares initially fell as much as seven per cent amid disappointment that the company was not getting more cash and was taking a stake in an Internet company rather than SingTel. But they quickly trimmed their losses to 2.3 per cent as analysts talked up the long-term benefits of the deal.

C&W HKT shares remained suspended on Tuesday, giving the company a market capitalisation of HK$ 314.49 billion (US $ 40.4 billion). PCCW shares also were suspended, pegging its market value at HK$ 225.49 billion. The shares were expected to resume trading on Wednesday. SingTel shares rose S$ 0.12 To S$ 2.80.

Rupert Murdoch's News Corp, which had offered to invest $ 1 billion in SingTel to sweeten its offer, swiftly cancelled its investment plans but said joint venture and investment opportunities with SingTel would continue to be studied.

Sources close to talks over C&W HKT, which began three months ago between C&W and SingTel, said SingTel's proposal hit a snag over political concerns by some Hong Kong factions about Singapore gaining control of a major local utility. But C&W denied that, saying the combination of PCCW's cash offer and a stake in an Internet company was the more attractive option.