PCCW spurns two $7bn offers

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PCCW, Hong Kong’s dominant telecoms company, late on Tuesday formally rejected two $7bn-plus offers made by overseas buyers for its core assets.

The announcement will disappoint investors, many of whom retained lingering hopes of benefiting from a potentially lucrative bidding war. However, people close to the situation said that they expected overseas interest in the company to be rekindled once control of PCCW changed hands this year.

TPG Newbridge, the US buy-out fund, and Australia’s Macquarie Bank last month caused a stir by offering to buy the telecoms and media assets of PCCW, a company controlled by Richard Li.

However, both groups failed to secure the backing of state-controlled China Netcom, which owns 20 per cent of PCCW and which had publicly declared its opposition to a deal. Beijing is widely believed to have thwarted the sale to foreigners on nationalistic grounds.

“The board has determined not to pursue either non-binding expression of interest any further,” PCCW said after a board meeting, citing “the requirement of Macquarie and TPG Newbridge that any transaction might only proceed on the basis of consent ... being forthcoming from all relevant parties.”

“In its capacity as a shareholder, China Netcom has repeatedly indicated its opposition to such an asset sale.”

PCCW had earlier Tuesday suspended its shares pending the announcement. Dealings are expected to re-start on Wednesday.

Mr Li is in the process of selling his controlling 23 per cent stake in PCCW to Francis Leung, a veteran investment banker, for HK$9.2bn (US$1.2bn). Mr Leung is expected to assume control of PCCW by the end of the year, then revamp the boardroom and reassess the strategy of the business.

One person close to the situation said: “A deal with TPG or Macquarie is not completely dead. But nothing will happen until there is a changing of the guard and the new board decides on PCCW’s future financial strategy.”

As a result of the Li/Leung deal, PCCW shareholders will receive a special dividend of about HK$0.35 a share.

Bankers said that, in the short term, attention would focus on a separate offer by TPG Newbridge to acquire a 25 per cent stake in Pacific Century Regional Developments held by minority investors. Mr Li owns a 75 per cent stake in the Singapore-listed company, which in turn owns the 23 per cent stake in PCCW.

Earlier this week, PCRD said that its minority shareholders could next month vote on whether to accept TPG Newbridge $141m offer before the company sold its 23 per cent stake in PCCW. This development is not expected to delay the handover timetable for change of control in PCCW.

TPG Newbridge and Macquarie Bank declined comment on Tuesday.

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