News Corp in PCCW talks with Macquarie

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News Corporation is in talks with Macquarie Group to join its $7.3bn bid for PCCW’s telecommunications and media assets, in a deal that could once again put Rupert Murdoch and Richard Li, PCCW chairman, on opposite sides of the negotiating table.

Mr Li sold the Star TV group to Mr Murdoch in 1992 in a transaction that earned the young Hong Kong tycoon a $400m profit and a reputation as an up-and-coming dealmaker.

It would be Mr Murdoch’s second attempt to gain a stake in Hong Kong’s biggest fixed-line and broadband business after News Corp, in partnership with Singapore Tele-
communications, lost a takeover battle for Cable & Wireless HKT to PCCW in 2000.

News Corp said: “We have had very preliminary discussions with the Macquarie Group.”

According to a person familiar with the talks, the main attraction for News Corp is the chance to buy into PCCW’s NOW Broadband TV operation, which delivers television channels to TV screens over the internet. “News Corp is extremely interested in NOW Broadband,” the person said. “But we don’t know if Macquarie can pull the deal off.”

Macquarie is pitted against TPG Newbridge, the US private equity group, which has countered with a $7.55bn offer. Both offers face strong opposition from China Netcom, PCCW’s second biggest shareholder after Mr Li with a 20 per cent stake.

To appease China Netcom, both organisations have proposed that the state-controlled group take up to 50 per cent of PCCW’s telecoms and media assets.

Having News Corp as a partner could help Macquarie in its efforts to woo China Netcom. Mr Murdoch is a former non-executive director at China Netcom’s Hong Kong-listed arm and served on its compensation committee. He is still an adviser to the company’s board. For News Corp, a deal would be consistent with its strategy in Asia.

Star TV, its regional unit, owns 26 per cent of India’s second biggest cable network, 20 per cent of a satellite platform in India and 20 per cent of a cable system in Taiwan. The company is also interested in expanding into broadband television, pioneered by PCCW. Although Star is profitable, its business in China has been disappointing because of tight media controls and rampant piracy.

News Corp this month sold 20 per cent of its minority stake in Phoenix Satellite Television, a popular Hong Kong-based Chinese language news channel, to China Mobile, the country’s leading mobile operator, in an agreement that appeared to confirm Mr Murdoch’s growing frustration at Beijing’s controls over the sector. News Corp holds about 18 per cent of Phoenix.

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