PCCW mulls Macquarie offer for core assets

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PCCW, Hong Kong’s incumbent fixed-line telecom operator, is considering a proposal from Australia’s Macquarie Group to sell its core telecoms and media businesses, worth an estimated HK$36.6bn ($4.71bn).

The company, controlled by Richard Li, said it had hired Lehman Brothers to study a non-binding expression of interest received from “an independent third party”. It refused to identify the potential bidder but people familiar with the deal said it was Macquarie.

The sale of PCCW’s core assets would signal a significant change of direction for Mr Li, who became the region’s best-known internet tycoon when he took over the Hong Kong telecoms business of Cable and Wireless of the UK in 2000 in a landmark $28bn transaction.

The deal would also leave Mr Li, son of Asia’s richest man, Li Ka-shing, with a listed company with few assets and a significant amount of cash. Mr Li controls PCCW through his controlling stake in Singapore-listed Pacific Century Regional Developments, which owns 22.7 per cent of PCCW.

Macquarie, which sent its proposal to PCCW last Friday, is expected to fund the deal with cash. PCCW, which has an estimated enterprise value of HK$51.8bn, declined to say how much the Australian bank had offered. Its telecoms and media assets last year accounted for about 71 per cent of its business.

The fact that Mr Li would be willing to contemplate a sale of PCCW’s core assets is unlikely to surprise analysts. With revenue in the fixed-line business deteriorating, Mr Li has been expanding into other areas, such as property, in recent years.

PCCW’s telecoms and media division has been suffering from slow growth due to intense competition in its core fixed-line operation in Hong Kong’s saturated telecoms market.

The poor performance has also weighed on PCCW’s stock. The company’s shares have fallen from a peak of HK$131.75 in February 2000 to HK$4.80 at their close on Friday, prior to their suspension; the decline is even sharper if a 5-for-1 share consolidation is included.

PCCW attempted to revive its growth prospects with the launch of a broadband television service in 2003, which has been seen as largely successful.

For Macquarie, a deal would give it a business with a steady cash-flow and a dominant market share. Macquarie did not comment yesterday.

It was unclear how China Netcom, mainland China’s second biggest fixed-line operator, which brought a 20 per cent stake in PCCW in 2004, would respond.

PCCW said there was “no certainty” a deal would happen.

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