TPG Newbridge sparks PCCW assets battle

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TPG Newbridge Capital, the US buy-out group, on Wednesday sparked a bidding war for PCCW’s core telecoms and media assets when it offered US$7.55bn, trumping Macquarie Group’s US$7.3bn bid.

The emergence of a bidding war could benefit the Hong Kong company’s minority shareholders, with Richard Li, PCCW’s controlling shareholder, expected to privatise the group following the sale at a premium of more than 30 per cent, according to people close to the situation.

Investment bankers expect more suitors but the success of any bid could hinge on China Netcom, PCCW’s other major shareholder.

Hong Kong’s incumbent telecoms operator must seek Netcom’s consent for any large sale of shares in the telecoms and media divisions, although PCCW said this would not apply to an asset sale.

PCCW is suffering from a decline in its core fixed-line business but its strong cashflow would make it an attractive target for Australia’s Macquarie, which specialises in focused funds.

For private equity suitors, PCCW could offer strong growth opportunities if they can exploit its existing alliance with Netcom, China’s number two fixed-line company, to gain access to the mainland’s telecoms and broadband market.

PCCW said last night it had received an “expression of interest” on Tuesday from TPG Newbridge, which previously had lodged a separate offer for part of Mr Li’s Pacific Century Regional Developments, which controls PCCW.

Mr Li could privatise PCCW at a 30 per cent premium by first paying off the telecoms division’s debt of US$3.1bn, leaving the company with US$4.2bn, or HK$4.75 a share, to return to shareholders. Mr Li could then increase the pay-out by adding a further HK$1.55 per share – the value of PCCW’s property assets that are not part of the telecoms and media division. This would bring the total pay-out to about HK$6.30, which represents a 31.25 per cent premium to PCCW’s share price of HK$4.80 last Friday, before the deal was announced.

The final figures could vary slightly depending on what other minor assets are added and also on what proportion of the Macquarie offer is in the form of debt.

But Mr Li’s potential privatisation offer represents only a slight premium to the HK$5.90 per share paid by Netcom when it bought 20 per cent of PCCW for $1bn in January last year.

At these price levels, analysts said Netcom might not support the sale.

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