PCCW û what happened before July 10?

A chain of events in motion since January 2006 suggests Li's sale of PCRD's stake in PCCW was only one in a series of steps towards extracting value out of PCCW.
Richard LiÆs attempts to extract value out of his stake in PCCW seem to have begun much before the Macquarie and TPG-Newbridge bids for PCCWÆs assets were received. On January 26 this year TPG Newbridge filed with the Singapore Stock Exchange that it had launched an offer to buy out the minority shareholders' 25% stake in Pacific Century Regional Developments (PCRD). PCRD is the Singapore Exchange listed holding company which holds LiÆs 22.66% stake in PCCW. In a press release at the time by PCCW there is a clear statement that the majority shareholder ie Richard LiÆs 75% stake ôwould remain unchanged if the scheme is approvedö.

Newbridge offered S$0.27 per share representing a 17.4% premium to the traded share price and about a 27.6% premium to the volume weighted average price over the three months prior to the offer. Goldman Sachs represented TPG-Newbridge on the offer. As per a press release issued by PR Newswire on January 26, while making the announcement in January Tim Dattels, managing director, Newbridge Capital said: ôWe are pleased to put forward the offer for PCRD minority shares. This transaction will enable us to participate in PCCW, a significant shareholding of PCRD. PCCW is a great brand and a strong business with a record of innovation and development and a world leading product in Now TV. TPGÆs international investment credentials, coupled with Pacific CenturyÆs network of relationships, experience and record of achievement in Asia, make for a formidable partnership.ö

On April 21, TPG-Newbridge increased its offer price to PCRD shareholders to S$0.305 representing a total outlay of S$233.01 million. Pursuant to this on May 30 TPG-Newbridge filed a revised scheme document with Singapore Exchange and set a court meeting date for the acquisition of shares at June 19. However, before the meeting could be held on June 15 PCRD issued a statement to shareholders that the meeting was postponed due to ôa preliminary indication of certain matters relating to the group which may be relevant to shareholders for their consideration of the schemeö.

The next day on June 16 Macquarie submitted an unsolicited bid for the telecommunications and media assets of PCCW. In the interest of complete shareholder disclosures, on June 19 PCCW issued a press release that an independent third party has expressed an interest in buying the assets of PCCW. China Netcom now sprung into action and issued an objection: ôWe do not want to see any changes in assets in PCCW which is owned and managed by Hong Kong peopleö. At this stage it seems the asset sale was again reviewed in light of the Jaunary 2005 agreement with China Netcom and found to be in compliance with its terms. Thus on June 21 PCCW issued another press release. It clarified that the party referred to in the earlier press release was Macquarie Bank and also that a second offer had been received from TPG-Newbridge for the said assets too. It also clarified that the asset sale was in compliance with the shareholder agreement between Li and China Netcom. However, acquirer s may have been deterred by China NetcomÆs statement and perhaps had no intention of pursuing this transaction on a hostile or even contested basis.

On June 23, TPG-Newbridge issued a statement to Singapore Exchange clarifying that the shareholder vote with respect to the PCRD delisting - which was scheduled on June 19 - had been postponed in view of developments relating to PCCW and further clarified ôTPG NewbridgeÆs proposal is conditional on the support of the board of directors and the shareholders of PCCWö and ôwe recognise the responsibility and sensitivity that come with the ownership of such a significant and strategic asset and are prepared to work cooperatively with regulators and other shareholders to create a transaction that benefits and is acceptable to all partiesö.

Finally, on July 10 Li announced that PCRD has sold its 22.66% stake in PCCW to Fiorlatte, a company created by Francis Leung to effect the acquisition. PCCW stated that discussions with Macquarie and TPG-Newbridge would continue. One of the conditions precedent to the sale to Leung is that the TPG-Newbridge delisting offer for PCRD will lapse or be withdrawn.

The chain of events described above leaves a great deal of unanswered questions with respect to the acquisition. A change at the holding company level might have seemed like an optimal solution for Li to bring in a financial-cum-strategic investor who could help to enhance the value of PCCW yet leave things undisturbed at the PCCW level. The first offer seems not to have been accepted by minority shareholders leading to the more attractive second offer. And all of this brings us back to China Netcom and its role in events. Surely it must have been aware since at least January that TPG-Newbridge was attempting to become a stakeholder in PCCW via the holding company?

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