ôItÆs not surprising. Events over the course of the year have led shareholders to believe that the break up value of PCCW could be far higher than its market capitalisation," comments one banker.
Leung's consortium bid HK$9.2 billion ($1.18 billion) or HK$6 per share for PCRDÆs controlling stake in PCCW. PCCW has traded around HK$5.00 in recent weeks, leading some observers to comment that shareholders were not being entirely rational in voting against the HK$6 offer. But this is a simplistic viewpoint. Earlier this year the Macquarie and TPG Newbridge bids for PCCW's telecom assets were evidence that the company's assets have takers at aggressive valuations. Further, shareholders seem well aware that PCRD's 23% stake represents a controlling interest thus should command a control premium. The next highest shareholding is that of China Netcom's at 20%.
ôThe recent wave of interest by financial sponsors in infrastructure assets in the region may have also reinforced to PCRD shareholders that PCCWÆs assets are quite valuable,ö says another source.
The vote, which was expected to be a close call, turned out to be straightforward, with more then 75% of shareholders voting against the sale.
In a dramatic turnaround since the deal was announced in July, Richard Li seems to have changed his mind about selling his 23% stake to Leung. Leung was initially painted as a white knight who would solve LiÆs conundrum of cashing out of PCCW while not antagonising China Netcom. China Netcom had emphatically stated it was not in favour of the sale of æstrategic assetsÆ to foreigners effectively scuttling the sale of the telecom assets to overseas financial investors.
As time passed, it transpired that Richard LiÆs father, KS Li, had provided funding to Leung. In the final consortium, Leung announced the KS Li Foundation was buying 12%, Telefonica Spain 8% and Leung himself 3% of the PCRD holding. Richard Li has consistently affirmed that he was not aware of his fatherÆs role in the deal.
Indeed, it has been reported that Richard Li was keen to ensure that yesterdayÆs vote on selling the assets was not passed. Rumours have been flying that Richard Li was buying proxies in Singapore to ensure the proposal was voted down. Richard Li, who owns 75% stake in PCRD, was barred from voting on the proposal as the Singapore Exchange ruled, on October 31, that he was a person connected with the transaction. Richard Li has denied all suggestions that he has tried to block or thwart the deal with Leung or influence the outcome of the vote.
ItÆs unlikely that Richard Li will be satisfied with the situation as it now stands. Observers speculate that he is still looking for an exit from PCCW û and that he could have a queue of interested buyers knocking at his door. The pressure is on all concerned parties, this time around, to package a deal that will take into account political considerations as well as financial ones.