Hong Kong Group Assumes Controlling Stake In PCCW

HONG KONG (Dow Jones) - The takeover battle for Hong Kong telecom company PCCW came to a close late Monday after Chairman Richard Li agreed to sell control of the company to a private investment group headed by a veteran Hong Kong banker, effectively ending the hopes of two overseas private equity groups seeking to acquire blue-chip telecom and internet assets on China's doorstep.

Former Citigroup investment banker Francis Leung Pak-to will pay HK$9.2 billion ($1.18 billion) for Richard Li's 23% controlling interest in PCCW.

Li will retain a 3% personal stake in the company and step down as chairman on November 30.

Leung will pay HK$6 per share for the 23% of PCCW shares held by Singapore-listed Pacific Century Regional Developments, which is majority owned by Li. The deal represents a premium of 8.1% to PCCW's Friday closing price of HK$5.55.

The deal is widely believed to mark an end to efforts by Macquarie Bank Ltdof Australia and TPG-Newbridge, the Asia-focused arm of the Texas Pacific Group, both of which stepped forward as bidders for PCCW's core assets last month.

The bids were strongly opposed by state-owned China Network Communications, which owns 20% of PCCW through its Hong Kong listed subsidiary China Netcom.

Many interpreted the objections as reflecting official Beijing policy against foreign control of strategic telecom assets in the financial center.

Macquarie and TPG-Newbridge were reportedly offering more than $7 billion for the telecom's core assets which included fixed line, broad band internet and media services.

Both groups had offered to structure their deals in such a way as to enhance China Netcom's ownership stake to 50%.

Leung said he is buying the stake through a wholly-owned investment vehicle funded by his own money.

To compensate investors who had hoped for a more comprehensive takeover, Li offered to pay minority shareholders HK$1.38 billion in the form of a special dividend from the proceeds of the transaction.

In Hong Kong trading Tuesday, shares of PCCW fell 9% to HK$5.05.

Analysts were mixed on the implications arising from the asset sale, with BNP Paribas saying the move does not solve management problems, nor clarify who will eventually control the company.

Merrill Lynch said in a report the stake sale is positive in the medium term because it could mean an expanded board role for China Netcom and enhance PCCW's future growth opportunities in China.

(END) Dow Jones Newswires "

Posted to the site on 11th July 2006