Li Ka-shing Funds, Telefonica To Buy PCCW Stake"

HONG KONG -(Dow Jones)- Spanish telecom giant Telefonica and two charitable foundations run by tycoon Li Ka-shing will join financier Francis Leung in the acquisition of a controlling 22.7% stake in Hong Kong-listed PCCW.

Telefonica will purchase an 8% stake in PCCW, while the two charitable foundations are buying a 12% stake.

In July, Leung said he planned to buy the stake in PCCW for HK$9.16 billion, but at the time he hadn't named the members of the consortium backing him in the deal.

Leung said in a statement Sunday that he will acquire the remaining 2.65% stake in PCCW and he expects to finance the acquisition through a combination of his resources, bank financing and a loan from Li Ka-shing.

Telefonica is already a partner with China Network Communications Ltd., a state-run Chinese company that owns about 19.9% of PCCW, through a 5% holding in its unit China Netcom Group Corp. (Hong Kong) Ltd.

Under the deal, Telefonica wants "to strengthen the alliance with China Netcom Group," Miguel Garzon, director of international communications for Telefonica, told Dow Jones Newswires.

One of the benefits to Telefonica of a strengthened alliance would be the right to swap its shares in PCCW for shares in China Netcom Group based on the market price.

"(The deal) is consistent with previous announcements of Telefonica to increase shareholdings in CNC (HK) (China Netcom Group) up to 9.9%," Telefonica said in a statement.

The company also said it is eying PCCW's strong Internet protocol television business.

Leung is buying the controlling stake in PCCW from PCCW's Singapore-listed holding company, Pacific Century Regional Developments.

Richard Li, son of Li Ka-shing, owns 75% of PCRD through another holding company. The fate of the PCCW share sale now rests with minority shareholders of PCRD, whose approval for the sale is required.

Li Ka-shing's involvement comes after his son first failed in an effort to sell the company's telecommunications and media assets to two private-equity firms for about US$7 billion.

The two charitable foundations, Li Ka-shing Foundation Ltd. and Li Ka-shing (Canada) Foundation, are buying stakes of 10% and 2% in PCCW, respectively.

Li Ka Shing Foundation said in a statement that the 12% stake will be held as a long-term investment and that Li Ka-shing will make a donation of HK$4.04 billion to finance the acquisition

The younger Li faced resistance from his Chinese partner, China Network Communications, which objected to foreign ownership of the assets, and he eventually had to abandon the deal. Instead, he agreed to sell a 22.7% interest in PCCW to Leung, his father's longtime financier.

CNC and Telefonica will transfer all of their interest in PCCW into a special purpose vehicle, which will become the single largest shareholder in PCCW with about a 27.9% stake.

CNC, Telefonica and PCCW have signed a non-binding memorandum of understanding to develop a strategic alliance in media and telecommunication businesses, including Internet protocol television and international wholesale services, according to statements from the companies.

Telefonica also said Sunday that it had reached an agreement with China Netcom Group to increase the number of Telefonica representatives on the board of China Netcom Group to two from one and that it intends to nominate one new representative to the board.

The sale of PCCW will come under scrutiny by lawmakers. Hong Kong Legislator Emily Lau said Tuesday that local lawmakers would meet this month to discuss possible irregularities in Richard Li's sale of his controlling stake. She said the main areas of discussion would be whether minority shareholders' interests are protected in the transaction and if the deal complies with Hong Kong's competition and cross-ownership laws.

The Securities and Futures Commission of Hong Kong has ruled that there isn't sufficient evidence to show that the parties involved in the deal are acting in concert, according to a statement released by Leung on Sunday.

The Hong Kong government said Sunday that the Chief Executive in Council will be the approving authority if cross media ownership issues are involved.

"The Government is confident that the regulatory bodies would take rigorous actions to ensure that the transaction will comply with all the relevant ordinances, license conditions and codes of practice," a government spokesman said in a statement.

-By Ernest Kong, Dow Jones Newswires; 852-2802-7002; ernest.kong@dowjones.com

(END) Dow Jones Newswires "

Posted to the site on 12th November 2006