Bidding war looms for Hong Kong telco

HONG KONG - Shares in PCCW jumped more than 10 per cent yesterday before they were suspended, fuelled by a possible bidding war between Australia's Macquarie Bank and US buyout firm Texas Pacific for PCCW's core assets.

Macquarie and Texas Pacific are readying bids that sources said could reach as high as US$8 billion ($13 billion), or 78 per cent above PCCW's US$4.5 billion market value before yesterday's rally, which lasted eight minutes before trading was halted pending a statement.

The deal, which would see 39-year-old PCCW chairman Richard Li end a turbulent six-year tenure in control of Hong Kong's former monopoly phone company, faces opposition from Beijing-run China Netcom, which owns 20 per cent of PCCW.

"The outcome is hard to predict," said Antony Mak, sales director at DBS Vickers. "First you've got the [sale] price, then you've got Netcom, so it's going to be long and complicated."

PCCW shares jumped to HK$5.75, from HK$5.20 when they last traded on Tuesday. PCCW's mobile arm, Sunday Communications, was also halted after rising 5.4 per cent to HK59c.

Trading in Pacific Century Regional Developments, controlled by Li and the largest single shareholder in PCCW, was also halted in Singapore.

Netcom reiterated late on Wednesday it did not want changes in PCCW or its key assets. China Netcom paid US$1 billion for its PCCW stake last year, or HK$5.90 a share.

If PCCW sold off its phone and media units, it would mostly be left with property holdings and a pile of cash controlled by Li that could be paid to shareholders in a special dividend or used to buy back shares and take the company private.

A glut of private equity funds in search of targets, and a dearth of cash-generating telecoms assets in a region where regulations often crimp foreign ownership, are helping to drive the competition for PCCW's core assets.

The interest persists even though PCCW shares have been a chronic underperformer since Li's one-time internet start-up paid US$28.5 billion during the height of the tech bubble in 2000 for Hong Kong's dominant fixed-line carrier.

Private equity investors covet the cashflows of PCCW's core phone business, and see growth at its Sunday arm, among the smallest of Hong Kong's mobile companies, as well as at PCCW's NOW pay TV service.

The internet-protocol based NOW TV unit boasts 549,000 customers using its broadband-based service, making it the largest such operation in the world and providing a platform that could be exported to other markets.

Macquarie, Australia's largest investment bank, is hunting for assets globally to bundle into its media, telecoms and infrastructure funds to expand on the A$112 billion in assets it already has under management.

Beijing is believed to be opposed to the idea of Hong Kong's main fixed-line phone company falling into foreign hands.

- REUTERS