Richard Li-controlled PCRD (Pacific Century Regional Developments), Starvest, CNC and Netcom BVI, which together hold about 47 percent of PCCW's shares, will form a consortium to launch the buy-out bid. Reuters

Local telecom provider PCCW yesterday announced that the company has reached an agreement with its major shareholder China Netcom Group to form a consortium to privatize the company with the offer price as much as HK$4.20 per share.

The offer price has up to 52 percent premium over the share's closing price of HK$2.75 on Oct 13. Shares of PCCW have been restored for trading after the suspension on Oct 14.

Under the agreement, Richard Li-controlled PCRD (Pacific Century Regional Developments), Starvest, CNC and Netcom BVI, which together hold about 47 percent of PCCW's shares, will form a consortium to launch the buy-out bid.

Under the proposal announced early this morning, PCRD will pay as much as HK$11.1 billion, or 74 percent of the privatization costs. China Network Communications will foot the remaining bill of as much as HK$3.8 billion, or nearly 26 percent of the total cost.

The total offer price is HK$14.9 billion.

It proposes to declare a cash dividend to the shareholders of an aggregate amount between HK$16.9 billion and HK$17.5 billion.

However, analysts remained cautious toward the deal with the lower-than-expected offer.

"The offer price is reasonably low," said a CLSA telecommunication analyst. He pointed out that the deal is difficult to push through in anticipation of the opposition from PCCW's institutional shareholders.

"Given the telecom assets of PCCW are worth about HK$20 billion, the bid is notably below-the-par," said Kenny Tang, Tung Tai Securities associate director.

He, however, does not rule out the possibility that Li and China Netcom will raise the bid if the offer is turned down this time. Whether they can succeed in taking over PCCW depends largely on the final offer price, he added.

CASH Asset Management associated director Patrick Yiu said the takeover still has to receive shareholders' approval. "PCCW's shares fell significantly in recent months. The deal can provide an opportunity for some shareholders to exit with a 'fairly' good price."

"The worse the equity market becomes, the higher the chance for the deal to complete," said Yiu.

"Despite all the 'ownership noise', PCCW's core fundamentals have not materially changed over the recent months," said a Deutsche Bank's report.

"TV and mobile revenues of (PCCW) are expected to continue to grow and support margin expansion, traditional fixed revenues and EBITA will peak in 2008," the report added.

PCCW earlier injected some major businesses including fixed-lines, broadband internet and pay-television businesses into a non-listing arm HKT Group Holdings and opened 45 percent of the company's stakes for bidding. But the deal eventually fell through as a result of the worsening market sentiment.

Li tried to exit PCCW in 2006 by selling PCCW to foreign funds such as Macquarie Group and Newbridge Capital. The plan was shelved because of the opposition from Beijing.

(HK Edition 11/05/2008 page2)