Minority shareholders in Hong Kong telecommunications carrier PCCW must be wondering what is going on at their company. In a blur of activity in June, two separate private equity buyers, Macquarie Bank and Texas Pacific Group, emerged to battle for control of the company’s key telecom and media assets.
A contested auction for the company’s prize assets should have been just the tonic for PCCW’s long-suffering shareholders. After all, they have watched helplessly as management has destroyed more than three-quarters of their shares’ value since the acquisition of Hongkong Telecom in July 1999, with the stock underperforming the Hang Seng index by 130% [see chart].
Transfer of control
Sadly, it seems that they are to be denied the chance to maximize value from their disappointing investment. In July, with Macquarie and TPG heads down poring over PCCW’s figures, chairman Richard Li signed a deal to sell a 22.66% stake in PCCW held by his Singapore-listed holding company, Pacific Century Regional Developments (PCRD), to Hong Kong investment banker Francis Leung for HK$9.2 billion (US$1.2 billion) effectively transferring control of PCCW to Leung.
| How to undermine an outperformer |
| PCCW versus the Hang Seng index |
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| Source: Bloomberg |
Although the deal does not preclude the eventual sale of PCCW’s underlying assets to a private equity firm, the politics behind the move suggest that any eventual divestment by PCCW of its core assets will be carefully controlled by Beijing.