PCCW has decided to abandon its privatisation plan by letting the buyback offer lapse. On the other hand, Richard Li has told Bloomberg that he hasn’t decided whether he would appeal the ruling made by the Court of Appeal. As a result, PCCW share price dropped 13% today.
On another note, PCCW has declared a special dividend of HKD 1.3 per share. This is good news for minority shareholders as they are actually getting something at the end.
A very dramatic ending. The Appeal Court has blocked the buyout by Richard Li. It seemed like the judges have turned 180 degrees against Richard Li and favored the minority shareholders and the SEC during the course of the appeal. We will know soon whether Richard Li will appeal the case or not.
What will minority shareholders gain actually? Share price will probably drop quite a lot when trading is resumed in the next few days. And I believe the share price will have big upward resistance because of all the negative publicity it has got. And if Richard Li appeals, then this case can drag on for a long time and this will again create upward resistance on the stock. It is a lose-lose situation for Richard Li and minority shareholders.
In the court hearing yesterday morning (Saturday morning), there were 8 retail investors testifying against PCCW; however, the points they made seem to be irrelevant to the privatisation case. Most of them have held PCCW for over ten years and they have suffered big losses and they have expressed their mistrust or contempt against Richard Li for bringing down PCCW and for PCCW’s big drop in share price.
Fair enough, they have the right to express their opinions. But how is their testimonial relevant to the case? Sure, PCCW share price suffered big drop during the tech bust in 2000 and 2001 and Richard Li was, very likely, responsible for the drop. But then, do they think that PCCW share price would go back up to its max price in 2000 if the privatisation was disallowed? No way! What could they achieve by opposing to the privatisation? Nothing. PCCW share price would probably drop further if PCCW was rejected by the court at the end.
Wake up, people. You should move on. When you bought PCCW, you believed in their management and when they failed, that means that you have made a bad investment decision. Then you should move on and find another company that you believe in. Holding on PCCW for 10 years and hoping that it would bounce back to the level you bought ten years ago just don’t make sense to rational investors.
The High Court of Hong Kong has approved the PCCW privatisation transaction. Judge Kwan found that the alleged vote rigging is not substantiated by evidence.
On the other hand, the court has allowed the SFC to appeal the ruling. In essence, the PCCW privatisation probably won’t materialise for at least a short while.
The court will announce its decision on PCCW privatisation next Monday. Media has been wondering who the secret persons are in paying for the lawyers representing the minority shareholders. It has been estimated that the legal cost for two day court case can easily be a few million hong kong dollar, given the high caliber of the legal teams involved.
The secret persons probably have some personal grudge on Richard Li? According to Apple Daily, the secret person and the minority shareholders are linked by Long Hair Leung Kwok Hung. Furthermore, it reveals that one of the secret persons is Mr. Chong Wing Cheung, a mentor of “Ah Lek” Chan Pak Cheung. And on radio tonight, some people thought that the boss of the Emperor Group, Yeung Sau Sing, may be one of the secret persons. Maybe the Isabella Leong-Richard Li saga still pisses Mr. Yeung off.
In today’s newspapers, billionaire Joseph Lau Luen-Hung, chairman of Chinese Estates, said that he is sick of a small group of people who are only very small shareholders and making a lot of noise on the privatisation. Also, he claimed that he knows who is fooling around behind the PCCW privatisation scandal, and that the motivation behind may not be business-related… it can be related to a fight for a wife, a girl friend, etc… Sounds very mysterious to me and a lot of the readers, but I suppose Richard Li should know what he is talking about!
The privatisation has been delayed for one week as the Directions Hearing – a procedural hearing according to the announcement made by PCCW – has been postponed from 17 Feb 2009 to 24 Feb 2009. The most important court hearing – the High Court hearing to sanction the privatisation – scheduled originally for 24 Feb 2009, would now need to move further down the timetable. The chance of the privatisation being successfully completed seems to be lower as time progresses. Also, following Friday’s drop, the share price has dropped 17 cents today to HK$ 3.85.
There are just too many uncertainties to this privatisation: SFC’s investigation on the manipulation of the vote result in the shareholder meeting, the uproar of some minority shareholders, and the negative impression surrounding PCCW in most newspapers and magazines over the years since the dot-com bust: all have made Richard Li’s plan to privatise the company a harder feat than it originally seemed to be.
Below are the uncertainties surrounding the PCCW buyout / privatisation:
1) the High Court will need to approve the buyout. This is scheduled for 24 February 2009.
2) On whether the High Court will approve or not, this depends on whether the regulator, the SFC, has finished investigating the vote-rigging issue or not. The SFC can petition to the High Cour to veto the buyout if it discovers any evidence of vote-rigging in the shareholder meeting.
3) Will the SFC finish its investigation before 24 February? If not, will the High Court delay its ruling until the full SFC investigation is complete?
4) In an open forum last Sunday, some minority shareholders protested that the management has largely ignored the minority shareholders in the shareholder meeting. This theme of “majority shareholders bullying minority shareholders” has been a popular topic in the mass media lately. The voice of the minority shareholders is further amplified by some Legislative Council members who have decided to step up and try to stop this privatisation. There probably will be uproar if government approves the privatisation as originally planned on 24 February 2009.
For these 4 reasons, I believe that this privatisation will not get approved by end of February. It will take some time before the share price will rise near HKD 4.5 (the offer price). So my stock recommendation is Hold.
PCCW (0008) is the focus company among all HK-listed companies today:
The shareholders have approved the privatisation plan, despite the claim from David Webb that there is some vote-rigging involved (http://www.webb-site.com/articles/pccwrig.htm) in which David Webb claimed that hundreds of Fortis insurance sales agents received one lot (1000 shares) of PCCW recently and in return they would need to sign the proxy form to be in favour of the privatisation. With this privatisaion, shareholders will receive HKD 4.5 per share.
In the shareholder meeting, there were some minority shareholders who asked to delay the vote on privatisation until the investigation of vote-rigging is finished by the SFC. Not surprisingly, this was voted down.
On another front, the PCCW labour union (PCCW Employees General Union) has reported that PCCW will cut 5% of the workforce (600 people) and the rest of the employees will have their work week shortened from five / five and a half days to four days (and thus their pay is reduced).
Finally the privatisation saga has more or less come to an end. Personally, I believe this is a decent deal for the shareholders: most of the minority shareholders don’t mind approving this privatisation actually: a lot of them probably have held their shares since the dot com era (the peak split-adjusted share price was HK$ 131.75). The net asset value of PCCW is probably a lot higher than the amount paid for the privatisation; but at this time of the market, shareholders probably don’t mind exchange their shares for cash (and with a small premium to current share price too!)
