PCCW Stock Decline Might Threaten HKT Deal

HONG KONG (03/22/2000) - A decline in the stock price of Hong Kong's Pacific Century CyberWorks Ltd. (PCCW) has given rise to fears that its deal to buy Cable & Wireless HKT Ltd. -- the result of a high-profile battle for a major Asian telecom carrier -- may fall through.

Analysts said a drop in PCCW's stock price could take it below the value agreed on in the cash-and-stock deal with C&W HKT's biggest shareholder, Cable & Wireless PLC.

Although the companies have not stated a cutoff point, investors have calculated it would be around HK$18.60 (US$2.39), according to analyst Herbert Lau, associate director at Celestial Asia Securities, in Hong Kong. PCCW today dipped approximately 40 Hong Kong cents to about HK$18.70 following several days of declines.

"It seems like there has been a lot of uncertainty about the shares, so that some investors would like to unwind their holdings," Lau said.

Although the cutoff figure is unknown, a significant drop in the stock might cause Cable & Wireless to back out, Lau said.

"If it's way below the fair value, they probably will withdraw from the deal," Lau said. "I don't think they want to sell HKT too cheaply, because it's still a company with a good cash flow and good assets."

Because there are few fundamentals to support the value of the company, which has yet to begin operating its primary business -- a broadband multimedia service -- rumors of a threat to the deal may drive it further down, he added.

PCCW, a high-flying Internet holding company led by Richard Li, scion of one of Hong Kong's richest business families, last month beat out Singapore Telecommunications Ltd. to buy C&W HKT, Hong Kong's incumbent carrier. The company hopes to leverage C&W HKT's broadband infrastructure as a launching pad for high-speed multimedia content delivery across Asia and eventually the world, according to statements it made during the takeover. [See "UPDATE:

CyberWorks Details C&W HKT Merger Offer," March 1.]Another analyst dismissed fears the deal is in jeopardy.

"I don't think anyone's going to be making any decisions about the viability of the deal based on a few days' share movements," said Steve McKeever, an analyst at Lehman Brothers, in Hong Kong.

"Cable & Wireless has been looking to divest from HKT for some time, and its options are limited," McKeever said. He added that there would be penalties to be paid should the seller back out of the deal.

Although both analysts said the stock's decline has probably been caused by an overall sell-off in Asian technology stocks, McKeever said the correction is likely to help PCCW over the long term. The company is more substantial and diversified than many companies that have gone on the market recently based on a concept alone, he said.

"The stronger stories like PCCW should benefit from the weakness of the others," McKeever said.

PCCW, in Hong Kong, can be reached at http://www.pcg-group.com/.

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