Shareholders approve PCCW privatisation

Shareholders in PCCW last night voted in favour of a deal to privatise the company. PCCW's chairman, Richard Li, is finally able to realise his ambition to take the company off the market, after nine years of continually poor share performance.

The voters will have been won over in part by new terms introduced at the end of December. The revised offer of HK$4.50 a share made by the major investors, Pacific Century Regional Developments (PCRD) and China Network Communications (CNC), was a 7.1% increase on the original HK$4.20 offering. It values the 52% interest, which is the portion owned by minority shareholders, at HK$15.93 billion ($2.06 billion), and the entire share capital at HK$30.48 ($3.93 billion).

The new price was also more in line with the company's historical share price. At HK$4.20, the deal came at a discount of 7.7% and 9.5% to the company's 90- and 180-day historical averages before the announcement of the transaction on October 13, 2008. The new offer translated to a discount of 1.1% and 3% over the same period. 

Glass, Lewis and Co, an advisory company, had advised shareholders to reject the original deal, on the basis that PCCW's board had not given a satisfactory strategic rationale for the move. A special dividend that Li plans to pay himself after the privatisation was also a concern.

The new offer, however, won a lukewarm approval. "We believe the increase in consideration has served to address our primary concern regarding the financial terms of the proposed transaction," said the company in a note released in January.

"While we recognise that the revised offer may not be viewed at the 'ideal' price for a PCCW share, we are aware that deteriorating conditions have severely depressed comparable market valuations. Thus, the expectation of a significantly higher valuation in the current financial climate, or in the medium term, may be unreasonable," says the note.

The approval was also prompted by the fact that the major shareholders said they would not increase the offer further. And, if the shareholders had voted against the motion, it would have been impossible for PCCW to try for a privatisation again for another year. This was, in effect, the only obvious way for minority shareholders to get out of the company at a reasonable price.

The journey towards this meeting has not without its pitfalls. Earlier this week, the proposed vote was deemed suspicious by shareholder activist David Webb. On Sunday, he posted on his website that he had "compelling evidence" that there was an attempt to manipulate the outcome of the vote.

Webb claims to have received an anonymous tip-off that insurance sales agents, numbering in the "hundreds", had been given 1,000 PCCW shares in return for signing a proxy form that would allow their shares to be used for a vote in favour of the privatisation.

"It seems incredibly unlikely that several hundred people, most of whom happen to work for the same company, would separately, simultaneously and independently decide to transfer the same number of shares into their own name," wrote Webb on his website.

As a result, PCCW shares were suspended on Monday at the request of the company, since what it described as "speculative press reports" could be potentially price sensitive. Trading resumed on Tuesday with the company claiming that it had no knowledge of any inappropriate share transfers and that it would investigate its share register for the period of December 2008 and January 2009. It did admit though, that the process would take some time.