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Hong Kong Telecom (8)
Pacific Century CyberWorks (1186, PCC) announced that an approach was made to merge with Hong Kong Telecom (8, HKT). The company proposed a mixture of cash and PCC shares, but no exact figures were released.
As stated in our previous article (please click here), PCC is eyeing HKT's network. The company said in the announcement that "HKT's prime quality broadband network together with PCC's broadband internet content proposition would create an undisputed Asian internet powerhouse...the potential for substantial value creation from revenue synergies".
Cheung Kong (1) and Hutchison (13) had already announced that they would not join the bidding consortium. But South China Morning Post reported that Hikari Tsushin would be a possible candidate.
Though the handsome prince is making a formal proposal, the beautiful princess HKT said the talks between the company and Singapore Telecom (SingTel) still continued.
PCC is not necessarily a better choice over SingTel, as the synergy to be created with HKT is in doubt. But except for rumours, no concrete terms has yet been put on the table. We cannot assess if the proposed merger is beneficial to both companies or not.
However, SingTel is a profit maker, which is an absolute advantage over PCC. With a capitalization of about US$26 billion and a manpower of 12,000 staff, the company earned US$1.2 billion in the last financial year, against US$1.5 billion profit of HKT. Should it merge with HKT, the dilution of earnings per share will not be too significant. Moreover, the combined company should enjoy economies of scale. They can share their resources and perhaps lay off redundant staff.
In addition, SingTel can also bring in Europe's largest telecom company Deutsche Telekom as a strategic partner. Deutsche Telekom has the densest optical fibre network in the world, which can transfer 2.5 gigabits of data per second. The technologies of HKT and SingTel will both be enhanced.
On the other hand, there should be more executive problems in the merger between PCC and HKT. For example, HKT is the largest employer after the government in Hong Kong, while the staff size of the fast-growing PCC is still under 500. The 2 management boards should have difficulties in adjusting each other¡¦s corporate culture, as well as the strong personalities of Richard Li and Linus Cheung.
The other important issue is political implication. If the Chinese government wants to extend is influence in ASEAN, this Singaporean acquisition would be acceptable. The Hong Kong government should also consider the influence of the K.S.Li family in Hong Kong. Under his umbrella, Cheung Kong and Hutchison are close to monopolizing the Hong Kong market. The whole group is already a major property developer, electricity supplier, port operator and supermarket operator, as well as potentially the leading telecoms manager.
Trading of both shares were suspended last Friday but HKT is expected to resume today, whilst trading in PCC is delayed pending a placement issue.
CyberWorks Rumoured to Place Shares
Feb 14,2000 - 10:57:11 HKT
Pacific Century CyberWorks' (1186) suspension continues this morning pending the issue of an announcement in relation to a top-up placement of shares. A market source said it will first place 250 million shares, following with an additional of 85 million shares probably, at $23.50 per share
Kaufempfehlung unter www.finet.com.hk/cgi-bin/research/...i?name=20000214_1186_scbg