Saturday, November 08, 2008

PCCW - going private

Time to Make the Break From PCCW

It's time, at last, for shareholders to make a clean break with PCCW and its Chairman Richard Li.

A Singapore-listed company Mr. Li controls, and PCCW's other major owner, China Network Communications Group, have offered to buy the 52.4% of the Hong Kong telecom company they don't already own for HK$4.20 (54 U.S. cents) a share.

That's generous by some measures. It's a 53% premium to the stock's price when trading was halted in mid-October.

Some, though, are balking. The offer price is well below PCCW's average trading price in past months and years, and some expect that Mr. Li and China Netcom will be able to flip the company at a much higher price -- once markets are healthier.

That prospect would be particularly difficult for PCCW's long-term backers to stomach. In its hey day, the stock traded well over HK$100. For their persistence these shareholders have received very little. Until this week's offer, PCCW's shares in recent years have underperformed the Hang Seng Index.

With Hong Kong facing difficult economic times, the company's prospects don't look much better. Most of PCCW's business is in that city, which has a mature telecom market.

Rather than using that base to leap into Asia's faster-growing telecom markets, PCCW has had to spend the last few years using excess cash to pay down a huge debt burden.

Asia offers telecom and media investors plenty of compelling opportunities -- namely in mobile operators in China. The $4.20 offer values PCCW well above these -- at 12.4 times expected earnings compared to an average of 10 times at China Mobile, China Unicom and China Telecom.

Accepting the current offer will leave many PCCW shareholders in the red.

But it's also a chance to break with PCCW, at a price the stock may not see for some time, and move on to better opportunities.

No comments: