22 June 2006
Allure of Hong Kong's PCCW Underscores Vision of CEO Li
By Peter Stein and Evan Ramstad
The Wall Street Journal
(Copyright (c) 2006, Dow Jones & Company, Inc.)
Richard Li's role at the center of a possible bidding war for his Hong Kong phone company testifies to his success at generating buzz around a long-derided concept: convergence.
PCCW Ltd. confirmed yesterday that it had received two expressions of interest for the company's major telecommunications and media assets, one from Macquarie Bank Ltd. of Australia and the other from U.S. private-equity firm Texas Pacific Group and its affiliate Newbridge Capital Inc. PCCW didn't disclose the value of any possible deal with either group.
China Netcom Group Corp., which last year acquired a 20% stake in PCCW and has three seats on the company's 17-member board, opposes any changes in PCCW's assets or shareholding structure.
Several factors explain PCCW's appeal, including steady cash flow and a stock price that remains more than 95% below its peak six years ago.
But PCCW's biggest draw may be convergence. The computer, television and phone industries are increasingly intersecting, and PCCW has been positioning itself to profit from that trend. Already Hong Kong's leading provider of fixed-line telephone-service and broadband Internet access, its broadband pay-TV service has grown into a major competitor to the city's cable-TV industry.
Within Hong Kong, China's wealthiest city, PCCW "is going to be the dominant carrier in fixed-line, broadband and pay TV in two years' time," says Vivek Couto, an analyst with Media Partners Asia.
This is not the first TV venture for Mr. Li, the 39-year-old chairman and chief executive of PCCW. The younger son of Hong Kong billionaire Li Ka-shing made his mark in the early 1990s by developing an Asian satellite-television network called Star Television Ltd. that he then sold to media mogul Rupert Murdoch's News Corp. for about $870 million.
Mr. Li next built a start-up venture then called Pacific Century CyberWorks that snapped up stakes in Internet companies. The value of his shares soared along with that of the company's holdings. PCCW become one of the biggest companies in Hong Kong by market capitalization.
Mr. Li then launched a takeover bid for the Hong Kong-listed telecom subsidiary of Cable & Wireless PLC of the U.K. Beating back a rival offer from Singapore Telecommunications Ltd., Mr. Li sealed a deal in March 2000 for cash and shares valued at around $28.5 billion at the time the deal closed.
His timing was terrible. Within months the tech-laden Nasdaq Stock Market began its year-long decline as the technology and telecom boom came to an end. By early 2001, PCCW's share price had fallen more than 90% from its peak of a year earlier.
But three years after Mr. Li's takeover of Cable & Wireless HKT, the company reached a turning point as it prepared to launch its untested broadband pay-TV service. The key: Developing a signal decoder box that cost $10 to build, compared to $100 for fancier boxes. PCCW supplied the box to customers free, jump-starting its nascent TV business.
Today, PCCW's broadband-TV service delivers about 100 TV channels to more than 550,000 households, more than any other phone company in the world. The company expects the TV service to turn profitable later this year for the first time.
A deal that lets PCCW sell its core assets would hand Mr. Li, who effectively owns about 20% of PCCW's shares, a large chunk of cash with which to pursue other businesses.