March 10 (Bloomberg) -- PCCW Ltd., linked to a police probe following a court ruling that a buyout bid by Chairman Richard Li had been manipulated, said investors at Hong Kong’s biggest phone company should consider the takeover plan as “dead.”
“You can take it that the privatization is dead,” Managing Director Alex Arena told reporters yesterday after announcing a 38 percent rise in second-half profit. “From the PCCW perspective, PCCW knows of no privatization arrangements.”
Hong Kong police last month searched at least two companies in its investigation of Li’s HK$15.9 billion ($2.1 billion) buyout bid, and obtained search warrants for the residences of the billionaire executive, according to two people familiar with the matter. Local securities rules permit the 43-year-old son of the city’s richest man to file a new takeover offer for PCCW as early as next month.
“There may be no plan at this moment, but no one can rule out anything in the future,” said Timothy Chan, who rates PCCW shares “sell” at CLSA Ltd. “If you look at the company’s track record, you will find that corporate actions occur very frequently.”
Profit increased as cost cuts helped offset falling telecommunications income, according to figures the company reported yesterday. Arena also said the phone carrier will receive a $250 million dividend from property unit Pacific Century Premium Developments Ltd.
Special Dividend
PCCW rose 3.6 percent to HK$2.29, the highest since Jan. 20, as of 11:56 a.m. in Hong Kong, extending its gain this year to 22 percent, compared with a 2.8 percent decline in the city’s benchmark Hang Seng Index. Pacific Century Premium shares rose 20 percent to HK$2.91, after the developer yesterday said it will pay a special dividend of HK$1.32 a share to investors.
Li, son of Hutchison Whampoa Ltd. Chairman Li Ka-shing, would be allowed to make a new buyout offer a year after April 23, 2009, the expiry date of his previous bid, Citigroup Inc. said in a report the same month.
“The point about the 12 months anniversary is all academic,” Arena said. “There is no plan I know of in the pipeline.”
PCCW’s second-half profit rose to HK$852 million from HK$616 million, based on figures Bloomberg derived from full- year earnings the company reported yesterday, as cost cuts helped offset falling telecommunications revenue. That compared with the HK$832 million median estimate of three analysts
Boost Support
The joint buyout bid by Li and China United Network Communications Group lapsed in April after the Court of Appeal ruled in favor of the Securities and Futures Commission, which alleged that hundreds of people were given PCCW shares to boost support for the deal.
Hong Kong police searched the offices of at least one of Li’s companies on Feb. 10 in addition to the premises of Fortis Insurance Co. (Asia), an insurer formerly controlled by Li, two people familiar with the matter said last month. Police had search warrants for Li’s residences as of Feb. 10 in its investigation of the PCCW buyout bid, according to the people.
It’s “entirely inappropriate” for PCCW to comment on the police probe given the lack of “formal” statements from law enforcement agencies and regulators on this matter, Arena said.
PCCW cut jobs and lowered spending on networks to weather a 9.7 percent fall in phone and broadband services revenue, which was eroded by a year-long recession in Hong Kong and the expiry of a government-mandated interconnection fees arrangement.
Revenue Declined
“The company has cut its operating costs and enhanced” profit margins, HSBC Plc analyst Walden Shing wrote in a report after the earnings announcement. Revenue declined “because of pressure on its fixed-line division,” he said.
Telecommunications services revenue, derived mainly from sales of fixed-line and broadband Internet services, fell to HK$8.05 billion in the second half, from HK$8.91 billion a year earlier, PCCW said.
Hong Kong mobile-phone carriers stopped paying charges to connect calls from their users to landlines after the Office of Telecommunications Authority ended its fixed-mobile interconnection program last April. The change cost PCCW $40 million last year, Arena said.
--Editors: Mark McCord, Suresh Seshadri.
To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net
