Phone
The judgment yesterday overturned a lower-court verdict on April 6, threatening to derail Lis five-month effort to buy the citys biggest phone company. PCCW said in a statement it was “disappointed” and would study the outcome before commenting further. Li, who didnt respond to an e-mail seeking comment, and his co-bidder have the right to appeal.
The ruling is a victory for the local markets regulator, which had sought to block the deal on claims that PCCW stock was improperly given to hundreds of investors to boost support for the bid. The ruling prevents PCCW Chairman Li, son of Hong Kongs richest man, from buying out dissenting investors after a 97 percent slump in the companys shares in the past nine years.
“Its a good ruling for minority shareholders,” said Ronnie Tong, a member of Hong Kongs Legislative Council. “Additional safeguards should be enshrined in legislation through changes in corporate law.”
Li on Feb. 4 received the support of more than 1,400 PCCW stockholders, compared with about 850 against, allowing him to clinch the required majority of participating investors votes. The “headcount rule,” designed to help minority shareholders, must be met in addition to 75 percent of shares represented for acquisitions to be approved in Hong Kong.
Vote Rigging
The Securities and Futures Commission began its probe on the buyout after shareholder activist David Webb lodged a complaint claiming the Feb. 4 vote was rigged. More than 800 people became registered as PCCW shareholders shortly before the ballot after some investors divided their holdings and distributed them to hundreds of agents at Fortis Insurance (Asia) Co., a company previously owned by Li, according to the regulator.
Judges Anthony Rogers, Johnson Lam and Aarif Barma at the Court of Appeal unanimously ruled yesterday in favor of the commission and said theyll explain later. The decision overturned an April 6 ruling by Court of First Instance Judge Susan Kwan, who cleared the deal on grounds that “share splitting” was legal in Hong Kong.
Malpractice and Manipulation
The decision “vindicates the SFCs intervention in the courts hearing to sanction the scheme and our ongoing investigation into allegations of malpractice and manipulation of voting at the shareholders meeting,” Martin Wheatley, chief executive officer of the commission, said after the ruling.
PCCW shares have been suspended from Hong Kong trading since the court hearing started on April 16 and last traded at HK$4.12, below the HK$4.50 a share offered by Li and co-bidder China United Network Communications Group Corp., which is also a shareholder in the phone company.
The stock has plunged from a split-adjusted peak of HK$131.75 in 2000. That year, Lis Internet startup, Pacific Century Cyberworks Ltd., took over Hong Kongs former telephone monopoly, creating a company valued at about $41 billion.
Exit Opportunity
The buyout offer gave PCCW shareholders concerned about the companys “short-term prospects” an opportunity to exit their investments, Denis Chang, a lawyer for Lis Pacific Century Regional Developments Ltd., told the court this week.
PCCW reported on April 21 a 15 percent decline in annual profit that missed analysts estimates as Hong Kongs recession reduced demand for phone services. The shares traded as low as HK$2.51 on Oct. 13 before the buyout plan was announced.
Li, son of Cheung Kong (Holdings) Ltd. Chairman Li Ka-shing, made his buyout bid after the company failed to sell a stake in its main phone assets to private equity investors in October as global markets slumped.
Webb, who lodged the complaint to the commission, welcomed the courts ruling.
“The government needs to move quickly to remove the head- count requirement from the legislation because its open to manipulation,” said Webb, formerly an independent director at Hong Kongs stock exchange. “People who try that would be more subtle about it in the future.”
Fortis Votes