PCCW In Trouble Over Abortive Cable & Wireless Offer

by Mary Swire, Investors Offshore, Hong Kong

10 February 2003

Who put a curse on Cable and Wireless? This company, which ten years ago had an enviable world-wide telecommunications franchise in some of the fastest-growing small economies on the planet and a balance sheet to dream about, has transmogrified from cash-rich behemoth into everybody's powerless whipping-boy in just two years.

The latest humiliation for C & W came last week, when it was revealed that Hong Kong's uppity PCCW (Pacific Century CyberWorks) had offered the grand old man of telecommunications twice its current stock-market worth in December and had been rebuffed without so much as an invitation to take tea with the Chairman.

PCCW, which bought C & W's jewel in the crown, Hong Kong Telecom, three years ago in one of the last mega dotcom deals before the whole sector imploded, was saying officially over the weekend that it had not made a formal bid; but C & W, which still holds 14% of PCCW's much-deflated paper, has come under pressure from institutional shareholders to explain why it didn't at least explore the offer.

PCCW, it's true, had made any offer conditional on access to C & W's books, which was refused; but C & W had just owned up to a possible GB£1.5bn tax liability and was in the throes of losing both its long-time Chief Executive Grahame Wallace and 'great and good' Chairman Sir Ralph Robins. No doubt the new team wanted to get its collective feet under the table before giving the company (and their jobs) away, but with such extremely dissatisfied shareholders it seems cavalier at best to be so picky.

It's true of course that the Hong Kong company, headed by Richard Li, is still shaking itself free of its own damaged goods tag, but it seems the company had, and has, serious bank backing for a bid. C & W's shares rose after the news broke, suggesting that the markets don't dismiss Mr Li's interest quite as smartly as does Richard Lapthorne, C & W's new Chairman.

PCCW's regulator, Hong Kong Exchanges and Clearing (HKEx) is however unimpressed by the company's lack of disclosure, and its claim that HKEx had not asked for information.

"Throughout all of this we have not tried to mislead at all, and we have followed and adhered to every stock exchange and regulatory requirement," PCCW spokesman Martin O'Connor said yesterday. But HKEx spokesman Henry Law said: "It's not a matter of whether we ask or not. Listed companies have an obligation under the listing rules to fully disclose price-sensitive information in a timely fashion."

Credit-rating agency Moody's immediately placed the group's ratings on review for possible downgrade. "Previously the company had been focused on organic growth of its existing businesses but the recent takeover approach to C&W is evidence of an intention to now consider growth through acquisitions," Moody's said.

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