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PCCW's Share Price Falls Another 5% After Taiwan Deal Comes Apart

Mary Swire, Tax-news.com, Hong Kong

11 September 2000

Pacific Century CyberWorks confirmed on Friday that Taiwan's Gigamedia had pulled out of the proposed joint venture with ERA Communications to produce Chinese-language Internet content. PCCW's share price fell 4.69% to HK$13.20, 25 per cent below its most recent high of HK$17.70.

Under the three-way joint venture announced in May, GigaMedia and CyberWorks agreed to invest US$50 million each to acquire an 8.9 per cent stake in ERA from chairman Chiu Fu-sheng.

Robert Chan, chairman of CyberWorks' Greater China business, said yesterday GigaMedia - the broadband Internet unit of conglomerate Koo's Group - was dissatisfied with taking a minority stake in the venture. The plan had been for GigaMedia to form a 55:45 content-distribution joint venture with ERA that would then form a content-provision joint venture owned 55 per cent by CyberWorks.

Mr Chan said GigaMedia later demanded a majority stake in the content joint venture, while CyberWorks also insisted on a controlling stake. CyberWorks now plans to form a new 55:45 joint venture with ERA alone, Mr Chan said.

CyberWorks will pay US$50 million for an 8.9 per cent stake in ERA from Mr Chiu, while CyberWorks and ERA will each invest about US$10 million in the new joint venture, which is expected to launch Chinese-language content in January with annual production of about 700 hours of video programmes.

PCCW's share price seems to fall on good news and bad alike, probably because of the overhang of its shares in the hands of Cable & Wireless. C&W ended up with the 20% stake in PCCW when it sold Hong Kong Telephone recently. C&W is expected to sell a 4.9 per cent stake by November 15th under the terms of the original deal, and is allowed to sell a further 7.4% when a six-month lock-up ends in February 2001.

Another negative factor for PCCW is its debt of US$12bn in the wake of the HKT acquisition. Although the deal with Telstra announced last month should provide US$3bn in cash for PCCW, analysts don't like the company's fundamentals. HKT should generate profits of US$1.5bn, but PCCW's earnings and cash-flow are both negative, and HKT's business is under heavy pressure from Internet rivals - PCCW among them.

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