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Posted at 8:13 a.m. PST Tuesday, February 29, 2000

Pacific Century wins biggest Asian takeover BY DAVID LAWDER

HONG KONG (Reuters) - Pacific Century CyberWorks Ltd. won the battle to buy Cable & Wireless HKT on Tuesday with a US$35.9 billion cash-and-share deal, clinching Asia's biggest ever takeover and confirming the power of Internet companies to reshape the corporate world.

The nine-month old startup beat rival bidder Singapore Telecommunications Ltd. to an agreed offer with C&W HKT's 54 percent shareholder Cable & Wireless Plc, transforming PCCW from an Internet pipe dream to telecoms powerhouse.

The takeover puts the future of one of Hong Kong's oldest and largest companies in the hands of a brash startup founded by Richard Li, the 33-year-old son of Hong Kong's best known tycoon, Li Ka-shing, rather than with Singapore's cash-rich government-controlled phone company.

The deal offers a choice of all shares or a mixture including cash and will hand C&W about 5.0 billion pounds ($7.90 billion). Analysts expect the British company, with its global corporate Internet business, will become a takeover target once the deal completes around August.

PCCW Group Managing Director Alex Arena, a former Hong Kong telecoms regulator, said the merger would create an Asian Internet, telecoms and multimedia giant with a market capitalization of US$70-80 billion.

The deal mirrors America Online Inc's merger with Time Warner Inc in that it marries content provider PCCW with the Internet distribution infrastructure of C&W HKT.

FROM CONCEPT TO REALITY

``Really, at this point, PCCW is just a concept. When they merge with HKT, they will get some real assets -- fixed-line, mobile and a broadband network,'' said Kim Eng Securities telecom analyst Alfred Li said.

PCCW offered US$38.1 billion in shares or US$35.9 billion in cash and shares for Cable & Wireless HKT. C&W said depending on the take up of the offer it will receive 3.8 billion to 7.1 billion pounds in cash and 11.2 to 20.9 percent of the new entity, to be called Pacific Century CyberWorks-Hongkong Telecom (PCCW-HKT).

C&W HKT will in addition pay its shareholders a special dividend of US$700 million before the deal completes.

C&W said it planned to sell four percent of PCCW's shares as soon as possible but it would hold the remainder for six months and sell no more than 50 percent in the following six months.

The all-share offer comprises 1.1 PCCW share per C&W HKT share, while the cash-and-share mix is $0.9290, or HK$7.23, and 0.7116 PCCW shares per C&W HKT share.

Cable & Wireless shares initially fell as much as seven percent amid disappointment that the company was not getting more cash and was taking a stake in an Internet company rather than Singapore Telecommunications Ltd. But they quickly trimmed their losses to 2.3 percent as analysts talked up the long-term benefits of the deal.

C&W HKT shares remained suspended on Tuesday at HK$25.95, giving the company a market capitalization of HK$314.49 billion (US$40.4 billion). PCCW shares also were suspended at HK$22.15, pegging its market value at HK$225.49 billion (US$29 billion).

The shares were expected to resume trading on Wednesday.

SingTel shares did trade on Tuesday, registering a rise of S$0.12 to S$2.80.

MURDOCH CANCELS PLANS

Rupert Murdoch's News Corp, which had offered to invest $1 billion in SingTel to sweeten its offer, swiftly cancelled its investment plans but said joint venture and investment opportunities with SingTel would continue to be studied.

Sources close to the talks, which began three months ago, said SingTel's proposal hit a snag over political concerns by some Hong Kong factions about Singapore gaining control of a major local utility.

Li told reporters he has ``no concrete plan at the current stage'' to sell any of C&W HKT's telecommunications businesses.

``I can't say what will happen a year, two years or three years from now because our main aim is to maximize shareholders interests,'' he said.

But Li added that he was not contemplating any layoffs and viewed C&W HKT's employees as important assets for expanding the telecommunications businesses.

PCCW is developing its own high-speed Internet service that will be beamed from satellites to cable television systems throughout Asia, to be teamed with a new satellite television channel called Network of the World. The services, however, are not scheduled to be launched until later this year.

With the acquisition of C&W HKT, PCCW gains one of the world's most sophisticated broadband delivery networks and more than half a million Internet subscribers.

C&W HKT also brings in considerable cash flow, with revenues of HK$32.41 billion (US$4.17 billion) and profits of HK$11.51 billion (US$1.48 billion) in its last fiscal year.

(With reporting by Richard Baum in London)

-- canthappen (n@ysayer.com), February 29, 2000