New battle looms for C&W's prized Hong Kong asset

SingTel and Rupert Murdoch's News Corp appear poised to gatecrash PCCW's audacious deal to snare Cable & Wireless HKT

It looks as though the battle for control of Cable & Wireless's most valuable asset is far from over. The government-controlled Singapore Telecommunications (SingTel) and Rupert Murdoch's News Corporation may be making another run at Cable & Wireless HKT, the Hong Kong-based telecommunications utility.

Rumours of a renewed bid by the two companies emerged on Tuesday in New York. Yesterday they were given credence by an equivocal statement from SingTel. Lim Seng-jin, the company's spokesman, drew attention to the position adopted on 29 February when it conceded defeat to Hong Kong-listed Pacific Century CyberWorks (PCCW) led by Richard Li, but said it "may reconsider its position in light of the progress of the proposed offer". "Our position hasn't changed," he said.

Analysts too, said a fresh offer was very possible. "It's a credible story," one head of telecoms research said. "I think [C&W] will be open to offers if SingTel comes in with an attractive bid."

PCCW valued HKT at $35.9bn (£22.7bn) in a combined cash-and-share offer, or $38.1bn in an all-paper alternative. However, the crash in hi-tech shares has sharply reduced the value of the offers. The PCCW approach was based on a share price of HK$22.15 (£1.80); at the close of trading yesterday the company's shares stood at HK$12.95 or over a third below the offer price. The SingTel-News Corp consortium are believed to be looking at an offer in the region of $30bn.

In January, SingTel triumphantly announced that it had struck a deal with C&W, which controls 54 per cent of HKT's equity. However, this deal was a merger which would have made C&W the second-biggest shareholder in SingTel, rather than allowing the UK company to cash in on its investment in the Hong Kong company and use the money to seek other opportunities.

The C&W board in London kept assuring SingTel that its offer was proceeding smoothly, even after Richard Li started talking about a strategy which would provide an exit for C&W. Worried, but not unduly alarmed, the Singaporeans decided it would be expedient to take on some additional firepower and, the day before PCCW snatched the deal from under their noses, they brought in News Corp as a $1bn investor and strategic partner in what they assumed would be a merged company.

The Singaporeans felt they had been cheated, not least by HSBC Holdings, which had been acting as an adviser to HKT's independent directors and thus had access to all the confidential documents in the deal. HSBC's Asian investment bank then announced that it was leading the syndicate to furnish PCCW with Asia's biggest-ever loan facility enabling the Hong Kong company to finance the takeover.

As C&W has proved fickle once, it is not impossible that it will be so again. Yesterday Alex Arena, PCCW's managing director, said, "Cable & Wireless have made it quite clear that they have no intention of revisiting the transaction."

This statement is very similar to one issued by SingTel just a week before C&W dumped its offer. SingTel had failed to take account of the power of a desperate rearguard action launched by the HKT board, under its chief executive Linus Cheung. They were furious that the deal was being made over their heads and, probably rightly, feared that the local management would be squeezed out of the new company.

With the help of the company's highly influential independent directors, they launched a search for a rival bidder. At this point politics came into play as the directors warned of the dangers of Hong Kong's largest telecomms utility coming under Singaporean government control. This was a potent argument in Hong Kong, which is forever looking over its shoulder at Singapore.

Moreover, the independent directors were joined by Li Ping, the head of the Chinese state-controlled China Telecom (Hong Kong), which has an 11 per cent stake in the company. The involvement of Mr Li (no relation) in the search for an alternative bidder gave the impression that the directors had Chinese government backing. When the state-controlled Bank of China International joined PCCW's advisory team, alongside Warburg Dillon, it looked even more as though the search for an alternative to SingTel had some powerful political backing.

A senior HKT executive has confirmed that their first port of call was a visit to Li Ka-shing, Hong Kong's most powerful businessman. Mr Li was not interested but his youngest son, Richard, soon became very interested.

In the space of less than a year Richard Li had made PCCW one of Hong Kong's biggest companies in terms of stock-market value. True, PCCW had yet to earn a penny but in February, when the hi-tech bubble had yet to burst, earnings were not considered to be a litmus test of anything. Just two months on much has changed, PCCW's shares are worth less half their value when they peaked at HK$28.5 on 15 February. Richard Li's company is not exactly spiralling out of control but is now floundering. Some of the deals made during the year long deal-making frenzy are falling apart.

Meanwhile, a PCCW spokeswoman said yesterday that the company was "not worried". She said: "We're not aware of any other bidders or any change in sentiment."

However, the PCCW deal is far from signed and sealed. It has yet to be put to HKT's minority shareholders and the independent directors who were so influential in blocking SingTel's first attempt, have yet to provide a recommendation.

SingTel may be thwarted again and Rupert Murdoch, who joined the Singaporeans with uncharacteristic bad timing, may pursue his current overtures to Richard Li, who he first met when negotiating the purchase of the loss-making Star TV, the Asian-based satellite television service.

HKT's shares rose just over 4 per cent to HK$17.85 in Hong Kong yesterday, while in London C&W gained almost 5 per cent to close at 1,058p.