PCCW deal off after appeals court blocks deal
Apr 24, 2009
Victory for SFC and minority shareholders after investor withdraws controversial proposal
Regulators and minority shareholders in Hong Kong are celebrating a landmark victory after tycoon Richard Li withdrew his $2 bn proposal to privatize PCCW, his telecommunications company, a day after the deal was blocked by the city’s appeals court because of voting irregularities.
Hong Kong’s securities regulator, the Securities and Futures Commission (SFC), tried to stop the buyout after allegations of vote rigging relating to the distribution of shares to insurance agents were drawn to its attention.
The attempted buyout by the company’s largest shareholder had initially generated strong opposition from some minority shareholders, who believed that Li was trying to buy back the company on the cheap.
The deal was eventually approved at a shareholder meeting in February, even though trading in PCCW shares had been suspended by that point because of the vote-rigging allegations.
Hong Kong’s High Court cleared the deal to proceed on April 6, but that decision was reversed by an appeals court on Wednesday. Li announced a day later that he was letting his proposed buyout lapse because of the controversy it had stirred up.
‘The debate and subsequent litigation have not only brought an additional and unnecessary burden to the company but have also been unnecessarily divisive to society,’ Li, who is the son of Hong Kong’s wealthiest man, Li Ka-shing, said in a statement.
Hong Kong’s market regulators have long been accused of taking too relaxed an approach to the affairs of the city’s influential business elite and allowing them to run roughshod over minority shareholders, but the SFC has stepped up its activity over the last year or two and this is perhaps the regulator’s most high-profile success to date.
Martin Wheatley, chief executive of the SFC, was quoted by Reuters as saying that the appeal court’s decision ‘vindicates the SFC’s intervention in the court hearing to sanction the scheme and the ongoing investigation into allegations of malpractice and manipulation of voting at the shareholder meeting.’
David Webb, the independent shareholder rights campaigner who brought the vote-rigging allegations to the SFC’s attention, predicts that there will be further regulatory action in relation to the abortive PCCW buyout.
‘I’ve had a few victories in the 11 years that I’ve been doing this,’ the Hong Kong-based Englishman adds, ‘but there are still a lot of problems and the good days are outnumbered by the bad.’
Cas Sydorowitz, a managing director at proxy solicitation advisers Georgeson, says that companies will have to consider the rights of minority shareholders more carefully as a result of the PCCW judgment.
‘This case has put a spotlight on schemes of arrangement in Hong Kong, and regulators and investors will be looking into these more carefully in future,’ he comments. ‘Hiring a proxy solicitor is a far better way to ensure the success of any deal.’
By Ben Bland