A CASE STUDY ON THE MERGER OF

PACIFIC CENTURY CYBERWORKS LTD AND CABLE & WIRELESS HKT LTD

by

LEE KA WING

李家榮

LIU CHI NGAI

廖志毅

MBA PROJECT REPORT

Presented to

The Graduate School

In Partial Fulfilment

of the Requirements for the Degree of

MASTER OF BUSINESS ADMINISTRATION

TWO-YEAR MBA PROGRAMME

THE CHINESE UNIVERSITY OF HONG KONG

May 2001

The Chinese University of Hong Kong holds the copyright of this project. Any person(s) intending to use a part or whole of the materials in the project in a proposed publication must seek copyright relaease from the Dean of the Graduate School,

""""""wiiiTY~/^/J

A P P R O V A L

Name: Lee K a Wing and Liu Chi Ngai

Degree: Master of Business Administration

Title of Project: A case study on the Merger of Pacific Century

Cyber Works Ltd and Cable & Wireless H K T Ltd

N a m e of Supervisor: Professor Leslie Young

Signature of Supervisor: ^ y / ^ ^ y C y ^ ^ ^ ^ ^ ^ ^ ^ ^

Date Approved: // A L a ^ /

i

Abstract

This paper begins with the idea on examining the market efficiency and corporate

governance of the most sizable merger and acquisition, amounted to USD38.1 billion, in

the history of Hong Kong, namely P C C W & C & W H K T . Both companies are highly

reputable in the region and the merger was widely recognized as a big leap-forward to

both companies. Some analysts thought that the merger would bring a number of positive

impacts such as synergic effects, broader market bases, more varieties on products and

markets and stronger financial position to the combined company. All this optimism was

reflected in the cumulative abnormal returns of both P C C W and C & W H K T , which were

once as high as 27.45 percent and 32.45 percent respectively. Unfortunately, the market

sentiments turned upside-down, the cumulative abnormal returns of P C C W and C & W

H K T sagged to -16.41 percent and -1 1.57 percent correspondingly two clays after the

acceptance of the offer by the parent company of C & W H K T . In August, the merger was

complete and P C C W had successfully raised the huge amount of debt’ U S D 12 billion,

from the regional banks for the deal. However, the story has not yet ended, scandals of

P C C W keep spreading the city such as unnoticed changes in accounting treatment and

falsified biography of Richard Li, the Executive Chairman of P C C W , in its annual report.

The merger seemed to have done no good to shareholders. Share price of P C C W

declined from HKS16.0 at the dale of merger to around HKS2.4 as at 10 April 2001. The

plunge was not only due to the burst of the Information Technology bubble but also the

series of disappointing moves done by top management of P C C W .

ii

T A B L E O F C O N T E N T S

A B S T R A C T j

T A B L E O F C O N T E N T S

Chapter

I. I N T R O D U C T I O N 1

II. C O M P A N Y B A C K G R O U N D 3

Pacific Century CyberWorks Limited 3

History 3

Major Business 5

Performance 7

Management of P C C W g

Shareholdings Distribution (Prior to the merger) 9 Cable & Wireless H K T ::10

History 丨(）

Major business 11

Performance 12

Shareholdings Distribution (Prior to the merger) 13

III. R H A S O N S F O R T H E A C Q U I S I T I O N 14

IV. M A J O R E V E N T S I7

Compclilivc bid by SingTel | 7

Anangcmenl tor the USS12 billion loan IS

The Composite Document 19

Stoi ics Behind the OtIcrs (Prior lo the Vlcr jcr) 20

Probable strategy of C & V V behind the acccplancc 21

V. F I N A N C I N G P A C K A G E 24

P C C W F:c)uily Funding 24

P C C W Loan Rinding 25

VI. A N A L Y S I S O N T H E E F F E C T S O F C O R P O R A T E A X N O l ' N C H M E N T S ... 27

Market Efficicncy 27

Methodology 28

AnnoLinccmcnls 29

VII. A F T E R M A T H

Financial F\Ml"orniancc 3 |

iii

What Went Wrong? 32

Economic and Corporate Governance 34

A P P E N D I X 39

B I B L I O G R A P H Y 46

1

CHAPTER I

INTRODUCTION

Mergers and Acquisitions ( M & A ) have spread all over the world in the past

decade, especially in the telecommunications industry. A number of impressive M & A

happened in Europe in the late 1990s such as the merger between the two European

giant- telecommunications companies, namely Vodafone and Mannesmann. Hong

Kong is not immune form this M & A fashion. The most stunning one was the

USD38.1 billion merger, the historical second-biggest in Asia, between the regional

telecommunication company, Cable and Wireless H K T ( C & W HKT), and the barely

10-month old Internet company, Pacific Century Cyber Works Limited (PCCW).

The merger sparked on 11 February 2000, the date that P C C W made an offer

to Far East ( C & W FE), in purchasing all its 5 4 % holdings in C & W H K T . P C C W was

set up in M a y 1999 for the sake of the backdoor listing of the territory's controversial

Cyberport development projects. C & W H K T had been at the heart of Hong Kong for

more than half a decade providing all sorts of telecommunication services to both

individual and institutional clients. In this case study, the historical and financial

backgrounds of two companies are discussed first. In the second chapter, a number of

reasons for the acquisition are proposed as the general recognized motivations behind

the merger. In the third chapter, the major events between the proposed date and the

formal merger date, including the bid made by P C C W , are examined. In the fourth

chapter, the financial packages are discussed and the authors would adopt the

abnormal return model to examine the market efficiency of the stock market of Hong

Kong in response to the news of the merger. To sum up. aftermath of the case is

2

discussed at the end of the paper in which the authors found that there were a few

worth mentioning stories about the Corporate Governance of P C C W in Hong Kong.

3

CHAPTER II

COMPANY BACKGROUND

Pacific Century CyberWorks Limited

History

‘Pacific Century CyberWorks Limited' ( P C C W ) was one of the most

legendary and influential blue chips in Hong Kong. Its stock price moved like a roller

coaster, as shown in Figure 1, from approximately H K $ 5 per share at the end of 1999

to the historical high of roughly H K $ 2 6 in April 2000 and then plunged back to

around H K $ 5 at the end of 2000. The story was not only composed by the reputation

of its founder, Richard Li, one of the billionaires in the region, but also the

astonishing and unprecedented acts that it had done, namely the acquisition of the

traditional giant regional telecommunications company - Cable & Wireless H K T

(HKT).

Figure 1: Stock Price of PCCW

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30 , -------. .. ....

! 15 — I 10 - \ _ ‘

！ “ ‘““ — ― ―

0 ‘ _— I —1 — r— 1 I — ：- -- I

I I Source: DataStream D a t e :

- - - _ - - … — … - . _ ,'

P C C W was set up in M a y 1999 by acquiring and renaming a small listing

company namely "Tricom" in the Stock Exchange of Hong Kong. The founder of

4

P C C W Richard Li said that "In the simplest terms Pacific Century Group aims to be

the leading Internet investment vehicle in the Asia-Pacific region, both by acquiring

and funding net ventures and by developing our own businesses." So, it was once

very aggressive in acquiring or forming alliances with the other regional or

multinational Internet companies to achieve its goal.

The myth started from the M a y of 1999 when Richard Li invested H K D 2.46

billion in acquiring Tricom Holdings Limited for the sake of the backdoor listing of

the territory's controversial Cyberport development projects which worth U S D 1.68

X billion. Basically, it was a property development project. W e would further described

in the 'Major Business' section. As a result, the stock price of Tricom was

skyrocketing hundred-fold after the announcement. The newly formed company was

then renamed as P C C W .

P C C W has raised the attentions from all over the world. Barely 3 months after

its birthday, the global chip-producing giant Intel made an announcement in August

1999 that it would invest US$50 million in P C C W and supply chips, software and

systems to form the backbone of the new company's broadcast and Internet business.

The investment, combined with Intel's share of the earlier joint venture “Pacific

Convergence", would give the chipmaker a 13 percent stake in P C C W . Other than

that, in September 1999, P C C W and NASDAQ-listed C M G I , the world's largest and

most diversified network of Internet companies, agreed to a USD350 million equity

swap.

1 Interview with Richard Li, by Runckel & Associates December 1999

5

O n 11 February 2000, P C C W has made a quantum leap in its business

development, it made an offer to the parent company of C & W H K T , the British-hold

Cable & Wireless Far East ( C & W FE), in purchasing all its 5 4 % holdings in C & W

H K T . Less than three weeks after making the offer, the British accepted the offer and

P C C W had outbid its competitor Singapore Telecom. This type of merger and

acquisition was unprecedented in Hong Kong as P C C W was barely 10 months old

and had to raise US$12 billion to acquire C & W H K T , which was a huge amount in

the history of the financial market in Hong Kong. After all, the merger was approved

by the regulatory bodies, and the shares of C & W H K T was delisted from the S E H K

on August 8，2000. O n 17 August 2000, P C C W replaced C & W H K T as one of the 33

blue chips in S E H K .

With the booming of the global Information Technology-stock market, the

share price of P C C W had once raised from a penny to the highest HKD28.5 on

rumors of C & W H K T takeover in February 2001.

Major Business

Prior to the acquisition, the principal activities of P C C W and its major

subsidiaries were investment in and development of technology-related businesses.

Investment in and development of a project to provide essential infrastructure for the

formation of a strategic cluster of Information Technology (I.T.) and I.T.-related

companies (the well-known "Cyberport Project") and investment and development of

properties in the Hong Kong Special Administrative Region ( H K S A R ) and the

People's Republic of China. About 8 0 % of its operating profit in Year 1999 were

investment income from Internet-related business.

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To further illustrate, its activities are summarized in the folio wings:

L Cyberport Project

Cyberport Project was actually a construction project assigned by the

government of H K S A R in the wake of catching up the others in the information

technology development. P C C W was responsible for designing, developing,

constructing and marketing the Cyberport. The major property developers in Hong

Kong once complained the deal as the contract went directly to P C C W without

any formal bidding. The project offered a mix of commercial, business,

educational and recreational facilities to be completed in stages during 2002-2003.

The residential portion would be completed in phases during 2004-2007. These

unites would be for sale. The proceeds, after development and financing costs of

the whole project, were to be shared by P C C W and the Government of H K S A R .

2. Network of the World (NOW)

Generally speaking, N O W was a content provider, it was aiming at combining

the capabilities of television, personal computer and World Wide W e b by

integrating television programming with synchronized multimedia content such as

video clips, animation, graphics and text available on the internet. This was in

service on 20 June 2000 and a number of popular cable TVs in the region have

already carried its services such as the Interactive Television Service (iTV) of

Hong Kong Telecom.

3, CyberWorks Ventures

CyberWorks Ventures was the group's investment arm. Its goal was to

become one of the leading Internet entity in Asia. The division proactively

7

identified key areas for investment, obtained equity stakes in promising Internet

businesses, took steps to maximize investee companies' growth potential and

leveraged their technical expertise and worldwide locations. For example, it has

4.65% stake in Sohu.com, China's first and largest W e b portal and is listed in the

N A S D A Q market in the United States.

Performance

Since the company had only been in service since 1999, there was no

meaningful internal comparison for the company in terms of financial ratios. However,

w e could still take a glance at them.

Table 1: Financial Data ofPCCW, 1998-1999

Dec. 31,1999 Dec. 3 1 , 1 9 ^

Profit after Tax (HK$ million) 353 (61) Return on Assets 2.49% (17.79%) Return on Equity 3.06% (54.58%) Long-Term Debt/Equity 9.43% 16.79% Pre-Tax Profit Margin 231.91% (21.67)% Current Ratio 4.42X 0.78X Earning/(Loss) per share HK$9.99 (HK$13.44) Source : 1999 Annual Report ofPCCW

Referring to the table, there was a significant difference between the ratios in

1998 and the ones in 1999 and the major reason is that those ratios in 1998 were

solely reflecting the performance of Tricom. For the fiscal year end 31 December

1999, P C C W had an exceptionally high Pre-Tax Profit Margin of 231.91%. It was due

to the fact that it changed its accounting policy in classifying investments as current

assets instead of the traditional-practice as Long-Term Investments. According to the

Statement of Standard Accounting Practice of Hong Kong Society of Accountants, if

an investment was classified as a long-term one, no unrealized gains were allowed to

8

record under the Income Statement. O n the other hand, as P C C W did, by classifying

the investments as the current assets, the unrealized gains could be considered as an

income and stated under the Income Statement and that figure was approximately 537

million in 1999.

Management of PCCW

It had been widely accepted that the management of a company was crucial

for the future of a business. Influences from top management ranged from strategic

planning to the daily operations of the business. Furthermore, there was a c o m m o n

goal of management across all types of business, which was to achieve the highest

value for shareholders. So, as a result, w e thought that it was worthwhile to have a

layout of the managerial structure of P C C W .

The Executive Chairman

Richard Li was the younger son of the Asia Tycoon Li K a Shing and had

studied computer engineering from Stanford University for 3 years, with one year left

before the formal graduation. His father, dubbed "superman" by the local press,

headed the two of the most influential giant companies in Hong Kong which were

Cheung Kong (Holdings) Ltd. and Hutchison W h a m p o a Ltd. These two companies

had interests including property, utilities, container port operation, supermarkets, a

retail electronics chain and gasoline stations. Having inherited his father's wealth,

Richard invested U S D 125 million, which was came from his father, in launching Star

T V in 1990, Asia's first satellite delivered cable television system. After 3 years, in

1993, he sold the whole business to media baron Rupert Murdoch's News

9

Corporation at U S D 9 5 0 million. That brought Richard Li the capital to set up Pacific

Century Group in October of that year engaging in developing digital media, financial

services and infrastructure. Most recently, other listed companies under the group

include Singapore-listed Pacific Century Regional Developments Limited (PCRD),

Hong Kong-listed Pacific Century Insurance Limited, and P C C W . The USD38.1

billion cash and share offer made between P C C W and C & W FE came second

regarding Merger and Acquisition in Asia, which is after the union of Bank of Tokyo

and Mitsubishi Bank which amounted to US$38.3 billion.

Shareholdings Distribution (Prior to the merger)

CMGI PCG/PCD PCRD Intel Public

3.24 ^ 52.2»/. 28.7«/c

PCCW

Source: Explanatory Statement, Proposed Acquisition Scheme to HKT, 2000

According to the 2000 interim report of P C C W , Li Tzar Kai, Richard held the

entire issued share capital of Pacific Century Group Holdings Limited (PCG) and

P C G indirectly held 75.8 percent of the issued share capital of P C R D . At the same

time, Li Tzar Kai Richard also held the entire issued share capital of Pacific Century

Diversified. That means Richard Li had indirectly hold 48.1 percent of P C C W .

1 0

Cable & Wireless HKT

History

Cable & Wireless ( C & W ) (then Cable & Wireless H K T ) had been at the heart

of Hong Kong since 1936. It provided all sorts of telecommunication services to both

individual and institutional clients such as fixed line and broadband Internet services.

Its parent company, Cable & Wireless P L C ( C & W PLC), in which C & W FE was its

wholly owned subsidiary, was the leading provider of integrated communications

offering a range of services spanning interactive entertainment and information,

broadband data, Internet access and television as well as fixed and mobile voice.

In October 1981, C & W was granted an exclusive 25-year right in operating

the international telecommunications systems in Hong Kong. However, the

government of H K S A R had terminated the agreement eight years before the

termination date of the contract in 1998. The reason was that the government would

like to liberalize the telecommunication markets, especially the International

Telephone Services (IDD), the government spent about H K $ 6 billion to retract the

license granted to Hong Kong Telecom. In 1988, C & W was approved to merge with

Hong Kong Telephone (HKT) and the combined company was called Hong Kong

Telecommunications Limited. In the fiscal year 1998/1999, Hong Kong

Telecommunications was renamed as Cable & Wireless H K T . Prior to the merger,

H K T was a listed company and 80 percent owned by C & W FE, had the exclusive

right to provide local public telephone facilities and basic telephone services in Hong

Kong before the merger. It was thought that the merger could allow C & W to achieve

greater value, gain benefit of future development and build a local image. Eventually,

1 1

it was proved by the splendid results of C & W H K T (formally known as Hong Kong

Telecommunications Limited) after the merger. For the past decades, C & W H K T was

a cash cow and implemented a high-dividend policy, its mother company, C & W FE,

had received billions of dividend from C & W H K T .

Before the acquisition, C & W FE had 5 4 % stake in C & W H K T . C & W FE, as

mentioned above, was a wholly owned subsidiary of C & W P L C and was founded by

John Pender, the founder of the Eastern Telegraph Company, started his own business

in 1872. C & W P L C was playing a major role in the establishment and development of

telecommunications around the world. C & W P L C had entered the market of Hong

Kong since 1936 and on 1 October 1981, C & W was established. The Financial

Secretary Incorporated of the Hong Kong Government and C & W FE had 2 0 % and

80% stakes in C & W respectively. However, right before the selling of the shares to

P C C W , C & W FE's shares had dropped to 54% only. According to the Annual Report

in 2000 of C & W PLC, the reasons for selling the investment were to simplify and

focus the portfolio, increase financial strength and increase funds for investments to

execute its strategy. The contribution of C & W H K T in the group's Global turnover

had dropped from 32% to 2 4 % between 1999 and 2000.

Major business

/ . International Telecommunications

C & W H K T had kept investing in the international network infrastructure. Its

revenue was not only from providing IDD services to both business and

residential customers but also by leasing its circuit capacity to others in response

to the increasing demand of the Internet and data services.

1 2

2. Local Telecommunications

C & W H K T had invested a territory-wide all-digit local fixed-line network

which supported delivery of a wide range of advanced calling features, fax, data,

Internet and integrated network services.

3. Mobile Services

C & W had an excellent and comprehensive infrastructure for the mobile phone

market, it was widely accepted as the highest-quality service provider in the

region and played as the leader in terms of market share.

4. Internet and Interactive Multimedia Services (IMS) & Broadband Services

C & W H K T had made a significant investment in the world's largest

asynchronous transfer mode ( A T M ) broadband network and had extended

coverage during the pervious years to reach more than 75 percent of Hong Kong's

households and the major business areas. The high-speed configuration was

specifically designed for the transmission of video-streaming services such as the

Interactive Television (iTV) services and the Internet, data and voice services.

Performance

Table 2: Financial Ratios of C&W HKT in 1999 and 1998 �

Dec. 31, 1999 Dec. 31, 1998

Profit after Tax (HK$ million) 11,507 17,028 Return on Assets 21.3% 31.4% Return on Equity 30.3% 46.1 % Long-Term Debt/Equity 2.3% 2.0% Pre-Tax Profit Margin 40.5% 40.8% Current Ratio 1.5X 1.4X Earning/(Loss) per share HK$0.964 HK$1.438 Dividend Payout 88.4% 59.2% Source: C&W HKT 1999 Annual Report ‘

1 3

Generally speaking, C & W H K T was a financially sound company, with very

healthy balance sheets, income statements and cash flow statements. According to

Table 2，we could see that it enjoyed an exceptionally low percentage of Long-Term

Debt to Equity, which were only 2.3%. Other than that, it had a very high pre-tax

profit margin and meanwhile, a remarkable dividend payout ratio. As the higher the

dividend payout ratio, the more the cash return its parent company, C & W FE, could

get and according to the Hong Kong Taxation Ordinance, dividend incomes in Hong

Kong is not taxable.

Shareholdings Distribution (Prior to the merger)

China Telecom (Hong Kong) C&W FE Public Group Limited

1 0 . 8 % 54.19^. 3 5 . 1 %

HKT

Source: Explanaton' Statement, Proposed Acquisition Scheme to HKT, 2000

1 4

CHAPTER III

REASONS FOR THE ACQUISITION

1. Synergy

As mentioned above, P C C W was striving to become a leading Internet

company in the Asia-Pacific region, and therefore the skillful employees, the

technological know-how and extensive infrastructure of C & W H K T would shed a

light on it. In one occasion, Richard Li said that the deal represented the marriage of

the head, with the arms and the legs and the body. For example, P C C W had had only

moderate success signing up local cable operators in China for its broadband project.

C & W H K T might use its technological know-how to work with China Telecom to

develop broadband access through local phone lines.

2. Political Reasons

To a certain extent, the telecommunication industry was very sensitive and had

strategic importance. As a result, some analysts thought lhat the quick deal formed

between C & W FE and P C C W might due to the political pressure from the mainland.

As it was widely recognized that Li's family had a long-term relationship with the

Chinese Government, there were rumors that this might be the critical reason for

P C C W to outbid the other bidder, Singapore Telecom.

3. Enlarging customer bases

According to the 1999 annual report of P C C W , the merger would add over 6

million addressable customers across multiple platforms to his initial target of

130million cable-enabled homes and another 12 million readily upgradable homes. It

would also add approximately 3.3 million telephony customers. 1 million wireless

1 5

customers, 400,000 Internet users, 90,000 interactive television users and 22,000

broadband customers to his initial target market. This would definitely be a stepping

stone for P C C W to achieve its goal.

4. Product & Market expansion

The merged company would own a large and diversified portfolio of

investments which, prior to the merger, had been made separately by each of C & W

H K T and P C C W . These investments had the potential to create value in their own

right, to facilitate co-operation with strategic partners as well as to provide synergies

with existing operations through early access to new and developing technologies and

businesses. These were expected to contribute to the merged company's capability to

bring new products and services quickly to market. Speed-to-market with new

applications and services was a necessary competitive advantage in the Internet and e-

commerce sectors.

5. Huge reserve of cash and resources

Since it was widely accepted that Internet companies have to burn huge

amount of cash at the initial stage, acquiring a company which was generating a

steady cash inflow would ease the pain. C & W H K T had a low debt level and a very

steady and sound cash inflow every year. For the fiscal year 1999，C&W H K T had

HK$7,135 million cash and cash equivalent inflow compared with HK$2,936 outflow

(excluding the proceeds of HK$6,846 million from the issue of new ordinary shares,

which was not feasible for long-term fund raising purposes) of P C C W . So, some

economists thought that it might be one of the reasons for P C C W to acquire it.

However, P C C W had to secure a syndicated loan of approximately US$12 billion to

1 6

finance the merger and this would bring a significant interest burden to the combined

company. Regarding this, lots of analysts said that Richard Li might spin off or even

sell part of C & W H K T operations later on to reduce the debt and interest burden.

1 7

CHAPTER IV

MAJOR EVENTS

At the beginning of February 2000, the stock price of P C C W had reached the

historical high of HK$28.50 on rumors of the C & W H K T takeover. O n 11 February

2000, P C C W formally made its offer for C & W H K T and reached the agreement with

C & W FE on 28 February 2000. At the same time, Singapore Telecommunications

Limited (ST) had confirmed that it had been talking to C & W P L C since the

November of 1999.

Competitive bid by SingTel

ST was the largest company in Singapore and was 78 percent owned by the

government. Although ST had admitted the bid, the details of the bid had never been

made public. It raised its initial offer after Rupert Murdoch agreed to invest $l billion

in ST if the company succeeded in buying C & W H K T . Some analysts said that the

deal between P C C W and C & W PLC was prompted in part by the support of Beijing-

owned China Telecom, which had 10.8% of C & W H K T . Li, C & W PLC, the

governments of Hong Kong and China all deny that politics - and pressure from

Beijing - played a role. A lot of people were not convinced. When a SingTel-C&W

H K T merger looked imminent in January, Hong Kong politicians began sounding off

about the Singapore government's influence over C & W H K T . Sin Chung-kai, a

legislator representing the information-technology industry, accused Singapore of

trying to buy C & W H K T because its telecom market lagged Hong Kong's and

expressed fears about possible meddling by Singapore politicians in the merged entity.

Beijing-controlled newspaper Wenhui Daily weighed in with a report that the central

government has "indirectly expressed its disapproval of the [SingTel-C&W H K T ]

18

merger." Declared the daily: "If Cable & Wireless intends to sell its stake, there are

quite a few consortiums in Hong Kong financially strong enough to buy it."

It escaped no one's notice that a Bank of China subsidiary, BOCI Asia Limited,

was helping PCCW with its bid, along with European investment bank Warburg

Dillon Read. Besides that , HSBC abruptly resigned as an adviser to the independent

directors of C&W HKT. News later broke that its commercial-lending arm would

lend PCCW money for its bid. A furious ST reportedly threatened to sue HSBC. The

bank had access to sensitive information about ST's offer because it attended briefings

for C& W HKT's independent directors. The lawsuit has yet to materialize.

Arrangement for the US$12 billion loan

In order to co rnplete the transaction. PCCW had to arrange a huge aInount o f

loan to finance the deal. Considerin g PCCW. vvhi ch is an Internet start -up . with

absolute ly no c redit hi story. littl e cash fl ovv and its initial grovv' th fu e ll ed alIllost

entirel y hy a ~l uck Ill arkcl i"rcnl. Y in tech stocks. it \vas redSOllablc tu thilt" tll lll tile

loan could be hardl y achie\'ed , Inc redibl y. lat e ly ;' ln er PCCW nlade the deal \vith

C&W PLC . il s u cce~s i"ull y lubbi ed the !;,lrgesl syndi cated loan c\ 'e r in As ia o f

appr() \inlate l) LSS 1_ hilli on to rin i. mce the Ill erger. It s igned an agree llle nt for the

loan \\'ith ~r~ int erni. lti unJ I hank ~ . led h} B;,tnk o f C hin a. HSB C Holdin gs . Barc l;,l Y ~

Car ita I a 11 d B N p , T he I () an \ \' ~ IS ll " e d t () III e et the c i. Ish P () rt i () n () r the C &. W H KT () r re r

and as ad iiti onJ I \\ ' o rkin ~ ci. lpi tal. ~ () t ( nl y the alllount of the IOi. lI1 \Va~ unprecedented

in As ia but al .. the ri.ll io o f the lea!. ,-\cc () rdi n ~ to the Fi nance \ ~ i a , c o ln . the avcra ue ~ c

icbtlEbitda r)!" a Eun pean deal \\'uuld n< t Ill nre lhan ) ,5 linlC\. ho \\'c \-C L the 1 ()~ LIl o f

PCC\\ ' arried a rali) oi"n ill ' l illle ~ hi. l~ C I nil C\: \\ ' HKT'" Ch il d;, t or S] hi lli ()n ,

1 9

The Composite Document

O n M a y 26, 2000, C & W H K T posted a detailed circular (the "Composite

Document") to its shareholders which provided: I) details of the background to and

terms of the P C C W offer. II) the views of the Board of Directors of C & W H K T . Ill)

the recommendations of the C & W H K T Independent Board Committee and its

Independent Financial Adviser, ING Barings Asia Limited. IV) details of the

proposed Scheme and certain other relevant information.

It was proposed that, under the Scheme, all C & W H K T Shares in issue at the

Scheme Record Time would be cancelled and each Eligible Shareholder would be

entitled to receive, at his option, for his entire holding of C & W H K T Shares at anyone

of the following basis:

1. Share Alternative

For each C & W H K T Share: 1.1 new P C C W shares, valuing each C & W H K T

Share at HK$15.9 based on the Latest Practicable Date (22 May 2000).

2. Combination Alternative

For each C & W H K T Share: US$0,929 (or HK$7.23 based on the Reference

Rate HK$7.78/US$) in cash and 0.7116 New P C C W Shares, valuing each C & W

H K S 17.51 based on the closing price of P C C W Shares on the Latest Practicable

Date (22 May 2000).

2 0

3, Mix and Match

Any Eligible Shareholder might choose the Share Alternative in respect of any

part of his holding of C & W H K T Shares and the Combination Alternative in

respect of the balance of his C & W H K T Shares.

Share Combination Alternative Alternative

HK$ HK$

Number of New PCCW Shares 1.10 0.7116 The closing price of PCCW Shares on 22 May 2000 14.45 14.45 Equivalent value 15.90 10.28 Cash (translated at the Reference Rate) -- 7.23

Value of each C&W HKT Share 15.90 17.51

Stories Behind the Offers (Prior to the Merger)

There were about 12.16bn H K T shares in issue at the time P C C W proposed

the offers, so the maximum amount of cash that would be paid under the offer would

be US$11.3bn. That's how they arrived at US$0,929 per share.

The interesting thing about the two alternatives were that, if the share price of

P C C W fell below HK$18.62, then the Combination Alternative became worth more

than the Share Alternative. At $18.62, the Share Alternative worth $20.48 while the

share part of the Combination Alternative worth $13.25, and the cash element worth

$7.23 (making $20.48, ignoring dealing costs).

Shareholders were also allowed to apply for an "Increased Cash Election"

which represented the distribution of any cash element that other shareholders did not

21

want (because they've elected to receive the Share Alternative). In other deals, this

had been called a "mix and match" election.

Probable strategy of C&W behind the acceptance

C&W, the 540/0 shareholder of HKT, had undertaken to choose the

Combination Alternative and make the Increased Cash Election. If everyone else went

for the Share Alternative, then C&W would get the whole US$11.3bn (and 11.20/0 of

PCCW). This undertaking meant that it was a certainty that PCCW would end up

paying out the full amount of cash if the offer proceeded, and there was no chance

that they would be able to do the whole deal with paper. The question was not

whether they would payout the cash, but who got it.

Besides C&W. there were t\VO large shareholders - China TC\cC()lll and the

II()n ~ K()IH! ;Vl()net~H\ A uthorit y ( throu~h the E .\chall~e Fund l. It \\ 'ould he' illtere"tin (l ~ ~ ~ ~ ~ ~

tu KIlOW whether they had decided to ~lccept the C()lllhin~lti()n 1\lternati\ 'L' ~lIld the

II III 'I' 'fl)I" I e' ' ~lllle TlIci;t1 10 C(\:\\ ' IIl;lt Ihe PCC\\ ' price did flul 1';111 fllllC h

iI I y' ill' III d i 11 ~ I h' f I f\. \ 1: \ ; III I C Il i fl ; I T e' le c () Ill ) \ \, ' () ul d e k c I 1'0 r the

~ I1lhinaliul1 :\ Il I'n;lll\ ' r illll Iy fl I ;1' 'LPl ), Th ~ll \\ ollld !c;l\ 'C C ,, \\ ' \\' ilh only

2 2

C & W had already said that it would sell 4 % (around US$2.5bn) of P C C W "as

soon as practical following completion of the Offer". This would take it below 2 0 %

which was important to the accounting treatment of the disposal. If C & W ' s stake in

P C C W is less than 2 0 % then it is accounted as an "investment" while 2 0 % or more

makes it an "associate". As an investment, C & W could carry it at cost (and book a full

profit on the sale of H K T ) rather than writing off the enormous amount of goodwill in

P C C W that equity accounting an associate would require.

C & W had also agreed with C M G I to swap of US$500m of P C C W stock

(about 1% of the enlarged company) for the same amount of new C M G I shares. Out

of the CyberWorks (you heard that term here first) and into the frying pan, you might

think, but at least it's diversification.

If the P C C W price stayed above the crossover point and C & W was able to get

all of the US$11.3bn in cash and 11.2% of P C C W , then by placing 4 % and swapping

1% with C M G I it would be down to 6.2% of P C C W , or around 1.4bn shares.

Other than that, C & W had agreed not to sell any more for 6 months and then

hold at least half its original holding (5.6%) for a further 6 months.

It was notable that there were not any other major telecommunications players

entering the fray. C & W signaled its willingness to deal in early February with the

announcement of the proposed merger with Singapore Telecom, so there was plenty

of time for others to raise a hand by now. W e might have expected major players such

as British Telecom (which already has a stake in SmarTone) or A T & T (which once

2 3

had a stake in SmarTone), Deutsche Telekom or M C I Worldcom to have made a pJay.

Sadly not - perhaps they felt that H K T was already fully priced and offered an

unattractive story.

2 4

CHAPTER V

FINANCING PACKAGE

Table 3: Summary of the financing package was listed as the following:-

Acquisition of H K T H K $ bi^ [Fund Sources

Net Assets Acquired 49.36 Cash 88.14

Goodwill 171.60 Issuance of 132.82

8,653,056,000 N e w Shares @ HK$15.35

Total 220.961 |Total 220.96

PCCW Equity Fiinding

The major contributing factor for why P C C W could grow from a start-up to an

Asia telecommunication giant was its amazing ability to raise funds from the capital

markets. In the 9 months before the announcement of the merger, P C C W has

conducted five share placements and a US$50 million issue to Intel, raising an

estimated total of US$2,377 million net of expenses, as shown in the table below:

Announced Shares $/share Gross HK$m Net HK$m Net US$m Use of Fund 3-May-99 1 .151 ,056 ,000 0.31 357 3 2 9 42 .3 Acquisition ofTricom (then

P C C W )

Aug-99 7 7 . 8 0 0 , 0 0 0 5 . 0 0 3 8 9 3 8 9 50 . 0 Invest in Pacific

Convergence Corporation.

Ltd. in order to enable it to

purchase equipment from

Intel

13-Sep-99 4 1 4 . 0 0 0 , 0 0 0 5 .55 2 ,298 2 ,247 288 .8 Operational launch and

development of" the business

of Pacific Century

Convergence Corporation

Ltd.", a 6 0 % owned

subsidiary of P C C W

>3-Oct-99 668，863，000 6 . 1 0 4 , 0 8 0 3 .992 513.1 Investment in SoftNet

Systems

25-Jan-OO 2 4 8 , 0 0 0 , 0 0 0 15.80 3 ,918 3 ,833 492 . 7 Investment in C M G I Asia

and the implementation of

its business plan

14-Feb-OO 335,000,000 23.50 7,873 7,704 990.2 Merger between PCCW and HKT

2 , 894 , 719 , 000 18,914 f ^ ~

Note: the above table assumes that the over-allotment option for the placing announced on M-Feb-00 will be exercised.

2 5

PCCW Loan Funding

The merger was a classical leverage buyout case, which was one of the largest

deals of such kind in the M & A history. P C C W lined up a 364-day bridging loan of

US$12 billion in size in order to finance the merger. Effective interest rate of the

bridging loan was around 6.5%. Compared with some analysts' valuation of US$21.9

billion for H K T , this loan amounted to 5 5 % of value. This was also equivalent to the

sum of the US$11.3 billion cash element of the offer and the US$0.7 billion dividend

that H K T will pay out.

P C C W on 12 April 2000 announced that a memorandum of agreement was

made with Telstra to sell a 4 0 % interest in something it had yet to own, the C & W

H K T wireless business. The deal also includes a US$1.5 billion convertible loan from

Telstra. The transaction represented the building up of strategic alliance between

P C C W and Telstra. The purpose of the deal, from P C C W ' s perspective, was to use

the proceeds from selling the H K T asset to pay down part of the huge debt amounting

US$12.0 billion raised to acquire C & W H K T .

The strike price of the option embedded in the convertible loan was at

HK$23.69 per share, a price at which P C C W shares only briefly touched before their

unstoppable dive. P C C W had to pay interest at 3 % p.a. quarterly stepping up to 5 %

p.a. after 4 years. At Telstra's option, half the loan note could be redeemed after 4

years, and the rest after a further 2 years. P C C W could only force the note to convert

after 4 years if the share price (averaged over 15 days) exceeded $28.43, or after 6

years if the share price (again averaged) exceeded $26.06. This looked almost

impossible from today's perspective following the burst of Internet bubble.

2 6

The Telstra debt is subordinate to the US$12bn loan advanced by Bank of

China and colleagues for the C & W H K T takeover. Unless the P C C W share price got

up above the conversion price, Telstra would order its money back.

2 7

CHAPTER VI

ANALYSIS ON THE EFFECTS OF CORPORATE ANNOUNCEMENTS

The merger of P C C W and C & W H K T was so far the second largest M & A

transaction ever in Asia, and therefore had drawn much attention from the society and

the investment public. W e believed that by analyzing the effects of the corporate

announcements on the stock price of the companies at various time periods during the

process of the transaction, we would be able to reveal a significant part of the picture

regarding market efficiency in Hong Kong's securities market.

Market Efficiency

To analyze the effects, the first question was actually when and how fast the

market reacted to the M & A announcement, that was market efficiency. There were

three forms of market efficiency: strong form market, semi-strong form market and

weak form market. Definitions of the forms of market are as the folio wings:-

• Weak-form efficient market, in which historical share-price data obtained no

information that can be used to earn profits in excess of those produce by a naive

buy-and-hold strategy.

• Semi-strong form efficient market，for which the stock market steadily and

accurately incorporates all publicly available information into share prices. The

only way to make profits in excess of a buy-and-hold strategy is to have inside

information.

• Strong-form efficient market, for which the stock market and its quoted firms

are so well regulated that no substantial and consistent use of inside or

2 8

monopolistic information can be made. Whilst there is bound to be some use of

inside information, there is so small that it does not disturb the market efficiency.

Research found that more developed stock markets, such as U.S., Japan,

Europe, and Hong Kong, were semi-strong form markets. The semi-strong form of the

efficient markets model implied that investment analysts were valuing securities

effectively, with share prices giving accurate values by which resource allocation can

be optimized.

Methodology

The methodology we used in our analysis was the one that directly tests the

semi-strong version of the efficient markets theory. The test set out to see if the stock

market accurately and speedily adjusted share prices on the release of fundamental

information. The methodology used in our research followed that used by Fama,

Fisher, Jensen and Roll in their analysis of stock splits. This involved comparing

actual share price performance against that expected, after removing the general price

influence. The difference between the actual and predicted prices are represented by

the term U „ = R, , -

Where R丨 t is the actual proportionate change in the share price of security j in

time period t and the p丨R ., term is the price predicted by the market model, p丨 is the

volatility of the share price to changes in the market index and is found by regressing

the proportionate (or logarithmic) changes in the share price of security j on

proportionate (or logarithmic) changes in a market index.尺丨几，is the actual

proportionate change in the index.

2 9

W e would analyze the error residuals (Uj ,) and the cumulative total of these, in

order to ascertain the impact of the news on prices and whether this adjustment was

done quickly and accurately in a theoretical sense. M a n y past studies found that the

stock market reacted in the right and expected direction, and that the adjustment was

completed in a very short period of time.

+ 10

l=-10

CUj.t is the cumulative error residuals or cumulative abnormal returns.

Announcements

O n 11 February 2000, P C C W made a formal offer to C & W H K T . O n 14

February 2000，the next trading date after the announcement, the share price of C & W

H K T surged to HK$26.40 from HK$21.65, representing an increase of 21.9%.

Abnormal return due to the announcement was 22.94% and cumulative abnormal

return was high at 27.45%. Although share price of P C C W remained unchanged on

14 February 2000, it increased by almost 7 % to HK$26.35 on the next trading date,

achieving a record high closing price ever. Abnormal return on the day was 8.82%,

which raised the cumulative abnormal return to 32.54%.

Within the period of our study i.e. 10 days before and 10 days after the

announcement date, cumulative abnormal return was 26.10% and 13.68% respectively.

The high abnormal returns reflected the positive expectation of investors on the

merger of the two companies. Shareholders of both companies believed that the

merger would create synergy and benefit to them.

3 0

O n 28 February 2000, P C C W successfully outbid the other competitor,

SingTel, and agreement was made between P C C W and C & W H K T on the merger.

Trading was suspended for both companies on 29 February 2000. O n 1 March 2000,

share price of C & W H K T and P C C W dropped respectively by 12.33% and 7.90%,

with abnormal return of -10.56% and -6.49% respectively. Cumulative return as at 1

March 2000 for C & W H K T and P C C W was-11.57% and-16.41% respectively.

Within the period of our study i.e. 10 days before and 10 days after the

announcement date, cumulative abnormal return was -12.88% and -15.53%

respectively. The negative abnormal return might due to change in shareholders'

expectation. Shareholders might find that they had overestimated the possible synergy

that could be created by the merger of the two companies. Therefore price

adjustments were happened to both companies to correct the overshot share prices as

a result of the previous announcement.

31

CHAPTER VII

AFTERMATH

The merger of the telecommunication giants seemed to have done no good to

shareholders of both P C C W and C & W H K T . Share price of P C C W declined from

HK$16.0 at the date of merger to around HK$2.4 as at 10 April 2001. For

shareholders of C & W H K T , provided that they rationally chose the combination

alternative in which they were offered HK$7.23 plus 0.7116 P C C W share, the total

value remained in hands would be around HK$8.94. The remaining value was

significantly lower than the C & W HKT's closing price of HK$16.7 at the last trading

date. Some people might argue that the evaporation of value was due to the

worldwide sentiment on T M T stocks and P C C W should not be supposed to immune

from that. In the following analysis, we would discuss the reasons for the fall.

Financial Performance

In March 2 0 0 L P C C W announced the second largest loss for Hong Koim

company ever af ter Akai Hold ings ' H K $ I 3 . 4 0 b . The financial results of P C C W lor

the year ended 3 1 December 2000 revealed that the c o m p a n y made an operat ing profit

of H K $ 5 2 0 million. However , an one-off provision for the reduced value of some of

the c o m p a n y ' s investment in Internet stocks and the wri t ten-off goodwil l arising f rom

the merger, had dragged P C C W lo a net loss of HKS6.90b. A fie^citive equity of

HKS14.1 billion was reported. The company , in 2000, paid a total of HKS2.36 billion

in interest alone. The amount was expected to increase fur ther to HKS3.82 billion in

2001 according to the forecast of P C C W . Together with the expected capital

3 2

expenditure of around HK$4.12 billion, the cash burden on the company would still

be huge in 2001.

What Went Wrong?

Apart from the global slump of T M T stocks, we believed that the poor

performance of P C C W was due to following five major reasons.

1. Fierce competition in the deregulated Hong Kong telecommunication

market

Telephone line operation was one of the major income sources of P C C W .

Before the deregulation in 1999，C&W H K T had long enjoyed its monopolistic

right to operate domestic and international calls. As the markets were open up for

competitors, competition has been intensifying and decline in revenue from

operating telephone lines seemed inevitable. In 2000, IDD traffic for P C C W

dropped by 34%, which was beyond expectation of many analysts. W e expected

that the competition would further erode the former cash cow when new entrants

and substitutes were coming up.

2. Lack of self-producing content of quality for NOW

Some people viewed that the merger of P C C W and C & W H K T was a carbon

copy of Time Warner and A O L , as both cases were merger of content and

delivery infrastructure. In our opinion, the major difference between the two cases

was the difference in quality of content. First, Time Warner was a world

renowned content production company with many famous brand names, movies,

magazines, cartoon characters, etc. However. P C C W has yet developed a mature

3 3

content development center and was totally dependent on licensing of content

from other producers. Though it has already invested in its production centers in

London, Japan, Hong Kong and India, the investment was still not generating

results. Second,

3. Questionable strategic development direction

In order to become less dependent on fixed line businesses, P C C W has put a

lot of efforts on developing as a total network and system solution provider by

means of acquisition e.g. acquire HTTIL and huge capital expenditure. In fact, we

believe that P C C W just entered into another battlefield competing with some

global experienced players. This time, competition was not just from some local

companies with limited financial backup, but networking giants like Cisco

Systems, IBM, and S U N , which have long been rooted in the market. That was

therefore the reason why many analysts voiced out that the firm's real opportunity

was in capitalizing on its three-million customer base and becoming the provider

of all communications services within the home.

4. Difficult to re engineer culture after merger

People could easily be able to expect that there was a huge gap between the

culture of P C C W and C & W H K T . C & W H K T was an old-fashioned British

utility company that was long protected by its monopoly. Marketing and business

development was never an important issue in the company. For P C C W , it was an

internet/technology company where performance linked with rewards. People in

the company had to deal with dynamic market changes and respond in no time to

3 4

unprecedented and unpredictable issues. Therefore, w e believed that there were

difficulties in consolidating the culture.

5. Depth of experience of management

W e had little doubt about the competency of the management in playing

games in the financial markets, as quite a number of people in the management

team were from investment banks. That's why they were able to complete the

largest M & A mission in Asia outside Japan. However, to handle a company after

merger, which was facing a lot problems namely market deregulation, culture

reengineering, new business strategy design, P C C W might require managers with

different experience. Therefore, suggestions were made that Richard Li might

need to step into non-executive position and/or hire experienced managers to

handle various issues.

Economic and Corporate Governance

Like 111 any other Asian countr ies . Hong Kong has been long crit icizing its

economic and corporate governance . Af ter the Asian financial crisis, as many Asian

corporat ions col lapsed due to ""crony capi ta l i sm" and •"agency problems" , investors

and general public in Hong Kong have shown intensi fying concern about governance

in the SAR. Many studies showed thai poor economic and corporate governance were

attributed to the dominat ion of the corporate sector by a few politically strongly

bonded families. In Hong K o n g � t o p five families control 26% of the market

capitalization, and 669r of the companies are controlled by families.

The impact on economic policy by Ihc strong family-conlrollcci cconoiny

could not be underrated. The most obvious one was that prcrercnlial Irealnicnls were

given to family businesses, especially families that were controlling blue-chips

companies. Impact was also placed on the development of legal and regulatory

systems. If a small number of families dominate the corporate sector and the

government is heavily involved in and influenced by business, then the legal system

might not protect promote competition or protect minority shareholders. Studies

showed that the concentration of corporate control has had a major negative impact on

the evolution of the legal system. (Claessens, Djankov and Lang (2000))

In this case study, we could see some issues regarding economic and corporate

governance happened in the merger of P C C W and C & W H K T , and related issues

afterward.

/. Cyberport Project

The Hong Kong Cyberport project has revealed the notorious cronyism due to

the close connection between the S A R government and the ‘'families: The issue

represented poor economic governance - the granting by Government of a huge

property development to a single party without a tender. The decision was heavily

criticized by the general public and the major property developers in Hong Kong,

as the majority of the floor area of the Cyberport project would be used for

residential purpose. Should Cyberport project not offered to P C C W , Tricom (then

P C C W ) may never have been transformed into P C C W as the injection of the

lucrative project would not happen.

3 6

2. Unnoticed Change in Accounting Methods

A change of accounting methods for the interim financial report ended 30 June

2000 described by analysts as a dressing-up exercise has seen P C C W report a

smaller than expected interim loss of H K $ 3 5 million. Analysts initially expected a

net loss of up to HK$250 million. Provided that the two accounting changes were

stripped out, P C C W would have reported a yearly loss at HK$1.5 billion.

The first change in accounting was a re-classifying long-term holdings into

short-term investments. This could in fact capitalize a HK$562 million unrealized

investment gain, mainly from its 3.8% interest in Tom.com (an internet company

owned by Richard Li's father) and its holding in C M G I . What made it interesting

was that P C C W in March announced that such investments would be held for

'long-term strategic purposes'. It also said its policy was not 'to book unrealized

gains on investment securities'. The change in accounting policy in just a few

months was undoubtedly unfair to investors, especially minority shareholders,

who were not insider of the company.

P C C W also capitalized a US$ 130 million investment for developing Network

of the World (NOW), its convergence television and multimedia service.

3. Share Transaction With Hutchison Telecommunications Technology

Investments Ltd. (HTTIL)

On 22 February 2001, P C C W announced that the company has entered into

the Sale and Purchase Agreement with Hutchison Telecom, an indirect wholly

owned subsidiary of Hutchison which in turn was controlled by Mr. Li Ka Shing,

3 7

father of Richard Li. P C C W agreed to acquire all the issued share capital of

HTTIL and the shareholder's loan from Hutchison Telecom for a total

consideration of HK$803.4 million. The consideration would be satisfied in full

by issuance and allotment of shares in the company at the price of HK$4.375 per

share, a discount of around 6.3% to average closing price on the 20 trading dates

up to and including the date of announcement.

HTTIL, formerly known as Pacific Century Technology Investment Ltd., was

originally owned by Pacific Century Group (PCG) and sold to the Hutchison

Group in 1995 for approximately HK$579.6m. Though P C C W claimed that the

deal was made on an arm's length basis and acquiring HTTIL would enable

P C C W to offer a complete portfolio of solution by including HTTIL's satellite-

based network solution, two issues were noted in this transaction.

First，insufficient information was disclosed to justify the price appreciation of

HK$223.8 million since P C G sold the business to Hutchison Telecom. Second.

The merger would definitely avoid direct competition between P C C W and HTTIL.

Before C & W H K T was acquired by P C C W , Hutchison Telecom (new entrant)

had competed fiercely in almost every battlefield in the telecommunication

industry with C & W H K T . This in fact promoted competition in the industry and

enhanced the overall competitiveness of the industry participants.

4. Inaccurate Biography of Richard Li

In April 2001, a scandal regarding P C C W was uncovered and publicized

throughout the media. Richard Li, the president of P C C W , was found and later

3 8

admitted that he did not graduate from Stanford, contrary to claims previously

made in P C C W biographies and the group web site. Although P C C W emphasized

that the claim was not made "in public disclosures filed by the Company in

accordance with applicable legal requirements". However, it was found that the

degree claim has been made in both the U S and Singapore in legal filings of

documents for which Richard Li was responsible.

W e believed that any statements made by a company, whether or not they are

filed with regulators, should be made to the same standard of care, accuracy and

truthfulness. To place this "emphasis" on legal filings as opposed to other

statements brings into question the importance the group attaches to its other

public statements. In fact, the same "mistakes" happened in many occasions,

namely in various prospectus and filings to S E C and SFC. The scandal did not

only reflect the insufficient corporate governance but also the powerless

regulatory system in Hong Kong. So far, no action has been taken to deal with the

issue by any regulatory bodies in Hong Kong.

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Date Stock

Price Stock

Price index Return

2000/1/28

19.9 18.85

0.914 0.629

1.68%

二)

？。3,

0.915 0.634

-4.04% -5.03%

-3.69% -1.33%

-1.33% -2.65%

-2.56% -0.09%

-_%

18.9 18.8

0,916 0.636

0.78% 0.00%

0.72% -0.72%

-2.05% 2.45%

0.50% 195%

186%

2000/2/2 19

18.75 0.915

0,64 0.87%

0.53% 0.80%

-0.27% -2.31%

-0.27% 0 5

6%

-0.82% 104%

2000/2/3 18.15

19.3 0.911

0.641 1.13%

-4.47% 1.03%

-5.50% -7.81%

2.93% 0 7

2%

221%

325%

2000/2/4 18.15

19.3 0.91

0.645 0,00%

0.00%

0.00% 0.00%

-7.81% 0,00%

0 00%

0 00%

3 25%

2000/2/7 18.15

19.3 0.909

0,646 0.00%

0.00% 0.00%

0.00% -7.81%

0,00% 0.00%

0 00%

3 25%

2000/2/8 17.35

21.5 0.903

0.657 1.63%

-4.41% 1.47%

-5,88% -13.70%

11.40% 107%

10 33%

13 58%

2000/2/9 16.85

22.05 0.887

0.658 3.64%

-2.88% 3.23%

-6,11% -19.81%

2 56%

2 40%

0 16%

13 74%

2000/2/10 17.65

23.4 0.888

0.663 0.15%

4.75%

0.14% 4.61%

-15,19% 6.12%

0 10%

6 02%

19 76%

2000/2/11 21.65

24.65 0.931

0.669 3.18%

22.66% 2.96%

19.71% 4.51%

5.34% 2.13%

3.22% 22

98%

2000/2/14 26.4

24.65 0.91

0.675 -1.10%

21.94%

-1.00% 22.94%

27.45% 0.00%

-0 74%

0 74%

23 72%

2000/2/15 24.55

26.35 0.919

0.66 -2.91%

-7.01% -2.68%

-4.33% 23.12%

6.90% -192%

8 82%

32 54%

2000/2/16 23.95

25.35 0.912

0.663 2.13%

-2.44% 1.94%

-4.39% 18.74%

-3,80% 1.41%

-5.21% 27 3

3%

2000/2/17 25.45

25.8 0.912

0.66 -0.37%

6.26%

-0.33% 6.60%

25.33% 1.78%

-0.24% 2.02%

29.35% 2000/2/18

25.65 25.4

0.907 0,662

-2.25% 0.79%

-2.04% 2.83%

28.16% -1.55%

-1.49% -0.06%

29 29%

2000/2/21 25.55

24 0.907

0.689 -1.67%

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Stock Price Stock Price

Index Return

2000/2/14 26.4

24.65 0.91

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2000/2/15 24.55

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0.912 0.66

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25.65 25.4

0.907 0.662

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0.71% ,1.55%

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5.57% 2000/2/21

25.55 24

0.907 0.689

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25

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2000/2/25 25,9

22.15 0.913

0.698 0.83%

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25.95 22.15

0.91 0.729

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BIBLIOGRAPHY

Reports

Annual Report. Cable & Wireless H K T Limited. 1999.

Annual Report. Pacific Century CyberWorks Limited. 1999 & 2000.

Company Announcements

Letter From The Board Of C & W H K T . Recommended Offer For Cable & Wirdess

H K T Limited To Be Acquired B y Pacific Century CyberWorks Limited hy W a y Of A

Scheme Of Arrangement. 26 M a y 2000

Letter From The Board Of P C C W . Proposal For The Acquisition R y Doncaster Group

Limited. An Indirect Wholly-Owned Subsidiary Of Pacific Century CyberWorks

Limited Of The Entire Issued Share Capital Of Cahle & Wireless H K T Tjmited -

Major Transaction. 26 M a y 2001

Periodicals

Christopher W . Runckel. An Interview with Richard Li. Chairman and Chief Executive of Pacific Century Holdings Limited. Hong Kong. Runckel & Associates. December, 1999

Does Singapore need a Richard Li? Business Times (Singapore). 2000

Yulanda Chung (Hong Kong) and Assif Shameen (Singapore). Coming of Age: Hong Kong's Most Successful Internet Company Wins Control Of Telecom Giant Cable & Wireless H K T . N o w What? (2000)

Books

Larry H.P. Lang. Cases of Mergers and Acquisitions in Hong Kong. Pearson Education Asia Pte Ltd. Prentice Hall. (2000)

Firth, Michael Arthur. Share Prices And Mergers: A Study Of Stock Market Efficiency. Westmead, Eng. : Saxon House ； Lexington, Mass. : Lexington Books (1976)

4 7

Thomas M . G m b b , Robert B. Lamb. Capitalize O n Merger Chaos : Six Ways To

Profit From Your Competitors' Consolidation And Your O w n . N e w York, N.Y. : Free

Press. (c2000)

Nancy Hubbard. Acquisition Strategy And Implementation. West Lafayette, Ind.: Ichor Business Books. (1999)

Bean, David Geoffrey. Financial strategy in the acquisition decision / [by] D. G. Bean.

Epping: Gower Press. (1975)

C U H K L i b r a r i e s

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