Daily Lesson from Life 22 April 2009

"Hong Kong's Court of Appeal blocks PCCW buyout bid

It was a victory for small shareholders over one of the city's richest tycoon families. -Wed, Apr 22, 2009 AFP

HONG KONG, April 22, 2009 (AFP) - Hong Kong's Court of Appeal on Wednesday blocked a 2.1-billion-US-dollar buyout bid by telecom giant PCCW, in a stunning victory for small shareholders over one of the city's richest tycoon families.

In a unanimous ruling, a three-judge panel said it had rejected a lower court's decision to approve the plan by PCCW chairman Richard Li to take the city's largest fixed-line operator into private hands.

The decision will be seen as a hammer blow to Li - son of Hong Kong's richest man, Li Ka-shing - who has been struggling to either sell or take the firm private for three years.

Minority shareholders, many of whom made emotional testimonies during the six-day Court of Appeal hearing, cheered and sang outside court. "We are very happy... that the judges did not allow those in power to deprive small shareholders of their rights by using unscrupulous means," 74-year-old minority shareholder Pollo Leung told AFP.

PCCW said in a statement it was "disappointed" with the court's judgement, but would not make any decision about a possible appeal until it had read the entire ruling.

The panel of judges said it would give the full ruling later.

The case has gripped the financial hub as it pitted one of the city's most prominent tycoon families against both the Securities and Futures Commission (SFC) and angry minority shareholders. The case hinged on whether the buyout scheme by Li and his partner, China Netcom, had only won a shareholder vote to green light the scheme in February because of so-called share-splitting.

The SFC said in court the deal was only approved at the meeting after hundreds of insurance agents were given tranches of shares in January in return for voting in favour of the scheme.

In a rare public expose of the intertwined group of tycoons who dominate the city's business community, the watchdog said the share-split plot was hatched by Francis Yuen, former deputy chairman of PCCW and a close Li associate.

Yuen is now deputy chairman of Pacific Century Regional Developments (PCRD), the company through which Li was making the privatisation bid. Yuen was accused of contacting Lam Hau-wah, a senior manager at Fortis Insurance Company (Asia) which was previously a unit of PCRD.

Lam then bought 500,000 shares in PCCW and handed them out to his employees under the guise of a bonus, but on condition they support the buyout bid which needed more than 50 percent of individual shareholders to vote in favour of it.

PCCW, PCRD and Fortis have all denied any wrongdoing.

Although vote-rigging is not an offence in Hong Kong, if it is found that some voters had a relationship with the major shareholders, they are not counted as independent and are ineligible to vote in such shareholder meetings.


With his partner China Netcom, Li was offering existing shareholders 4.50 Hong Kong dollars (57 US cents) for each share in the buyout move.

Shares in PCCW have plummeted from more than 130 Hong Kong dollars in 2000, at the height of the tech-stock boom, to fewer than 4.00 dollars this year, sparking fury among long-time investors. Shares in PCCW have been suspended during the hearing and were last trading at 4.12 dollars.


Many of those investors have spoken during the hearing. One tearful minority shareholder told the court that PCCW was "no different from robbers.""

This is a victory of the judiciary over the legislature besides the minority shareholders over the majority shareholders!

Lessons for me are:

1. you cannot always have in your way just because you are powerful! The scheme supposed will enable Richard Li and his partner to pay themselves money way above the offer price right after the buyout! In fact, the judges asked for justification of such a move after the buyout and why it should be construed as fair to the minority shareholders who will enjoy none of it!!;

2. it is important for the powerful people and leaders to understand that even if the tactic of 'splitting shares' is not illegal, there must be a higher standard to interpret such actions: is it equitable and is it just! As good leaders, we would not have to push the limit! It is just not right to pay yourself handsomely while leaving the minority shareholders out in the cold!;

3. it takes great courage and insight to deliver the judgement as it is by these 3 judges. A higher standard of interpretation has been applied. This can only be good for Hong Kong, the financial capital of the East outside Tokyo! It will also encouraged other disadvantaged people in Asia to learn that you can fight for a just cause still!

Hurray to the victory. I hope Mr Richard Li reflects on this and turn over a new leaf. Work for the good of the shareholders and not just the majority shareholders!