PCCW Ltd. Chairman Richard Li and his co-bidder raised the buyout offer for Hong Kong’s biggest phone company by 7.1 percent, minutes before shareholders were due to vote on a plan proxy advisers had criticized as too low.

The proposed price was increased to HK$4.50 a share from HK$4.20, PCCW director David Ford said. The latest offer is 30 percent higher than the stock’s last closing price and values PCCW at HK$30.5 billion ($3.9 billion).

The improved bid may be insufficient to win support from minority shareholders, who have seen PCCW’s stock price fall 97 percent since Li bought the former Cable & Wireless HKT Ltd. in 2000. PCCW has been thwarted in efforts to expand overseas and was removed from the city’s benchmark Hang Seng Index in June.

“We will oppose the new offer again because what this company needs is a change in management, not a privatization proposal,” said Henry Chan, 45, who gained PCCW shares by exchanging his Cable & Wireless HKT holdings following Li’s takeover in 2000. “The way the company announced the improved offer is further evidence of its mismanagement.”

PCCW shares haven’t traded higher than the original offer price since the buyout plan was announced last month, reflecting doubts that the proposal would succeed. The company adjourned a shareholder meeting today to let investors consider the revised offer.

Shares Suspended

PCCW rose 3 percent to close at HK$3.45 on the Hong Kong stock exchange yesterday. The shares were suspended from trading this morning. The original offer from Li and China Network Communications Group Corp. is 9.5 percent lower than the stock’s average closing price in the 180 trading days before Oct. 14, according to PCCW.

PCCW’s minority investors were told by the world’s two biggest proxy advisory firms to reject the original bid because it undervalued the company.

“We are not convinced the financial terms of the proposed transaction are fair” for independent shareholders, proxy advisory firm Glass, Lewis & Co. said on Dec. 16. The bid wasn’t “in the best interest” of shareholders, David Smith, co-head of Asian corporate governance research at RiskMetrics Group Inc., parent of Institutional Shareholder Services, the biggest U.S. proxy advisory firm, said on the same day.

“We believe HK$4.50 still undervalues the company, but the option is better than the alternative” of a rejected buyout bid, said Harfun Ven, who helps manage $1 billion of Asian equities, including PCCW shares, at Robeco Hong Kong Ltd. “The increase in the offer was a positive surprise.”

Special Dividend

Li and China Network will get a special dividend of as much as HK$17.6 billion from PCCW after it is taken private, the Hong Kong company said. The payment, more than the HK$15.9 billion cost of the buyout, based on the new offer, will allow the two investors to re-finance loans used to fund the bid, PCCW said.

“Richard Li is essentially getting the company at zero cost to himself,” said KK Leung, 55, a PCCW investor. “This type of financial engineering is entirely in keeping with his past actions.”

The Hong Kong carrier, with two-thirds of the city’s phone market, has fallen each year from 2000 on the local stock exchange amid increased competition from rivals including City Telecom (H.K) Ltd.

In October, PCCW shares sank to a nine-year low after the company failed to sell as much as a 45 percent stake in its HKT Group Holdings Ltd. unit. Offers of between $650 million and $765 million were received for the HKT Group stake weren’t “sufficiently attractive,” PCCW said.

Swap Stake

HKT Group owns PCCW’s main telecommunications businesses including fixed-line, broadband Internet and pay-television, and accounted for 86 percent of the parent’s sales last year. PCCW also derives revenue from its property subsidiary Pacific Century Premium Developments Ltd.

China Network, also the second-biggest shareholder in the country’s No. 2 mobile-phone carrier, China Unicom (Hong Kong) Ltd., may swap its PCCW stake for a holding in HKT Group, CLSA Ltd.’s head of regional telecommunications research Francis Cheung said in October.

In 2006, state-owned China Network blocked a plan by PCCW to sell its main telecommunications businesses to TPG Inc. and Macquarie Group Ltd. on the grounds that the assets should be controlled by local companies.

Li, 42, is the son of Hong Kong’s richest man, Li Ka-shing, whose estimated wealth of $26.5 billion ranked him 11th on Forbes Magazine’s latest global rich list.

Source:Bloomberg