In Hong Kong, tycoons rule and their high-born offspring are supposed to have it all their own way.

But Richard Li, son of one of Asia's richest men Li Ka-Shing, is finding out that sometimes deals just don't work out like they are supposed to.

Mr. Li junior is chairman of PCCW Ltd., the territory's dominant fixed-line phone provider. The 42-year old businessman, who is also a Canadian passport-holder, owns a sizeable minority of the telecom giant's shares, which have plunged Nortel-like since the dot.com bubble deflated.

He has made several attempts to extract value from the company in recent years but has failed on each occasion. His latest effort, launched in November, involves a proposed US$2-billion privatization followed by a special dividend that would pay Mr. Li a big chunk of the company's cash.

It, too, is widely expected to fall short, which would mark the second time in less than two years that Mr. Li has been on the losing side of a proposed deal for a major national telecoms provider, having reportedly backed a failed bid for Canada's BCE Inc. in 2007.

"PCCW shareholders are saying the offer's not enough," said Francis Cheung, head of Asian telecommunications research at CLSA Asia-Pacific Markets in Hong Kong. "The valuation is fair but they want more money."

The deal is not likely to go through in its present form, Mr. Cheung added.

PCCW was spun out from Cable & Wireless eight years ago for US$28.5-billion when technology companies were all the rage. For a while, its stock soared and the share price was above HK$120.00 (US$18.40) at the height of the tech boom. But the company's shares have lost more than 90% of their value since those heady days and it is not surprising that major investors Mr. Li and China Network Communications Group want to generate more value.

At first blush, their joint bid to privatize the company looks like a good one for minority shareholders. As PCCW's share price plunged further amid general market turmoil in November, Mr. Li and China Netcom tabled an offer of HK$4.20 a share for the 52% of the company they do not own. The deal valued PCCW's stock at a significant 45% premium to the company's share price immediately before the bid was announced.

But many retail investors bought the company's shares at much higher levels and are angry that Mr. Li's group appears to be taking advantage of the current market downturn to try to buy them out cheaply. For much of last year, PCCW's stock price was hovering around HK$5.00 -- above Mr. Li's offer -- before shares plunged across the board, and some investors would rather hang on to the dividend-paying stock rather than cash out. Some shareholders are also unhappy the proposal would see Mr. Li and state-owned China Netcom receive a special dividend of about US$2.4-billion paid out in cash once the deal closes.

Their hostility at a testy shareholder meeting last week forced Mr. Li's group to sweeten the pot by 7.1%, to HK$4.50 a share, rather than lose a scheduled vote on the deal. The new offer, which must be approved by 70% of shareholders at a vote likely to place by the end of this month, is no more guaranteed to go through. PCCW shares closed Tuesday at HK$3.55, well below the offer made by Mr. Li's group, showing that investors don't expect the transaction to go through.

Mr. Li, whose father took a sizeable stake in Canadian Imperial Bank of Commerce when it was forced to cast around for additional capital last year, has tried and failed three times to sell part or all of his stake in PCCW. The Hong Kong-based billionaire was also widely reported to have backed a takeover bid for BCE led by New York-based private equity fund Cerberus Capital Partners. The bid, in mid-2007, was turned down at the time in favour of another competing offer.

Source:Financial Post