HONG KONG (Reuters) – A Hong Kong appeals court on Wednesday blocked the $2.2 billion privatisation of phone company PCCW Ltd (0008.HK) by its largest shareholder, Richard Li, ruling in favour of the city’s securities watchdog.
The decision overturns an April 6 High Court decision allowing the deal to go ahead, and casts the buyout bid, buffeted by allegations of vote-rigging, into uncertainty.
Li said his group may appeal the ruling, responding with a “maybe” to a phone text message query, but later said the company would wait until it sees the ruling before making a decision.
“The company is disappointed at the Court of Appeal’s decision, given the clear findings and reasons set out for the April 6, 2009, judgement of the High Court,” PCCW said in a statement.
The company has a Thursday deadline to complete its privatisation plan under an agreement with one of its lenders. It held back further comments pending details of the ruling, which may be released on Thursday.
The Securities and Futures Commission has said PCCW shares were split on the eve of a shareholder vote on the deal in order to meet a headcount requirement and manipulate the outcome.
“This is an amazing series of coincidences,” Court of Appeal Judge Anthony Rogers said at Wednesday’s hearing, describing how shares in PCCW were distributed to insurance agents, which sparked the allegations of vote-rigging.
Hong Kong’s High Court had earlier found nothing irregular and no strong evidence of coercion of minority shareholders, who had accepted the offer from Li’s group of HK$4.50 per share, sweetened from HK$4.20.
“Today’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,” said Martin Wheatley, chief executive of the SFC.
He said the SFC will continue its probe into the voting.
A group of minority shareholders outside the court house welcomed the ruling.
“I am a Hong Kong person, and I am ardently in love with Hong Kong,” sang PCCW investor Wong Tak Lau in jubilation, saying social justice had prevailed in the city.
The privatisation is being made through Li’s Pacific Century Regional Developments PCEN.N, the largest PCCW shareholder, and Netcom of the Beijing-backed China Unicom (0762.HK) group.
“We still don’t know if PCCW will appeal this decision. That is another overhang on the stock,” said Timothy Chan, analyst with CLSA, which has a sell rating on PCCW.
“There is a lot of uncertainty at this point, and when it starts trading some shareholders may hold on to it until they get more clarity.”
PCCW shares, which last traded at HK$4.12, have been suspended since the start of the appeal hearing on April 16.
Shareholder activist David Webb, who first alerted the SFC to possible vote-rigging in the deal, hailed the court’s ruling.
“This is a good day for corporate governance in Hong Kong, and we need many more,” he said. (US$=HK$7.8)
By Nerilyn Tenorio
(Additional reporting by Parvathy Ullatil, Joanne Chiu, and Alison Leung; Editing by Tony Munroe and Rupert Winchester)