Hong Kong’s Court of Appeal condemned as “nothing less than dishonesty” the voting on a $2.1 billion scuttled deal to take private the city’s biggest telecom operator, PCCW.
The Court on Monday published a note to explain the reasons for its judgment turning down PCCW’s majority shareholders Richard Li and China Unicom, who wanted to take the company private. The court said the bid was clearly manipulated (See “Li Pulls The Plug On $2 billion PCCW Bid”).
“Vote manipulation is nothing less than a form of dishonesty. The court cannot sanction dishonesty. It is also a form of coercion where the wishes of the minority in number of shares are overridden by those who hold the majority of the shares,” Justice Anthony Rogers wrote in the note.
The judge said it could not sanction the deal because, “there was a clear manipulation of the vote and because of the extent to which that happened the court cannot be sure that the vote was fair.”
Richard Li, the youngest son of Li Ka-shing, the world’s 16th richest billionaire and Hong Kong’s richest man, and state-owned China Unicom, announced last October their plan to buy the 52.3 percent shares in PCCW that they did not already own at 4.20 Hong Kong dollars (54 cents) a share. The plan came after PCCW’s share price had dropped 42.3 percent to 2.75 Hong Kong dollars (35 cents), close to its historic nine-year low of 2.45 Hong Kong dollars (31 cents). In December, Li and Netcom raised the offer price to 4.50 Hong Kong dollars (58 cents).
The bid was initially approved. The approval came in a heated shareholders meeting held in early February which lasted seven and a half hours. Yet before the court was scheduled to examine Li’s plan, a news report broke that a number of Fortis Insurance agents had been given board lots of PCCW shares to induce them to vote in favour of the privatisation plan. Fortis Insurance Asia was formerly known as Pacific Century Insurance before it was acquired by Fortis Group in 2007. Francis Yuen, the former chair of Pacific Century Insurance, a mentor of Richard Li’s who helped Li set up his own business in the early 1990′s, was allegedly involved in the secret plan.
The scandal aroused strong discontent from PCCW’s minority shareholders and triggered an investigation by the local securities watchdog, which later blocked the deal.
The Hong Kong Court of Appeal last month rejected the buyout bid as a result of the investigation on vote manipulation. Li and Unicom dropped their bid a day after being thwarted by Hong Kong’s Court of Appeal.
In the explanatory note just released, the judge found that Lam Hau Wah, a regional executive director of Fortis Asia, purchased 2.4 million shares of PCCW in the first two weeks of January. Before that, he had not purchased shares in PCCW for about 10 years. Lam withdrew 500,000 shares in board lots of 1,000 shares each, and distributed them among the Fortis Insurance agents as a “bonus.”
Four hundred and ninety four people who received board lots of shares from Lam voted in favour of Li’s plan by proxy.
The judge declined to infer from a number of coincidences that Francis Yuen had anything to do with Lam’s plot to manipulate head-count, or had any knowledge of what Lam did. Yet it remains controversial that Yuen’s secretary, Lesley Wai, had helped distribute the proxy forms at her office to Lam’s secretary.
Category: Hong Kong