MARCH 10, 2000 VOL. 26 NO. 9

The Players
The deal, the winners and the losers

ALSO IN ASIAWEEK Cover: Internet money goes shopping in Hong Kong and what PCCW-HKT means for old-economy firms in Asia • Players: The deal, the winners and the losers • Interview: Richard Li on bagging the region's biggest buy • SingTel: What now for Singapore Telecom? • Chart: Comparing PCCW and Cable & Wireless HKT • No. 1: The Lis are definitely Asia's top business family Editorial: Taiwan should respond to China's peace feeler - hidden in a war threat Editorial: India's RSS must curb its chauvinism Philippines: Amid terrorist attacks in Mindanao, President Joseph Estrada plays tough with MILF insurgents Brunei: The sultanate sues Prince Jefri Singapore: Behind Ong Teng Cheong's maverick presidency • Extended Interview: Ong does not regret riling his former colleagues Nepal: Why the Maoists are resurgent Green Stakes: Why Asia has to clean up - fast • Snapshots: Where countries stand on the environment • Eco-warriors: Fighting to save the planet • By Design: Ideas that can make a difference Exhibitions: The art world - a proxy cross-straits battlefield Newsmakers: India's pointman for defense Real Estate: Building up Indonesia's multimedia dreams MyWeb: As this Malaysian Internet company proves, a U.S. listing is not an automatic road to riches Investing: Don't use yesterday's rules to value tomorrow's hottest telecommunications companies Business Buzz: CLOB gets resolved Viewpoint: Political reform is inevitable in China

THE WINNER
Richard Li, 33, a son of Hong Kong billionaire Li Ka-shing and founder of 10-month-old PCCW, made an offer for HKT after state-controlled Singapore Telecom submitted a bid for the Hong Kong company. He raised some $1 billion by placing PCCW shares and plans to borrow $11 billion from banks. Suddenly, the baby mogul riding the Internet wave will be running a real company.

THE DEAL
Pacific Century CyberWorks (PCCW) will pay Cable & Wireless HKT's shareholders as much as $38.1 billion in cash and stock. HKT shareholders can choose to get 1.1 PCCW shares for each HKT stock they own, or receive 0.7116 PCCW share and $0.929 in cash.

THE PRIZE
Founded in 1874, Cable & Wireless HKT is Hong Kong's dominant telecommunications company. It has lost its monopoly in overseas calls, but boasts near-100% fixed-line coverage of Hong Kong homes and offices and 80% broadband reach.

THE SELLER
Britain's Cable & Wireless, which owns 54% of HKT, is an international telecommunications services provider. It decided to sell its majority stake in HKT to help fund its move into the Internet and data-transmission technology.

THE RIVAL
Lee Hsien Yang, 43, a son of former Singapore prime minister Lee Kuan Yew and CEO of SingTel, saw his early bid for a "merger of equals" with HKT unravel as Hong Kong politicians assailed the proposal and Beijing sent signals it would prefer a Hong Kong partner for HKT. Lee forged on, but suddenly gave up Feb. 29, stoking rumors that SingTel may have reached an accommodation with PCCW for a future deal.

THE SPOILER
Rupert Murdoch threw a last-minute spanner into the, er, cyber-works by agreeing to buy 4% of SingTel for $1 billion. His satellite broadcaster, STAR TV, has a deal to provide HKT with TV shows and other content for the telecom company's broadband network. After PCCW won HKT, Murdoch withdrew his $1-billion offer, since it was contingent on SingTel gaining control of HKT. On the same day, STAR TV CEO Gareth Chang resigned. Murdoch and Richard Li are due to sit down and discuss the future of the HKT-STAR TV venture, which was scheduled to be listed this year.

THE CHINA CONNECTION
Beijing-owned Bank of China is helping arrange the loan to finance PCCW's acquisition. Another mainland company, China Telecom, which owns 10.8% of HKT, backed PCCW's bid. Officially, China says it has no position on the HKT deal, which it considers a purely commercial transaction. Almost no one believes those protestations. The perception is that the mainland encouraged PCCW to bid for HKT to make sure the telecom company remains in local hands. HKT is expected to help PCCW build a broadband network in China with the aid of China Telecom.

THE LENDER
HSBC Holdings will fund the bulk of PCCW's loan through its subsidiaries Hongkong Bank and Hang Seng Bank. Its investment arm was an adviser to the independent directors of HKT, but abruptly resigned. Soon afterwards, HSBC's lending division agreed to arrange a loan for PCCW. SingTel threatened to sue HSBC, charging that the group had access to details of its bid which it could have passed on to PCCW. HSBC denied the accusation, and SingTel has yet to go to court. Interesting factoid: Li Ka-shing used to be a Hongkong Bank board director.