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PCCW and Telstra Strike New Deal on Internet, Mobile Alliance
Australia's Telstra Corp Ltd. has won major concessions from Hong Kong's Pacific Century CyberWorks Ltd. in their revised multi-billion dollar strategic alliance announced Friday.
PCCW, created only last year by Richard Li, and Australia's former telephone monopoly are linking up to provide pan-Asian Internet services and to create a new regional mobile telephone company.
The framework for the deal was provisionally agreed in April at the height of the global boom in technology stocks.
Since then, the value of PCCW shares has more than halved and Telstra, whose own share price has also nose-dived, had been under intense pressure to renegotiate the terms of the agreement.
PCCW, Hong Kong's dominant telecoms carrier and Internet services provider, hailed Friday's final agreement as "a win-win situation" for shareholders of both companies.
"We have been working for some time to make this alliance a reality," said PCCW chairman Richard Li, the son of Hong Kong's most famous tycoon, Li Ka-shing. "It is a great step forward for both companies."
Under the new deal, Telstra will pay PCCW US$1.68 billion for a 60 percent controlling stake in the mobile company, compared with US$1.5 billion for a 40 percent stake in the original deal.
Telstra also secured a reduction from US$1.5 billion to US$750 million in the amount of cash it is putting into PCCW in the form of a bond convertible to the Hong Kong company's shares.
The bond will be convertible at a 15 percent premium to PCCW's share price over the next 45 days. Prior to their suspension ahead of Friday's announcement, PCCW shares were trading at HK$7.65. Under the original deal, the bond would have been convertible at PCCW's April share price of US$19.52 (US$2.50).
The two companies said they expected Telstra to end up with a 2.8 percent stake in PCCW on full conversion.
To compensate for the reduction in the amount of cash it is receiving directly from Telstra, PCCW is to receive US$1.125 billion from the equally owned Internet Protocol (IP) backbone joint venture. Telstra will receive US$375 million.
This however depends on the venture being able to raise US$2 billion in debt finance.
PCCW, which has been under pressure to cut its debt following its August takeover of Hong Kong's main phone company, HKT Cable and Wireless, said the new accord would mean it would receive a total of US$3.555 billion in cash, cutting its overall debt by more than a third to US$5.5 billion.
The revised terms for the mobile phone part of the deal mean Telstra is paying US$2,926 for each of PCCW's mobile phone subscribers, compared with US$3,950 a subscriber under the original deal.
Alex Arena, PCCW executive committee deputy chairman, said the cut was in line with the fall in valuations of mobile companies around the world.
"This alliance positions PCCW and Telstra in a very strong position to tap the high-growth wireless market, including the wireless Internet market, in the world's fastest growing mobile region," Arena said.
Telstra will also provide CyberWorks with distribution services for its Network of the World internet service. NOW will be accessed via a button on the Testra home page and Telstra will distribute the service via its high-speed broadband lines.
Telstra intends to provide access to broadband services to 90 percent of the Australian population within two years, PCCW said.
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