"We have been working for some time to make this alliance a reality," said Pacific Century Chairman-CEO Richard Li. In the deal, Pacific Century will receive $3.55 billion in cash, which "will allow us to reduce our debt to less than $5.5 billion, a level few thought possible when we acquired Hong Kong Telecom," the Chinese territory's leading telephony service provider, he said.
Pacific Century hopes the victory will restore some luster to its tarnished image. The joint venture is Mr. Li's first victory since February, when he made a gutsy bid for Cable & Wireless HKT. The 33-year-old son of Hong Kong billionaire Li Ka-shing outsmarted Rupert Murdoch and Singapore Telecommunications to win control of HKT. His gamble was not unlike America Online's bold bid for media giant Time Warner in January, except in recent weeks Pacific Century has skirted disaster.
STOCK DROPS 50%
Pacific Century's shares have lost 50% of their value in the past six weeks amid rumors that the Telstra deal would fall through. The company also suffered major loss of face, as the Chinese say, last month when Taiwan's largest broadband and cable operator, GigaMedia, walked away from a $100 million deal with Pacific Century to develop Chinese-language content in Taiwan.
Instead, GigaMedia teamed up with Mr. Li's biggest rival, Star TV, in a distribution deal that combines Star TV's programming with GigaMedia Internet and cable resources.
As a result, Mr. Li desperately needed to cinch the Telstra deal, to link with a major telecommunications partner, lower Pacific Century's $9 billion debt burden and restore investor confidence. That forced him to accept less favorable terms.
Under the final arrangement, Pacific Century and Telstra will form a 50/50 global IP backbone company and a regional network of Internet data centers targeted at China, Japan, New Zealand, Singapore, South Korea and Taiwan. The deal also includes a content distribution agreement for Pacific Century's struggling Network of the World, a broadband Internet and TV portal, which was launched in London in July.
In addition, Telstra will pay Pacific Century $1.68 billion for a 60% stake of a regional third-generation mobile telephony company offering wireless and voice services.