[HONG KONG[ Hong Kong billionaire Li Ka-shing's efforts to reorganize his business empire hit a setback after an influential proxy advisory firm recommended investors reject a US$12.3 billion buyout offer from the tycoon for low-balling minority shareholders.
The all-stock offer from Li's Cheung Kong Infrastructure Holdings Ltd for affiliate Power Assets Holdings Ltd should be as much as 13 per cent higher, Institutional Shareholder Services Inc said in a report Monday. ISS, which provides advice to more than 1,600 institutional clients worldwide, also said that CKI's special dividend should be paid before a deal goes through, not after as proposed by CKI.
The recommendation from ISS, which also flagged concerns about conflicts of of interest, is the latest setback facing Hong Kong's richest tycoon in his pursuit to merge his utility businesses as the octogenarian billionaire prepares to hand over power to his eldest son Victor Li. Investor opposition prompted CKI in October to sweeten its offer.
"We believe that in the end they might raise the offer a little bit," said Niklas Hageback, who helps oversee about US$212 million - including Power Assets shares - at Valkyria Kapital Ltd. "In the end, they will probably go through with this because they need the deal."
CKI shares fell 2.4 per cent to close at HK$68.55 in Hong Kong, while Power Assets dropped 1.4 per cent to HK$73.85, meaning CKI is offering a 1.1 per cent discount for Power Assets shares based on Tuesday's close.
The board of Power Assets and its Independent Board Committee recommend that investors vote in favor of the offer because it's fair and reasonable, the company said in an e- mailed statement. A representative at CKI didn't respond to queries.
Considering ISS's influence and the low bar needed to derail the transaction, CKI's deal is "almost impossible" to pass unless it's sweetened, CLSA analysts wrote in a research note to clients on Tuesday.