Hong Kong's richest man humbled as investors reject buyout

[HONG KONG] Power Assets Holdings Ltd shareholders rejected a US$12.4 billion buyout offer from billionaire Li Ka- shing, dealing a rare setback for Hong Kong's richest man as he seeks to consolidate his utilities and infrastructure businesses before handing over control of his empire to his elder son Victor.

Mr Li, making his offer through Cheung Kong Infrastructure Holdings Ltd, failed to get enough Power Assets minority shareholders voting at a meeting on Tuesday to approve the deal, according to a statement to the Hong Kong exchange. In order to go through, the proposal needed at least 75 per cent of votes cast by minority shareholders to approve the transaction. Only 50.8 per cent did.

Earlier this month, influential proxy advisers Institutional Shareholder Services Inc and Glass Lewis & Co recommended investors vote against Li's offer, defying a man who's so revered in Hong Kong for his business acumen that he's known as "Superman." The 87-year-old tycoon, who merged his two flagship units earlier this year, is seeking to consolidate his business empire before he retires.

"People had valuation concerns and they were not happy with the proposal," said Ronald Wan, chief executive at Partners Capital International in Hong Kong. "It's a short-term setback to Li's plan to streamline his businesses. But they will still pursue it again, even though it's not likely in the short term." Special Dividend Because of the vote results, CKI won't be able to make another attempt to buy Power Assets for another year. The two companies, both of which are controlled by the Li family, said in separate statements they were disappointed with the outcome.

Analysts at Securities Group Inc and UBS Group AG cut their investment ratings on Power Assets after the deal collapsed. Daiwa, which says it was the first broker to make the case for a CKI-Power Assets merger, projected the stock could see 13 per cent of "value destruction." Power Assets last closed at HK$72.65, up 7.5 per cent since the offer was first announced. CKI rose 4.4 per cent during that period.

CKI had offered 1.066 of its shares for every one of affiliate Power Assets, a transaction valued at US$12.4 billion based on their latest stock prices. It had also proposed a special dividend of HK$7.50 per share payable to the combined company's shareholders after the deal.

In addition to failing to get enough votes, about 26 per cent of Power Asset's minority investors rejected the deal. In order to go through, no more than 10 per cent of those shareholders could turn down the proposal.

At Tuesday's vote, journalists weren't allowed into the meeting venue and executives dodged reporters' questions as they made their way out from the hours-long session. Some investors voiced frustration with the offer.

"No one from management could persuade some of us to vote in favor of the offer because it isn't justifiable," said Hui Ming-tak, who's held 4,000 shares of Power Assets for more than 10 years. "The deal is more tilted in favor of CKI than Power Assets." The proposed merger, first announced on Sept 8, would have given CKI full control of Power Assets' more than US$8.7 billion in cash and equivalents, which could have been used to fund future acquisitions. After the deal, the Li family's CK Hutchison Holdings Ltd. would have controlled the combined company with a 49 per cent stake.

In the past two years, CKI and Power Assets have bought assets including an Australian gas distributor, a Dutch waste processor, and an airport parking business in Canada. The combined company would have owned and operated utilities, waste management and transportation in China, Europe and Australia.

"CKI will continue to move forward in our own strategies for growth," the company said in its statement. "The Group will build on the strength of our existing infrastructure portfolio and balance sheet to pursue new opportunities for expansion."

BLOOMBERG