In a brief and cautiously worded
announcement to the ASX this morning, Macquarie Bank confirmed it is part of a
consortium in “preliminary discussions” with Richard Li’s PCCW about possibly
buying some of its assets – but in a takeover-crazy world the game has already
turned into an auction, with the South China Morning Post reporting that
Newbridge Capital has already offered more than the rumoured MacBank deal.

As Bloomberg relays, the SCMP reckons Newbridge has offered HK$50 billion for PCCW, compared
with about HK$40 billion (a rough A$7 billion) from MacBank and friends for
the telecommunication and media parts of PCCW. It was the SCMP story on Macquarie yesterday that
started this PCCW ball rolling publicly.

Perhaps with the London Stock Exchange
failure still fresh in its mind, Macquarie’s ASX release promises little. “These discussions are at a very
early stage and it is far too early to predict whether they will result in a
transaction,” said MacBank, promising to “update the market if and when any
transaction progresses”. End of

Despite the cautionary tone of the
announcement , the market liked all the speculation and MacBank is up more
than a dollar. Maybe traders just like
the smell of the Millionaire Factory doing deals, any deals, as there’s nearly
always a buck in it somewhere.

But somewhat lost in the rush to get a
handle on it in this morning’s fish wrappers, though, is any clarity about what
PCCW might actually be worth and exactly what MacBank and unnamed friends might
be after.

The reality is that PCCW doesn’t make much
money and its ability to grow its fixed-line business (something that has captured some
) is less than a year old. It still has a long way to go just catching up with
the lines lost the year before.

Basically, PCCW’s net profit has been flat
at HK$1.6 billion for the past two years – and in 2004 the money came from
selling apartments, not phone services.
HK$40 or HK$50 billion is a helluva multiple for such a business.

Richard Li has previously taken Rupert
Murdoch and Telstra for a ride, selling them over-priced deals. He could well
be doing it again with two new players.

Peter Fray

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