Court of Appeal judge Anthony Rogers blasted tycoon Richard Li Tzar-kai's bid to privatize PCCW (0008) as "outrageous," saying it is "pathetic" what has happened to the former blue chip.
"You're coming along and saying, this is jolly good for the company. Other people don't seem to agree," Justice Rogers told PCCW counsel yesterday.
He said he does not see any difference between paying people to vote a certain way and doling out free PCCW shares.
Justice Johnson Lam Man-hon said the offer parties were telling PCCW shareholders: "You have to get out, whether you like it or not."
He added: "There's a difference between a takeover, and a squeezing out. That would be expropriation."
The hearing continues today. The court will hear from several more minority shareholders as well as Pacific Century Regional Developments, the vehicle Li is using to privatize the phone company.
PCCW counsel Michael Todd told the court the rationale behind the privatization was to give minority shareholders the opportunity of realizing their investment.
Justice Rogers hit back: "And that's it? That's the rationale of the scheme? But why? If you can't tell me why, I can't see any rationale for this scheme at all." He charged that the offer parties were trying to buy out minority shareholders "at bottom price."
"These small shareholders are not realizing their investment but in fact are being "left behind," he said. "I'm sorry, I just cannot see the rationale for this. I can't see it's going to do the company any good."
Justice Rogers noted that PCCW would declare the offer parties a special dividend that would completely cover the cost of taking the company private, plus an extra HK$2 billion.
"It's outrageous," he said.
Gesturing toward the elderly retail investors at the hearing, he said: "These people have put their life savings into it, and they've got nothing left."
Justice Rogers described Hong Kong Telecom, the predecessor of PCCW, as "a very special company in Hong Kong" - a stable firm one could invest retirement money in.
He then stormed: "Look what's happened - it has gone down from HK$120 to nothing! It's pathetic."
An elderly woman, a PCCW investor, broke down in tears at that point.
Justice Lam said minority shareholders may have their own ideas about the value of the company. "Do we just squeeze them out against their wishes?" he asked.
Responding to allegations from the market regulator, the Securities and Futures Commission, about distortions of the vote, Todd said the evidence before the court does not contain "even a suggestion" that shareholders were coerced or induced to vote in a particular way. The commission claims more than 800 investors were given free PCCW shares to back the bid.
Justice Rogers said a recommendation for the proposal from PCCW's independent financial adviser N M Rothschild & Sons was "not overwhelming."
"This is not the best thing since sliced bread, is it?" he asked, citing a BOC International report saying an offer price of HK$5 would be more fair and a Morgan Stanley report giving PCCW shares a target price of HK$5.30.
Todd told the court it was possible that up to 122 investors may have left the shareholders' meeting before voting on the privatization proposal. Some small investors complained the meeting dragged on for seven and a half hours, forcing many exhausted elderly shareholders to leave before key votes.
Another 63 investors may have left before a second round of voting at the company's extraordinary general meeting - leaving a total of 185 investors whose fatigue may have stopped them from casting their votes.