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By Michael Flaherty
HONG KONG Aug 29 Bain Capital and Carlyle Group
are among the private equity firms through to the next round of
bidding for a stake in the telecom unit being spun out of Hong
Kong's PCCW (0008.HK), according to sources.
A deal, expected to come late this year, could fetch $2.5
Two sources involved in the deal said Goldman Sachs's (GS.N)
private equity arm was considering joining TPG Capital in its
own offer for the unit, though they could not confirm that the
two had officially linked up.
Sources also said Apax Partners moved into the next round of
bids, due in mid to late October.
PCCW, Hong Kong's former monopoly fixed-line carrier, said
in May it planned to fold its core media and telecoms businesses
into a separate firm called HKT and sell 45 percent of the new
company. At the time, PCCW shares had dropped 90 percent since
The auction pulled in major private equity players from
around the globe, attracted to the company's steady cash flows
and commanding market position at a time when big, attractive
buyout targets are hard to find across Asia.
Sources have told Reuters that the other buyout firms that
made it past the first round are: South Korea's MBK Partners,
advised by Lehman Brothers LEH.N; TPG, advised by JPMorgan
(JPM.N); Providence Equity Partners, advised by Citigroup (C.N);
and Australia's Macquarie Group (MQG.AX), advising itself. TPG
and Macquarie tried to buy PCCW assets in 2006.
Sources said Bain is being advised by Morgan Stanley (MS.N),
Carlyle is being advised by Deutsche Bank (DBKGn.DE), and Apax
is being advised by Merrill Lynch MER.N. Like any auction,
bidders and partnerships could drop out or be added on at any
All six firms declined to comment. Goldman Sachs, PCCW, and
UBS UBSN.VX --the bank running the auction--also declined to
HKT will consist of three PCCW businesses: information
technology, telecommunications, and media.
PCCW hopes to spin off HKT into a publicly traded division.
PCCW's broadband TV arm, called nowTV, is the world's largest
provider of IPTV. The company also controls a property unit.
Buyout firms are smitten with HKT's cash flows, though
completing and profiting from such a deal are seen as no easy
task. Private equity firms will be limited in how much money
they can borrow to purchase the stake, a factor likely to pinch
their potential investment returns from the deal.
In addition, any deal involves coming to an agreement with a
complex mix of characters, including the Chinese government and
PCCW chairman Richard Li, the younger son of Hong Kong's richest
man, Li Ka-shing.
Chinese government-run China Netcom (0906.HK) owns nearly 20
percent of PCCW and played a role in thwarting PCCW's last
attempt at selling assets. Li, 41, has long tried to extricate
himself from the company to pursue other deals.
(Editing by David Cowell)