Cyberson Gets Zapped

By Wendy Kan/Hong Kong

Hong Kong tycoon Richard Li seemed to be walking on air last March when he used his 10-month-old start-up, Pacific Century CyberWorks, to acquire the territory's dominant telecommunications company, Cable & Wireless HKT. The $35.9 billion merger was the largest in Asia outside Japan. Analysts fell over one another to issue buy recommendations on CyberWorks' stock, which they predicted would soar into the stratosphere. Whoops! Put a hold on that order. Six months later, analysts say the new firm's strategy of linking broadband Internet services to an Old World telco is no longer so compelling--and Li is losing altitude fast.

CyberWorks' share price plunged 16% in one day last month, to $1.16. (It's down almost 70% from its February high of $3.38.) It was dragged down partly by NASDAQ's own lackluster performance, but there was another, more direct cause. Britain's Cable & Wireless, the parent of the Hong Kong firm, dumped a quarter of its 20.1% stake in CyberWorks, acquired after the merger with HKT was approved in August. According to analysts, the move suggested that Cable & Wireless expects CyberWorks' shares to fall further. "Actions speak louder than words," says Henry D.C. Lee, managing director of Hendale Asia, an investment-advisory firm in Hong Kong. "The signal was clear. They wanted to get out."

How things change. When news of CyberWorks' plan to take over the telecom giant emerged on Feb. 15, the move was seen as inspired. The merger effectively allows CyberWorks to use HKT's assets, such as its broadband Internet service, cellular-phone system and potential third-generation cellular technology, as well as the right to offer programs of a former Richard Li property, Star TV network (a satellite broadcaster that runs mostly English-language programming across Asia) over the broadband network.

But back then, say critics, CyberWorks was overvalued--just as were a number of other Internet companies at the time. "The market is finally reverting to rational analysis," says David Webb, editor of the financial-monitoring site Webb-site.com which had valued CyberWorks' shares at just 54[cents] in February. "The company can't resume its rocket-like trajectory." CyberWorks has declined to comment on its business strategy, but Li, the son of shipping and real estate billionaire Li Ka-Shing, says the fact that Cable & Wireless' shares were initially snapped up by buyers showed "confidence in and support for our business plans and our overall strategy."

But some analysts say CyberWorks' problems go deeper than short-term stock volatility. Several strategic joint ventures aimed at turning the younger Li into Asia's most dynamic multimedia baron have failed to materialize in recent months. One deal was intended to enable CyberWorks to distribute Chinese-language content to the mainland. CyberWorks has also been unable to persuade Japanese Internet giant Softbank to distribute its Network of the World (NOW), a broadband Internet service delivered across Asia to television sets, computers and wireless devices. "This suggests it isn't as attractive as its potential partners once thought it was," says Chris Cheung, an investment analyst with Worldsec International in Hong Kong.

Although CyberWorks has several projects on the go, it is pinning its hopes primarily on NOW. Launched initially in London in June, now has so far garnered a lukewarm response. NOW is trying to keep a step ahead of fast-moving times by using broadband, but the rest of Asia is barely connected. "It's like inventing the cart before you have the horse," says Hendale Asia's Lee. "CyberWorks may be too far ahead of its time."

Li has been seeking strategic partnerships across Asia to gain local distribution. But as his luster fades, fewer potential partners seem interested in linking up with him. "Broadband will see big growth in three to four years' time, but in the short term, CyberWorks will remain an old phone company," says Lee. After a share-price drop earlier this month, analysts calculate that CyberWorks' net worth, at $24.5 billion, is about equal in value to just the HKT portion--effectively putting a zero valuation on the company's Internet business. Li's dream of walking on air has dropped below the clouds--and suddenly the future is looking more stormy than it did six months ago.