May 12 (Bloomberg) -- PCCW Ltd. Chairman Richard Li filed an appeal against the Hong Kong court ruling that blocked his HK$15.93 billion ($2.1 billion) buyout of the city’s biggest phone company after judges said shareholder votes were manipulated.

Li’s Pacific Century Regional Developments Ltd. submitted the application to the Court of Appeal today, Karin Wong, a spokeswoman for the company, said by phone. Pacific Century, listed in Singapore, is the biggest shareholder in PCCW, with a 22.9 percent stake.

Li, the son of Hong Kong’s richest man, is challenging the Court of Appeal ruling that said his buyout bid only obtained the required support at the Feb. 4 PCCW shareholders ballot after a “clear manipulation” of the vote. The 42-year-old billionaire dropped the takeover last month after the court rejection. Barring the ruling being overturned, Li must wait 12 months to make a fresh offer under Hong Kong rules.

“The major obstacle facing Li’s lawyers is to persuade the court to take a case whose ruling won’t affect substantive rights of the parties,” Eric Cheung, assistant law professor at the University of Hong Kong, said by phone today. Since the privatization plan has been dropped, the court is unlikely to accept a case like this on general principle, Cheung said.

Judges Anthony Rogers, Johnson Lam and Aarif Barma upheld an appeal by the Securities and Futures Commission, which argued that some PCCW investors were improperly offered stock to boost support for the bid.

Ownership Issues

The judges ruled that the splitting of stock holdings ahead of shareholder votes, while legal, can undermine the spirit of the law and amount to manipulation, according to a 74-page written judgment issued yesterday, the Court of Appeal’s first explanation of why it blocked the deal on April 22.

The judges upheld the appeal by the Securities and Futures Commission, which argued that some PCCW investors were improperly offered stock to boost support for the bid.

“The judgment will guide future court decisions,” said Timothy Chan, an analyst who covers PCCW at CLSA Ltd. in Hong Kong. “The regulator is likely to consider revisions to company law to spell out more clearly the dos and don’ts regarding share splitting, instead of relying solely on the courts.”

PCCW shares fell 13 percent from April 23 to May 6 after Li scrapped his buyout on the court ruling, before the stock started trading without the right to a HK$1.30 special dividend. The shares rose 1.4 percent to close at HK$2.12 in Hong Kong today, compared with a 0.4 percent gain in the benchmark Hang Seng Index.

‘Re-open Offer’

The company’s stock-price estimate was halved to HK$2.50 by Credit Suisse Group today, which cited ownership issues and competition in the city’s telecommunication’s market. Analysts including Jeffrey Tan maintained the company’s “neutral” investment rating.

The joint-buyout offer by Li and China United Network Communications Group Corp., was supported by more than 1,400 PCCW shareholders at the ballot in February, compared with more than 800 against. Adoption of the plan required a majority of the investors participating in the vote, in addition to 75 percent of the shares represented.

More than 800 people registered as PCCW shareholders shortly before the ballot, including several hundred agents at an insurer formerly controlled by Li who were given PCCW shares by a manager, according to the regulator.

“If an appeal is successful, they will be entitled to re- open the offer,” shareholder activist David Webb said in a phone interview yesterday, after the decision to appeal. “The judges are all agreed that there was vote manipulation, and the ruling was, as far as I am concerned, a sound one.”

‘Improper Activities’

Webb, a former independent director at Hong Kong Exchanges & Clearing Ltd., lodged the complaint in January about the transfer of PCCW shares that prompted the vote-manipulation investigation by the Securities and Futures Commission.

“This judgment makes it clear that share splitting in this context is a form of vote manipulation and the results of shareholder meetings achieved by manipulative devices may be struck down by the court,” SFC Chief Executive Martin Wheatley, said in a statement yesterday.

Fortis Insurance (Asia) Co. Executive Regional Director Lam Hau-hwa bought 500,000 PCCW shares and distributed them to 494 people in January after phone calls with Francis Yuen, a business associate of Li’s, according to Winston Poon, the commission’s lawyer. Yuen and Lam both denied they participated in a plan to manipulate votes.

Terminated Services

Pacific Century and Starvest Ltd., the Li-controlled companies that made the buyout offer, on Feb. 12 denied having “any knowledge of or involvement in any improper activities.” Yuen, vice-chairman at Pacific Century, denied any wrongdoing. Li said on March 8 that he didn’t ask anyone to buy shares to gather support for the buyout.

Anita Choi, a spokeswoman for PCCW, said the company will study the judgment before issuing a comment.

While Judge Rogers noted “a remarkable series of coincidences,” regarding contacts between Yuen and Lam, for the purposes of the present appeal, “it is not necessary to come to a concluded view as to what role, if any, was played by Mr. Francis Yuen,” he said.

Fortis said it terminated Lam’s services yesterday after an internal investigation. The company said it was not involved in the purchase and distribution of PCCW shares, according to a statement. Fortis respects the court’s decision and won’t allow agents to violate its code of conduct, it said in the statement.

The appeal court decision overturned an April 6 ruling by High Court Judge Susan Kwan, who cleared the deal on grounds that share splitting was legal in Hong Kong.

Li is a son of Cheung Kong (Holdings) Ltd. Chairman Li Ka- shing, Hong Kong’s richest man.

The case is PCCW Ltd. et al. and Securities and Futures Commission, CACV85/2009, Hong Kong Court of Appeal.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net.

Last Updated: May 12, 2009 05:10 EDT