Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Come and get it while it's hot.

Private equity firms looking for a target should be booking a ticket to Hong Kong, where billionaire Li Ka-shing is considering a sale of his fixed-line phone business.

On the face of it, there's little to recommend Hutchison Global Communications Ltd. Corporate fixed-line and data-management services aren't exactly sexy these days as cloud computing and newer technologies take over. Earnings at Hutchison Global's parent, Hutchison Telecommunications Hong Kong Holdings Ltd., slumped last year and its stock is down almost 50 percent from a May 2013 high.

Bad Line
Hutchison Telecommunications Hong Kong, the parent of Hutchison Global Communications, saw earnings slump last year
Source: Bloomberg

Holding onto Hutchison Global could prove a drag for Li, as he carves out a future in the more exciting market of mobile phones, or, at the other end of the scale, sure and steady utilities such as Australian power provider Duet Group.

Private equity, flush with plenty of ready cash, is the best owner for it. Such firms would find a lot to like in Hutchison Global, including its business-customer focus. There's also the opportunity to get management control, a rare thing in Asia. Plus if the $1 billion price tag is anything to go by, it's selling cheap.

According to Morgan Stanley, HKBN Ltd.'s purchase for HK$650 million ($83 million) of the telecommunications and online marketing solutions units of New World Development Co. in February last year was completed at 10 times enterprise value to Ebitda. That was followed in October by MBK Partners Ltd. and TPG Capital's acquisition of internet provider Wharf T&T Ltd., owned by billionaire Peter Woo's Wharf Holdings Ltd., for HK$9.5 billion, done at 11.5 times enterprise value to Ebitda.

With Hutchison Telecommunications' stock currently at an enterprise value to Ebitda of six times, Hutchison Global looks significantly undervalued. If an MBK and TPG Capital consortium were prepared to bid, Hutchison Global could be merged with Wharf T&T and command a large chunk of Hong Kong's corporate fixed-line business.

Losing Relevance
Hong Kong accounted for just 3 percent of CK Hutchison's earnings before interest and tax in 2016
Source: CK Hutchison company filings
* Includes Panama, Mexico and the Middle East. Note: An additional 2% of Ebit, not shown, represents contributions from finance and investments.

For Li, an exit would continue to chip away at his presence in Hong Kong, perhaps no bad thing when other geographies and industries promise better returns. Hong Kong made up just 3 percent of CK Hutchison Holdings Ltd.'s earnings before interest and tax last year, down from 5 percent in 2015. His phone should be ringing non-stop.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net