ISS asks minority investors to reject Li Ka-Shing's deal

A proxy advisory firm told Power Assets Holdings Ltd.'s minority shareholders to reject a 12-billion-dollar-plus buyout proposal from affiliate Cheung Kong Infrastructure Holdings Ltd. and hold out for a better offer, setting back Hong Kong billionaire Li Ka-Shing's efforts to reorganize his business empire.

Minority shareholders, who've been offered 1.066 CKI stock for each Power Assets share, shouldn't agree to a deal unless the merger ratio is raised to a level ranging from 1.09 to 1.2, Institutional Shareholder Services said in a report Monday. ISS, which provides advice to more than 1,600 institutional clients worldwide, also said that CKI's special HK$7.50-a-share dividend should be paid before a deal goes through, not after as proposed by CKI.

The ISS recommendation is the latest setback facing Hong Kong's richest tycoon in his pursuit to merge his utility businesses as the octogenarian billionaire prepares to hand over power to his eldest son Victor Li. Investor opposition prompted CKI in October to sweeten its offer.

"I think most people would agree that the offer is underpriced, but it's difficult to see them raising the offer a second time," said Castor Pang, head of research at Core Pacific Yamaichi in Hong Kong. CKI fell as much as 2.4 per cent in Hong Kong trading, while Power Assets dipped by as much as 1.9 per cent. Representatives at both companies didn't immediately respond to queries about ISS's recommendation.

Power Assets shareholders are due to vote Nov. 24 on the offer. To pass, the deal must be approved by at least 75 per cent of minority shareholders voting at the meeting. The deal would also fail if more than 10 per cent of all minority shareholders reject it.

The proposed merger, first announced on Sept. 8, would give CKI access to the $8.7 billion in cash and equivalents held by Power Assets and bring together holdings in 11 projects globally. After the acquisition, the Li family's CK Hutchison Holdings Ltd. would own 49 per cent of the combined company.

ISS is among the most influential proxy advisory firms providing corporate governance advice to fund managers. It covers about 38,000 companies in 115 markets.