Shareholders Reject Plan to Merge CKI, Power Assets

HONG KONG—Tycoon Li Ka-shing was dealt a blow on Tuesday after a stormy shareholders meeting in which investors voted down the proposed US$13-billion merger of his infrastructure arm and a cash-rich affiliate power company.

The rejection of the deal to merge Mr. Li's two Hong Kong-listed units—Cheung Kong Infrastructure Holdings Ltd. and Power Assets Holdings Ltd.—is a setback for the octogenarian and his elder son and likely successor, Victor. CKI had signaled it wanted access to a $8.75-billion cash pot held by electric utility Power Holdings, so that it could fund acquisitions.

But about half of the Power Assets shareholders who voted Wednesday rejected the deal, surpassing the threshold needed to kill the merger, CKI said Wednesday in a regulatory filing. Some analysts and two influential shareholder-proxy firms had opposed the deal, suggesting that Power Assets was worth more than CKI was offering.

It is the second time that Hong Kong's richest man has failed to access Power Assets' cash after the firm's shareholders earlier this year voted down a proposal for it to buy as much as US$1.58 billion of CKI bonds. The 87-year-old Mr. Li has said that Victor, 51, who runs his father's infrastructure and ports businesses, will eventually take over the business empire without providing a timetable. The tycoon is restructuring his businesses and has spent billions buying European telecoms and railcar assets over the past two years ahead of any such transition.

Hong Kong securities law prevents Mr. Li from revisiting a merger for at least one year. Meanwhile, analysts say, Mr. Li will face pressure to return to investors at least some of the billions in cash locked away in Power Assets through a special dividend.

Both companies said in statements that they were they "disappointed" that the proposed merger was unsuccessful. "CKI will continue to move forward in our own strategies for growth," a CKI spokeswoman said.

"We are disappointed at today's voting result but respect the views expressed by shareholders. It will be business as usual for the company," said a spokesman for Power Assets.

On Tuesday, hundreds of elderly mom-and-pop investors streamed into a five-star hotel owned by Mr. Li to grill his right-hand man, Power Assets Chairman Canning Fok, about the deal. Mr. Fok was visibly agitated as he was repeatedly asked about whether the merger was in the best interests of shareholders, according to three people who attended the meeting.

Several investors criticized the way the value of Power Assets was calculated and another asked if the utility company would broaden its mandate to invest in nonpower-related assets if the merger failed, the people said. A representative from the independent financial adviser tasked with reviewing the deal told the audience twice that CKI's offer was final, they said.

CKI first proposed buying the 61% stake of Power Assets it didn't already own by offering shares in the combined company and a special dividend. One month later, CKI raised the ratio of shares it was offering in the combined firm to 1.066 from 1.04. It also raised the dividend to 7.5 Hong Kong dollars (about 97 U.S. cents) from HK$5 a share.

Shareholder-proxy firms Institutional Shareholder Services Inc. and Glass, Lewis & Co. both recommended that their clients vote against the deal. The two proxy firms are watched closely by large money managers and institutional investors, who typically use them as guides on how to vote on corporate ballot items.

About one-fifth of Power Assets' shareholders are institutional investors such as BlackRock, Vanguard Group, State Street Corp. and Schroders.

The proposed merger was the latest attempt by the senior Mr. Li to restructure his businesses to pursue new growth strategies. Earlier this year, the tycoon reorganized his two flagship companies, Cheung Kong Holdings Ltd. and Hutchison Whampoa Ltd., to separate his property business from his conglomerate, whose operations include ports and telecom businesses.

Write to Wayne Ma at wayne.ma@wsj.com

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(END) Dow Jones Newswires

November 24, 2015 09:55 ET (14:55 GMT)

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