Telstra threatening to cancel Cyberworks deal

Telstra threatening to cancel Cyberworks deal

SYDNEY (AFP): Australian telecoms giant Telstra has threatened to walk away from its US$3 billion alliance with Hong Kong's Pacific Century CyberWorks unless the deal price is slashed, a report said Thursday.

The Australian newspaper quoted a source at Telstra as saying it would try to reduce the HK$19.52 (US$2.50) entry price after a slump in PCCW's share price, which closed at HK$9.0 Wednesday.

"The negotiations will have to get tougher and we're saying: if you refuse to deal in good faith, we'll consider our options," the source said.

PCCW, run by whizz kid entrepreneur Richard Li, faces a US$12 billion debt and badly needs Telstra's support, the report said.

"They have to refinance their loan and they need our cash," the source said. "They're still keen to go ahead."

Teams from both companies were meeting in Hong Kong to discuss new terms, The Australian said.

Senior Telstra executives were meanwhile working on a new international strategy for the company in the event the deal, hailed as the company's "defining moment" when it was signed April, fell through.

The telco had planned to directly invest in PCCW by subscribing for US$1.5 billion in convertible notes. It was also to inject US$1.5 billion in cash, and plough in mobile phone assets estimated to be worth a further US$1 billion.

Telstra's beleaguered share price rallied Wednesday as rumours about the renegotiation of the PCCW deal circulated around the market.

Concerns over the costly alliance have seen Telstra scrip beaten savagely in the market, with the shares falling 23 percent to A$5.65 (US$3.11) between August 17 and September 25.

The stock continued to make gains in early trade Thursday, with fully-paid shares seven cents higher at A$5.97 and instalment receipts up six cents at $2.92.

Telstra had planned to create two new Asian companies, including a regional mobile phone operator and an internet infrastructure company, in the deal with PCCW and its subsidiary Hong Kong Telecom.