A Cyberwork In Progress - Company Business and Marketing

Can Richard Li's wheeling and dealing make his Internet flagship add up to more than the sum of its parts?

BILLIONAIRE WONDER BOY Richard Li recently came swaggering into Japan, his latest stop in a worldwide effort to build a futuristic entertainment service on the Internet.

Li is one of Asia's most dynamic dealmakers and his Internet company, Pacific Century CyberWorks, is one of the highest-flying Web companies in the region. The Hong Kong-based firm is making its first foray into Japan's thriving Internet scene by paying $249 million for an 81 percent stake in Jaleco, an unprofitable maker of entertainment software that will change CyberWorks name to Pacific Century CyberWorks Japan later this year. CyberWorks says it will work with a unit of Sony on production of content for CyberWorks interactive entertainment service, Network of the World, or NOW.

NOW is at the center of Li's global ambitions and his audacious moves to make it a reality have earned him a reputation as a shrewd operator. But he has yet to prove that his wheeling and dealing will result in CyberWorks' becoming a coherent company that can use NOW to deliver tangible products to consumers and profits to shareholders.

"I think we are ahead of our time," says Li, adding that NOW is waiting for broadband to become more pervasive.

Li, 33, is the youngest son of Hong Kong's richest tycoon, Li Ka-shing, who runs a global empire of ports, retail, property and telecom companies. Although the younger Li has made a name for himself in his own right, he shares his father's knack for timing a deal. In 1993, he sold Star TV, a Pan-Asian satellite network that he started, to Rupert Murdoch for $950 million. The price was considered high at the time and gave Li a bundle of cash just before satellites were eclipsed by the Web as the the medium of the future. He founded CyberWorks last year and serves as its chairman and CEO.

The company was built via a string of acquisitions, from small Internet startups to a $28.7 billion takeover of Hong Kong telco Cable & Wireless HKT in a deal that closed last week. What holds it all together is the promise of great things to come from NOW and the power of Li's name to open doors and attract good managers.

That CyberWorks is a fledgling company with much to prove hasn't stopped Li from mining value from it. Earlier this month, Pacific Century Group Holdings, CyberWorks' parent company, floated 240 million shares, or 1 percent, of CyberWorks for $485 million. Li says the sale ensured that index funds that needed to balance their portfolios wouldn't bid up the stock's price, adding that cash from the sale would be be used to pay off the parent company's debt. But skeptics say that since the parent company is wholly owned by Li, the proceeds are as likely to have gone to lining his pockets. None of the critics, however, will comment on the record because of the tremendous power the Li family wields in Hong Kong's financial circles.

CyberWorks plans to use Jaleco to export popular Japanese content, including pop icons, animation and game characters, to the rest of the world. Analysts in Tokyo say that linking with blue-chip companies like Sony is a good move for CyberWorks, which otherwise would still be considered a nobody in Japan.

Indeed, Li knows the value of nabbing an established partner. In March, he launched one of the biggest corporate mergers in Asia when CyberWorks bought HKT. The deal catapulted CyberWorks into the ranks of the world's largest Internet companies with an estimated market capitalization of $50 billion.

The primary objective for CyberWorks now is to integrate the companies' two different cultures. An Internet startup with 1,200 employees, CyberWorks took on instant conglomerate status when it swallowed HKT, a lumbering company of 13,800 employees that has coasted for more than a century on easy returns as a monopoly player. The merger gives CyberWorks manpower as well as technology, but it will become a more complex business to run.

Li has put together a flurry of deals in the past year trying to lay the groundwork for NOW with various technology firms, telcos and content providers. They all focus on producing and distributing broadband entertainment for NOW that will allow people to sit in a virtual stadium, download music, fight in online wrestling matches and watch live footage of typhoons.

The picture is made even more complex by 50 investments that CyberWorks' venture arm has made and must incorporate into the NOW strategy. Some, including stakes in Japan's Hikari Tsushin and San Francisco-based broadband provider SoftNet Systems have already seen values drop dramatically.

To pay for the HKT merger the company has taken on $11 billion in debt. Help easing that load is due to come from Australian telco Telstra in the form of a $3 billion cash injection and a $1.5 billion convertible note. Analysts in Sydney, however, speculate that Telstra will want to renegotiate terms proposed in April. The deal is subject to the two sides agreeing on the value of assets, which have dropped significantly since the agreement was reached. For Teistra, CyberWorks' competition in Hong Kong's mobile-phone market has taken the shine off HKT's offerings. Li says he expects the Telstra deal to close near the end of October, a hint that even he is expecting a good haggle to ensue. "We do have alternatives, but we are set to work with them and we are going to hammer it out," says Li.

CyberWorks collects annual revenues of about $3.6 billion from HKT. Analysts vary widely on what they think CyberWorks is worth -- from $0.77 to $2.82 a share -- with the discrepancy depending on NOW's prospects. While that project may be somewhat visionary, it is off to a wobbly start with missed deadlines.

When CyberWorks first started talking about NOW, analysts were told that a TV channel and a Web portal would be launched at the end of 1999. That deadline passed and a new one was set for early this year. Then analysts were told that NOW would male a splashy start with live Wimbledon coverage on the Internet. But when NOW finally went live June 29, there was no Wimbledon and no marketing activity befitting the launch of a global media company's centerpiece.

For visitors to NOW's flagship studio outside London, there is promise in the uniqueness of NOW's concept: using the Net to find out what users want to do and see so content can be tailor-made cheaply. Executives softpedal the underwhelming debut, with some saying that a lack of competition gave them time to dawdle. Others concede that, for the time being, NOW is still in soft-launch mode. Even bulls on the company say that with broadband access still in its infancy, NOW is very much an experiment.

"The road to discovery is littered with the bones of explorers," says Michael Johnson, one of Li's senior advisers at NOW. Li and Johnson believe they are well on the way to building a sleek new vehicle that will speed them to their destination. But to outsiders, CyberWorks still looks more like a bunch of parts lying on a workbench.

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