Billionaire Li Ka-shing’s Hutchison Whampoa Ltd. (13) agreed to sell a 25 percent stake in its retail arm to Temasek Holdings Pte for HK$44 billion ($5.7 billion) and pushed back plans for an initial public offering for the unit.
The companies plan to list A.S. Watson & Co. in two to three years in Hong Kong and Singapore, Li told a briefing yesterday, less than a month after saying it planned an IPO this year. Hutchison will pay a special dividend of HK$7 a share after the sale, which values Watson at about HK$177 billion, the Hong Kong-based company said in a statement.
The purchase is the biggest by Temasek, according to data compiled by Bloomberg, and gives the Singapore state-owned investment company a stake in a business with more than 10,000 stores worldwide. Hutchison gains funds as it expands in Europe and North America while reducing assets in Hong Kong and China.
“The deal can instantly unlock embedded value of A.S. Watson and enhance Hutchison’s net asset value without going through the hassle of an IPO, saving both time and costs,” Steven Leung, a Hong Kong-based director at UOB-Kay Hian Ltd., said by phone yesterday.
Hutchison, with interests in retail, ports and telecommunications, scrapped plans to sell ParknShop, the grocery business of Watson, in October. Chairman Li said yesterday that the company may continue to sell assets within the group.
“Our assets are not antiques, we won’t hold on for years,” Li said at the Hong Kong briefing.
Cheung Kong Holdings Ltd. (1), Hutchison’s biggest shareholder, said it will pay a special dividend totaling HK$16.2 billion.
Temasek will appoint two directors at Watson’s board, said Li, who wouldn’t rule out the Singapore company increasing its stake in Watson in the future.
The deal is the biggest acquisition by Temasek, according to data compiled by Bloomberg. A unit of the state investment firm last week offered to buy control of Olam International Ltd. (OLAM), one of the world’s top three coffee and rice traders, for $3.2 billion.
With the Watson investment, Temasek said it’s increasing its exposure to the consumer retail sector, with a focus on a growing Asia and a recovering Europe.
“The consumer retail sector is a good proxy to growing middle-income populations and transforming economies,” Chia Song Hwee, head of Temasek’s investment group, said in a statement. “This is very much part of our investment themes as we shape Temasek’s portfolio for the long term.”
Buying consumer-related assets is one of Temasek’s main investment themes and it’s interested in industries such as telecommunications, media and technology, consumer and real estate, according to its website. Temasek owns 5 percent in casino operator Melco Crown (MPEL) (Philippines) Resorts Corp. and a 4.9 percent stake in Sadamatsu Co. (2736), a Japanese jeweler, according to data compiled by Bloomberg.
Watson is Hutchison’s biggest unit by sales with health and beauty stores and groceries such as Hong Kong’s ParknShop. Watson’s net income grew to HK$7.8 billion in 2013, from HK$6.9 billion a year ago, Hutchison said in the statement yesterday.
China’s health and beauty retail market was worth about 915 billion yuan ($147 billion) last year, according to data from Euromonitor.
The 85-year-old Li ranks 22nd on the Bloomberg Billionaires Index with a net worth of $28.9 billion. He opened a plastic flower factory after World War II and began investing in Hong Kong real estate in 1967 after riots from China’s Cultural Revolution depressed prices.
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