Asian tycoon Li Ka-shing will sell a near 25 per cent stake in his AS Watson health and beauty chain to Singapore’s Temasek for $5.7bn, rather than pursue a planned dual listing in Hong Kong and London.
The investment was announced late on Friday by Hutchison Whampoa, the conglomerate controlled by Mr Li that owns Watsons, putting paid to what would have been one of the biggest listings of the year.
The deal is a huge bet by Temasek on the growth of a middle class in Asia, where rising incomes are spurring domestic consumption. Watsons is the largest pharmacy chain in China, with a one-fifth market share.
Hutchison had been seeking a $5bn-plus share sale but only if it were certain of inclusion in the Hang Seng and FTSE 100 indices, according to people close to the company.
“It may have been that they felt jittery about an IPO for this business and were looking at the possibility of a strategic investor as well,” said one person. Hutchison approached Temasek with the idea, the person said.
Hutchison will pay out about two-thirds of the proceeds of the sale to shareholders of Hutchison and Cheung Kong – which owns about half of Hutchison – in the form of a HK$7 per share special dividend.
The deal will leave Hutchison with about $1.8bn, which it will put towards working capital. The company is keen to invest more into its European mobile telecoms businesses. Hutchison and Temasek would work together towards a listing of Watsons at a “suitable time” in the future, which could be a couple of years away, Hutchison said.
The more recent Hong Kong listing by Hong Kong Electric, part of Mr Li’s empire, struggled to entice investors and was priced lower than expected. That was partly due to local investors having become wary of buying something that Mr Li wanted to sell, due to his reputation as a savvy asset trader, according to bankers.
A deal would leave Temasek as a “strategic investor”, with the second-largest stake in Watsons, which has 3,500 stores and more than 900 pharmacies in 12 Asian and European markets.
Through acquisitions in recent years, Watsons has already become a global business that owns Superdrug in the UK and Marionnaud in France.
About one quarter of its sales last year came from its miscellaneous Hong Kong businesses, which include Fortress, the electrical chain, and ParknShop, the supermarkets business that Mr Li tried and failed to sell last year. Another quarter of its sales come from the fast-growing Chinese and Asian parts of the Watsons health and beauty chain, while about half come from its European stores.
“Urbanisation and the needs of a growing middle-income population underpin the long-term prospects of growth markets such as Asia and Latin America,” Temasek said in its latest annual review.
The Singapore investor already owns a 3 per cent stake in Li & Fung, the Hong Kong-listed distributor of pharmaceuticals, beauty products and clothing for global consumer goods companies.
The Watsons investment would be Temasek’s largest since it spent $2.5bn on a 5 per cent stake in Repsol, the Spanish oil and gas group, bringing its total holding to 6 per cent.
Temasek is an active investor and regularly shuffles its portfolio. Last month it emerged that it had been in talks with SingTel, southeast Asia’s largest telecoms group by revenues, about selling its 41.6 per cent stake in Shin Corp, which runs Thailand’s largest mobile operator.