By P.R. Venkat
Singapore state investment firm Temasek Holdings Pte. Ltd. is in
advanced talks to buy a stake in Li Ka-shing's A.S. Watson &
Co. that could be valued at billions of dollars, people with
knowledge of the deal said Friday, which could put paid to the
Asian tycoon's plans for a dual listing in Hong Kong and
London.
While bankers continue to work on a dual summer listing of up to
US$6 billion, Temasek's move is a big step for the retailer, which
Mr. Li himself said in recent weeks was set to go public. Yet,
buying into Watson, which owns drugstores in Hong Kong, Singapore
and the U.K., would fit into Temasek's strategy of having exposure
to companies benefiting from the consumer boom in emerging as well
as developed markets.
Temasek owns almost a fifth of London-based emerging-markets
bank Standard Chartered PLC as well as stakes in Spanish
oil-and-gas company Repsol SA.
It wasn't immediately clear exactly how much Temasek would
invest in Mr. Li's retail flagship, though the people familiar with
the matter said it was "strategic" and would be one of the firm's
biggest overseas investments.
In October, Mr. Li's Hutchison Whampoa Ltd. said in a filing
that it planned a strategic review of its retail interests, after
scrapping an up to US$4 billion sale of Watson's supermarket
business, ParknShop, because offers didn't meet its expectations.
It noted then it wouldn't "consider giving up control" of the
business.
The 85-year-old Mr. Li, Asia's richest man, said last month a
listing of Watson in Hong Kong and a second venue was in the works.
Bankers have been working on listing the retailer in both Hong Kong
and London, with a potential Singapore listing further down the
road an option, people familiar with the matter said more
recently.
It wasn't clear what would happen to immediate IPO plans with
such a massive investment of billions of dollars from Temasek, as
guidance from the Hong Kong Stock Exchange forbids major
investments and most shareholding changes under 28 days before the
listing hopeful applies for approval. Watson, which apart from
drugstores owns electrical- appliance retailers and supermarkets,
was looking into applying for Hong Kong listing approval by the end
of March, other people said earlier.
If the deal is struck, an announcement could be made soon, one
of the people said.
Mr. Li has been raising money by listing his portfolio companies
for past several years. In January he raised $3.11 billion through
an IPO of his Hong Kong electricity assets. In 2011, in a Singapore
listing of his port assets he raised US$5.5 billion. The
billionaire has been buying as well--he has picked up utility
assets in Europe such as the U.K.'s electricity-distribution
networks.
Mr. Li ended the attempted sale of ParknShop to buyers that
included Australia's Woolworths Ltd. after failing to get the $3
billion to $4 billion he sought for the business.
For its part, Temasek has been looking to bulk up its presence
in sectors like consumer, energy and technology. Last week, a
Temasek-led consortium unveiled a US$2 billion offer to buy shares
that it doesn't already own in Singapore-listed commodity trader
Olam International Ltd. Early last year, the investment company
paid a few hundred million dollars for a stake in Indonesia's PT
Matahari Putra Prima when private-equity firm CVC Capital Partners
sold shares to raise US$1.3 billion.
Established in 1974, Temasek manages a portfolio of $170 billion
and owns controlling stakes in some of Singapore's biggest
corporations, including Singapore Airlines Ltd. and SingTel,
Southeast Asia's largest telecommunications company. It also has
significant holdings in banks, including 18% of Standard Chartered
and 29% of Singapore's DBS Group Holdings Ltd. Some of the biggest
investments the company made were during the financial crisis of
2008 during which it invested billions of dollars to buy help out
Western banks such as Barclays PLC and Merrill Lynch & Co., now
Bank of America Merrill Lynch.
Watson, which has been valued by analysts at more than US$20
billion, is planning to open more than 1,200 new stores globally
this year. As of the end of last year, Watson had around 10,500
stores in 25 markets across Europe, Greater China and Southeast
Asia. Last year, Watson reported an 11% increase in earnings before
interest expenses and other finance costs, tax, depreciation and
amortization. The total rose to 14.2 billion Hong Kong dollars
(US$1.8 billion), driven by new store openings.
Prudence Ho and Yvonne Lee contributed to this article.
Write to P.R. Venkat at venkat.pr@wsj.com
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