Temasek buys A.S. Watson stake for $5.67bn

The Asian SWF has made a direct investment, taking a 25% in Li Ka-shing’s health and beauty retailer.

Singaporean LP giant Temasek Holdings has taken a 24.95 percent interest in Hong Kong-based health and beauty retailer A.S. Watson, paying owner Hutchinson Whampoa HK$44 billion ($5.67 billion; €4.1 billion) for the stake, according to a statement.

Hutchinson Whampoa, owned by Hong Kong billionaire Li Ka-shing, will continue to hold 75.05 percent in the company following the transaction.

A.S. Watson is an international health and beauty retailer, which has 14 retail brands operating 10,500 stores worldwide. Its flagship brand Watson has over 4,000 stores in nine Asian markets, including Hong Kong, China, Taiwan, Singapore, Malaysia and Thailand. 

The deal values the business at HK$177 billion, representing a value of about HK$41.50 per share. The company intends to use the proceeds to pay a special dividend to its shareholders.

“As the company has surplus cash, a strong balance sheet and no immediate capital needs, subject to completion of the transaction and approval of the board, it intends to distribute approximately 70 percent of the net proceeds of the transaction in the form of a special dividend of HK$7 per share to its shareholders,” the statement said.

With this investment, Temasek has increased its exposure to the consumer retail sector, with a balanced focus on a growing Asia and a recovering Europe, Temasek said in its own statement.

Song Hwee Chia, head of the investment group at Temasek explained, “A.S. Watson is a well-established company with a proven management team, a valuable franchise and a good growth story. The consumer retail sector is a good proxy to growing middle income populations and transforming economies. This is very much part of our investment themes as we shape Temasek’s portfolio for the long term.”

The two shareholders will now work towards a listing of A.S. Watson at “a suitable time” in the future, the statement said.

A.S. Waston was originally planning an IPO of the business prior to Temasek’s offer, Canning Fok, the managing director of Hutchison Whampoa Group (which is controlled by Li), reportedly said at a press event.

“What happened is [that] we had a strategic review [when] the management team went around to investors to see if there was interest in [the business],” he told reporters. “One of the major investors at these presentations was Temasek. In the end, they liked it so much they offered us 25 percent and Mr Li said maybe one investor is better than an IPO.”

While Temasek continues to be one of private equity’s largest contributors in Asia, the sovereign wealth fund has less than 10 percent of its assets invested in funds, the rest being direct investments. 

The fund continues to increase its assets under management, reaching $168 billion as of July last year. The firm is also ramping up its capabilities in North America and Europe, opening offices there due to increasing opportunities, PEI reported earlier.

“We continue to believe in the growth opportunities and long term prospects of Asia, particularly China, and a recovering Europe,” Chia, who is also Temasek’s co-head for China, added.