The Singapore state investment company Temasek Holdings Pte. Ltd. announced today that it is taking a 24.95% stake in Hong Kong-based A.S. Watson Co. A regulatory filing in Hong Kong indicated that Temasek was paying 44 billion Hong Kong dollars or 5.7 billion U.S. dollars.

Temasek Logo

Billionaire Li Ka-shing’s retail flagship A.S. Watson Co owns Superdrug in the U.K. as well as the ParknShop supermarket chain. Eighty-five-year-old Li is also full or part owner of several other retail firms, and controls a number of companies that own ports or have significant energy assets. Privately held Watson had been planning an IPO, but that has now been moved to the back burner.

Company statements

Hutchison Whampoa Ltd., Watson’s Hong Kong-listed parent, released the filing today and both companies held a press conference to discuss the transaction.

At the press conference Li said he now plans to list Watson in Hong Kong and Singapore in two to three years. He continued to say an IPO this year is “unlikely”.

“One investor is better than an IPO,” Hutchison Whampoa Managing Director Canning Fok commented at the media event.

Temasek’s price for stake lower than analyst estimates

Analysts noted that the price Temasek paid for a quarter of Watson values the firm at 23.7 times forecast earnings, somewhat below its regional peers. The price paid by Temasek calculates out to $177 billion valuation for Watson. Consensus valuations for the Hong-Kong retailer were in the neighborhood of HK$208 billion, meaning that Temasek received around a 10% discount on its the stake.

Credit Suisse analysts reporting on the announcement also commented on the relatively low valuation. “The HK$177 billion valuation of A.S. Watson is lower than the street estimate as well.”

Watson fits well with Temasek investing strategy

The purchase of a stake in Watson dovetails well with Temasek’s strategy to increase exposure to companies benefiting from the growth of the consumer in emerging and developed markets. Temasek owns around 20& of emerging markets-focused bank Standard Chartered PLC, holds a stake in Spanish oil-and-gas company Repsol SA and also has a significant stake in Indonesian hypermarket operator PT Matahari Putra Prima.