Hutchison Considers Retail IPO; Deal Would Follow Scrapped Plan to Sell Supermarket Chain

Hutchison Considers Retail IPO

Deal Would Follow Scrapped Plan to Sell Supermarket Chain

PRUDENCE HO

Oct. 20, 2013 2:06 p.m. ET

HONG KONG—Asia’s richest man could launch one of the world’s biggest recent IPOs, after he failed to get the price he wanted to sell his Hong Kong supermarket chain and said he is considering a deal for his global retail business. Li Ka-shing‘s Hutchison Whampoa Ltd. 0013.HK -2.79% is considering a plan for an initial public offering of stock of its A.S. Watson & Co. unit, a retailer with 11,093 stores that sell things as diverse as aspirin, Bordeaux wine and Apple Inc. iPods in 33 countries. A.S. Watson—which operates Superdrug in the U.K., Kruidvat in the Netherlands and Belgium, and Watson’s and ParknShop in Asia—had first-half sales of 75.8 billion Hong Kong dollars (US$9.8 billion).The offering could take place in coming months and could raise $8 billion to $10 billion, depending on how the company is structured, making it the biggest deal in the world this year. People familiar with the matter said the IPO could take place in Hong Kong, Europe or some combination.

Mr. Li, 85 years old, has been on a deal-making tear in recent months. On Friday, he sold shares in a Malaysian ports operator that he partially owns and that serves the growing trade between the Middle East and Southeast Asia. The shares in the US$624 million offering rose 6% on Friday.

Mr. Li also is planning to carve out his Hong Kong electricity operations in a Hong Kong trust listing this year that could raise as much as US$5 billion. The company said selling the stake in the slow-growth business will give it cash to buy global power assets. Known as a contrarian investor, Mr. Li has been buying cheap assets in Europe, including telecommunications companies and electric utilities.

An IPO is one of the options from a strategic review of the company’s retail business that began with the attempt to sell ParknShop, which is one of two dominant supermarket chains in Hong Kong. A sale of the chain, which operates 345 outlets in Hong Kong, Macau and southern China, had been expected to fetch between US$3 billion and US$4 billion, with bidders including Australian supermarket operator Woolworths Ltd. WOW.AU +2.39%, people familiar with the matter said earlier.

But after going from eight to four bidders, the highest offer was slightly more than US$3 billion, leading Hutchison to pull the chain from the market, people familiar with the matter said. Hutchison declined to comment about the offers.

In announcing the chain’s withdrawal from the market on Friday night, Hutchison said it would consider launching an IPO of all or some of its retail businesses, which fall under its A.S Watson unit.

Hutchison said it had no timetable for the potential listing. Bankers expect it could be a dual listing in Hong Kong and London for the whole retail business, or just Asian business in a Hong Kong listing and then a separate London listing for European business.

The company didn’t say how much it would expect to raise by listing A.S. Watson, but the people familiar with the matter said an offering of the whole retail business could raise between US$8 billion and US$10 billion, based on comparable valuations with its rivals.

A deal that size would eclipse the total of US$7.9 billion raised by Hong Kong IPOs so far this year. The biggest IPO so far this year was the US$5.7 billion São Paulo offering in April by Brazil’s BB Seguridade Participações SA, BBSE3.BR +1.38% which is the insurance arm of Banco do Brasil SA BBAS3.BR +2.05% . An expected IPO by Chinese e-commerce giant Alibaba Group Holding Ltd. could be bigger than either of these.

Hutchison said it wouldn’t relinquish control of the retail businesses in an IPO. People familiar with the matter said the proceeds could be used to expand in China. First-half revenue for the business rose 7% from a year earlier, while earnings before interest and tax increased 9% to HK$4.3 billion.

Other chains owned by the company include Watson’s Wine, the Fortress electrical-appliances chain and several health-and-beauty chains in Europe, including Drogas, Kruidvat, Rossmann, Savers, Spektr, Superdrug, Trekpleister and Watsons Ukraine.

Europe accounted for 51% of Hutchison’s first-half retail revenue, with the rest from Asia, but Europe represented just 30% of retail Ebit in the first half.

ParknShop attracted eight bidders, which were winnowed down to four: Australian supermarket chain Woolworths, Chinese supermarket chain China Resources EnterpriseLtd. 0291.HK +2.45% , Japanese department-store operator Aeon Co. 6599.KU -1.14%and a joint bid by Thai billionaire Dhanin Chearavanont and Carlyle Group CG +2.00% LP, people familiar with the situation said earlier. Woolworths planned to pay about US$3 billion for the supermarket chain, another person familiar with the situation said earlier.

ParknShop, while profitable, is grappling with a mature market in Hong Kong with keen competition. Sales growth in the supermarket industry in the city slowed to 7.9% in the first half of this year from 10.5% for last year and 12.5% for 2011, according to government statistics.

It has a 19% share of Hong Kong’s fresh-food and consumer-goods market, according to researcher Nielsen Homescan. The No. 2 supermarket chain—Wellcome, part of conglomerate Jardine Matheson Holdings Ltd. JMHLY +0.29% —has 15% of the market.

Hutchison said ParknShop, which entered mainland China in 1984, will continue to implement a growth strategy in the highly fragmented market. Lianhua Supermarket Holdings Co. 0980.HK -2.73% , which is owned by Brilliance Group Co., was the largest supermarket operator in the country last year, with a 1.5% market share, according to data provider Euromonitor.

Goldman Sachs Group Inc. GS +0.23% and Bank of America Merrill Lynch handled the attempt to sell ParknShop.