It might be all doom and gloom as far as many in the UK are concerned with fears a recession is looming adding to Brexit uncertainty. But Li Ka-shing, Hong Kong’s richest man, is clearly happy to ignore any short term turbulence, or more accurately take advantage of it, by upping his bets on the UK. Mr Li’s CK Asset Holdings, the investment vehicle the 91-year old controls, will add the Greene King pub chain and brewery to its growing stable of UK assets in a deal worth a reported £4.6 billion. He already owns mobile operator Three, the Superdrug chain of pharmacies and holdings in utilities Northumbrian Water and gas supply lines.
The size of the 850p-a-share offer can be seen as a major vote of confidence in the long term prospects of Greene King, valuing the company at a hefty 51% above its closing share price on Friday last week. The acquisition values the company’s stock at £2.7 billion. Taking on the company’s £1.9 billion debt takes the total value of the deal to £4.6 billion.
The move by Mr Li and CK Asset Holdings, which he holds a 30% stake in and was spun out of his conglomerate CK Hutchison Holdings four years ago, appears to be timed to take advantage of the combination of the fall in the pound’s value and the attractive valuations of UK-listed companies compared to peers in Europe and the USA. With a fortune estimated at just shy of $40 billion, the semi-retired Li was listed by Forbes as the world’s 30th richest person as of June 2019.
CK Assets already owns 162 pubs in the UK, which it leases to Greene King, giving it a good insight into the business’s long term potential. In recommending the offer to shareholders, who still have to approve it, Greene King’s directors described it as “fair and reasonable”, particularly within the context of CKA as a “long-term and strategic investor in stable, profitable and cashflow-generating businesses”. If, as expected, shareholders approve the offer the deal would be expected to conclude in the fourth quarter.
Greene King’s chairman Philip Yea stated:
“This offer represents a good opportunity for shareholders to realise value for their investment at an attractive premium, while also ensuring the future success of Greene King for employees, partners, customers and suppliers.”
Analysts have been quick to voice their agreement with that sentiment and interpretation of the CKA offer for the company. Nick Burchett, a fund manager at Cavendish Asset Management, described the offer as a “great reflection” of Greene King’s value, while representing a solid acquisition for the buyer:
“The business has a good portfolio of freehold property and a strong position in the thriving UK pub and brewing sector.”