HK protests hit Watson’s business derailing Temasek’s US$3b Watson sale to potential buyers

Bloomberg reported yesterday (3 Sep) that potential investors have backed off buying over Temasek Holdings’ US$3 billion stake in retailer A.S. Watson Group.

Temasek, which owns a 25% stake of Watson Group, was considering selling about 10% of the retailer to potential investors. Bloomberg reported that Temasek was in talks with Abu Dhabi’s sovereign wealth fund, Chinese internet giants Tencent Holdings and Alibaba Group to buy over part of its stake in Watson.

But now, anti-government protests rocking Hong Kong as well as the pressure of Brexit have dampen investors’ interests. Temasek has put the sale process on hold after failing to reach agreement on valuation with the potential buyers, said the people, who told Bloomberg not to identify them.

In addition to the turmoil in Watson’s home market of Hong Kong, uncertainties around Brexit have affected the retailer’s business in the UK too, where it runs the Superdrug chain, one of the people said.

When approached by Bloomberg, Temasek merely said, “As per our company policy, we do not comment on market speculation and rumors.”

Temasek will keep looking into ways to improve the retailer’s valuation, one of the people said. It could still resume the sale process in the future, the person added.

Temasek bought the 25% stake in Watson from Hong Kong tycoon Victor Li’s CK Hutchison Holdings for HK$44 billion (US$5.6 billion) in 2014.

Protests affecting Watson’s business in Hong Kong

As protests continue to rage in Hong Kong, business for retailers like Watson in Hong Kong continues to fall.

Anti Extradition Bill Protest 2019. A reporter running for cover as tear gas canisters explode during clashes with protesters outside the Central Government Office in Hong Kong (Shutterstock).

SCMP recently reported that the unprecedented civil unrest have taken their toll on Watson retail chains. It has seen sales plummet as angry protesters clashes violently with Hong Kong riot police. The Watson’s shops in districts at the centre of the massive rallies were among the worst hit.

The Hong Kong Retail Management Association has issued a forecast that the city’s total retail sales value would drop by a double-digit percentage for the whole of this year, replacing an original projection of single-digit growth.

The association said the ongoing protests have seriously affected Hong Kong’s image as a safe, world-class tourist and shopping destination.

Mainland Chinese tourists, which spend up to 40 per cent of Hong Kong’s retail sales, have also been staying away from Hong Kong, as protesters continue to remain hostile towards China as well as Mainland Chinese.

Bloomberg reported in Jan this year that Temasek started exploring options to sell part of its stake in Watson.

It said that Temasek was working with an adviser to consider possibilities for its 25 percent holding in Watson after receiving some preliminary interest.

“Temasek bought A.S. Watson (in 2014) on the expectation that it would go public soon,” Steven Leung, executive director at UOB Kay Hian (Hong Kong), told Bloomberg at the time. “Now that the IPO hope is fading, it’s understandable why Temasek seeks to sell down its stake.”

But now, with the ongoing protests affecting Hong Kong’s retail business, even selling stakes in Watson privately has become impossible.