CK Asset Holdings, which is chaired by the son of Hong Kong’s richest man Li Ka-shing, has reached an agreement to buy British brewery Greene King plc in a deal worth £4.6 billion (HK$43.6 billion), according to a stock exchange filing by the pub group.
Through the transaction, the developer, which also owns UBS’ £1 billion London headquarters, will be adding a further 2,700 pubs, restaurants and hotels to its UK real estate portfolio for a £2.7 billion cash consideration, while taking on £1.9 billion in net debt.
As social unrest roils the Hong Kong economy, second-generation tycoon Victor Li has opted to entrust his company’s fortunes to the drinking habits of the British, while taking advantage of a pound weakened by the UK’s floundering Brexit negotiations.
Paying a 51% Premium
CK Asset, which currently owns a 2.9 percent stake in the 220-year-old pub group, has offered to pay £8.50 per share for the remaining 97.1 percent of the brewery.
The developer will be paying a premium of 51 percent over Friday’s closing share price for the debt-laden brewery’s portfolio of pubs, restaurants and hotels, of which 81 percent occupy freehold or long-leasehold sites.
The offer, which is expected to become effective in the fourth quarter of 2019, depends on approval by shareholders representing over 75 percent of Greene King stock, with CK Asset proposing to fund the deal through its existing cash resources.
Should the offer be successful, Greene King would be delisted from the London stock exchange and re-registered as a private limited company.
Drinking Buddies Since 2016
“We have come to know Greene King well as we have been an owner of a portfolio of pubs which have been leased to them since late 2016,” said CK Asset’s general manager of corporate business development, Gerald Ma.
It had been former chairman Li Ka-shing that oversaw the acquisition of 136 of Greene King’s pubs three years ago, with that deal taking place only a year after then British prime minister David Cameron was photographed drinking a pint of Greene King IPA with Chinese communist party chairman Xi Jinping.
In its regulatory filing, CK Asset said that it believes pubs will continue to be an important part of British culture, and that the UK pub and brewing sector is a stable and profitable business that benefits from real estate backing.
Greene King’s net profit after tax was £120 million for the year ending 28 April 2019, a 34 percent fall from the £183 million it recorded the year before, which the brewery blamed on a combination of factors including the waning popularity of pubs among the UK’s younger generation and Brexit fallout.
Greene King’s chief executive, Nick Mackenzie, said that CK Asset, as an experienced UK investor that shared many of the brewery’s philosophies, would not be making changes to the business that would threaten jobs.
“They understand the strengths of our business and we welcome their commitment to working with the existing management team, evolving the strategy and investing in the business to ensure its continued long term growth,” he said.
Long-term Investment Potential of Beer-guzzling UK
The offer for Greene King suggests that Victor Li has as much of a belief in the long-term investment potential of the UK as his 91 year-old father, who oversaw CK Asset’s hoovering up of prime London real estate assets including 5 Broadgate, Chelsea Waterfront development, Belgravia Place, and Royal Gate Kensington.
In June last year, just one month after officially taking over from from his famous father, Victor Li supervised the company’s acquisition of the UBS headquarters in London from GIC and British Land for £1 billion.
The company is also said to be in talks to buy the £700 million Earls Court development, a troubled West London mixed-use project adjacent to the Lillie Square residential development owned by the Kwok family, which controls Hong Kong’s largest developer Sun Hung Kai Properties.