CKA cheers Brexit with 2.7b brewery buyout

Business | Bloomberg and Stella Zhai 21 Aug 2019

CK Asset (1113) is to acquire Greene King, the largest pub and brewery company in the UK, for 2.7 billion (HK$25.2 billion).

A year after taking the helm of Hong Kong's biggest conglomerate from his father Li Ka-shing, Victor Li Tzar-kuoi is making a bet that Brexit won't dent the value of UK pubs or the land under them.

CK Asset said "pubs will continue to be an important part of British culture and the eating and drinking out market."

The conglomerate's UK expansion signals confidence that turmoil around the country's plan to exit the European Union won't sink the economy, even as it erodes the price of the country's currency and assets.

"If not for Brexit, the price would have been different," said Jonas Kan, head of Hong Kong research at Daiwa Capital Markets, adding that the deal fits the company's strategy to boost rental income, and should generate reliable cash flow.

The increasing possibility of a no-deal Brexit has fanned uncertainty about how the country will trade with neighbors, sending the pound to the lowest since 2016 and curtailing business investment. Yet shoppers in the UK have kept spending, and retail sales rose in June.

Greene King has an established position as well as attractive real estate assets and a resilient financial profile, CK Asset said in a statement, the company currently operates more than 2,700 British bars, restaurants and hotels.

The Li family-controlled group already has a sprawling European footprint, and Europe accounted for 55 percent of earnings in the first half of this year for the flagship CK Hutchison (0001), with 22 percent of the total coming from the UK.

The latest acquisition came after CK Asset spent 1 billion pounds to acquire the London headquarters of UBS Group AG in June.

The London-listed target company had lost more than one-third of its market value over the past four years prior to news of the deal, while the pound has depreciated about 18 percent against the Hong Kong dollar since the June 2016 Brexit referendum.

After jumping 51 percent on Monday to match the 850 pence-a-share bid, shares of the Greene King traded 0.6 percent lower early Tuesday in London, while shares of CK Asset rose by 0.82 percent to HK$55.50 yesterday.

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