Did Temasek overpay for its stake in AS Watson?
Return of two times over 3 to 5 years will justify the high valuation of the HK$44b investment
Li Ka-shing's latest move to quickly close a HK$44 billion private deal with Singapore's Temasek for 25 per cent of AS Watson may be convenient for him, but the future could reveal that the sovereign wealth fund overpaid for Asia's richest man's own perceived brand and prowess.
The deal solves one problem for Li - it allows him to pull out some capital from Watson and redeploy it for better returns.
But, as it is not a sale of the entire firm, an initial public offering has only been delayed for probably three years. So for the next three years or more, the investment needs to demonstrate high performance to justify the risk and high valuation.
The original Watson-ParknShop-Fortress deal was rejected by major American and European private equity firms because the valuation was too high. And many of them also insisted on buying control.
Tom.com and CK Life Sciences are two other examples of where Li's magic does not work
Li was unlikely to sell at anything less than his preferred price. Although Watson's complete financials are unavailable, it is unlikely he offered Temasek anything resembling a bargain. This is evident in the cancelled listing. Clearly, Temasek paid so much that a flotation could not be priced high enough to produce an attractive return.