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Sandy Li

The latest $3.16 European takeover will boost Hutchison retailing arm's contribution to group earnings

AS Watson, a subsidiary of Hutchison Whampoa, has launched a GBP221.9 million ($3.16 billion) takeover bid for British perfume seller Merchant Retail Group.

The move will boost Watson's presence in Europe, where it recently bought  French perfume retailer Marionnaud Parfumeries, and will further bolster the contribution the retail arm makes to the conglomerate's coffers.

Last year, Watson accounted for 50.53 per cent of Hutchison's turnover of $134.59 billion while the group's telecommunications division contributed 22.7 per cent of sales.

With the acquisition of Merchant Retail's 114-store chain, known as the Perfume Shop,  Watson will control  6,300 stores in 31 markets worldwide. The company has set a global network target of 10,000 stores by 2008.

'This latest move indicates Hutchison's keen interest in growing its retail empire in Europe. It's a cash-cow business,' said Jonas Kan, an analyst at Daiwa Institute of Research.

Mr Kan said Watson had to increase its sales volume through acquisitions to offset the low-margin business of an ever-competitive retail market in Europe.

However, he said chances of Watson being Hutchison's next spin-off  remained slim.

The retail giant completed the takeover of the 1,226-store Marionnaud chain for Euro534 million ($5.23 billion) earlier this month.

'The addition of Merchant Retail to our portfolio further expands our European footprint and strengthens our position as the largest retailer in the perfumery and cosmetic sector,' said Watson  managing director  Ian Wade.

The Perfume Shop has grown from a 55 to a 114-store chain in Britain and Ireland over the past five years.

Merchant Retail announced yesterday that its net profit had risen 11.73 per cent to GBP13.07 million for the year to March 26 from a year earlier. Turnover increased 9.72 per cent to GBP149.15 million during the same period.

Watson, the largest health and beauty retailer in the world by number of stores, offered 197 pence for each Merchant Retail share, representing a premium of 16 per cent to the closing price before trading was suspended on May 20.

Shareholders with about 37.5 per cent of Merchant Retail had so far agreed to accept the offer, Watson said. The deal requires shareholders with 90 per cent of the stock to agree. Merchant Retail shares have gained 21 per cent this year.

The GBP221.9 million acquisition price translates into 16 times last year's net earnings.

Merchant Retail chairman Brian O'Callaghan said the resources and international experience brought by the deal would help the firm tackle an increasingly gloomy British retail sector, in which a series of interest-rate rises have curbed spending.

Hutchison shares rose 0.37 per cent to close at $67.25 yesterday.

NTT DoCoMo yesterday exercised its option to sell back the 187.97 million Hutchison Telecommunications International shares it bought  in October  last year, for about  $1.3 billion.

The  shares, valued at GBP80 million at the time,  were part of a GBP120 million payment for DoCoMo's 20 per cent stake in Hutchison 3G UK, the British mobile service.

Hutchison has agreed to pay the remaining GBP40 million in cash by June 23.



Watson on scent of UK perfumery