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The sale of the stake in AS Watson for HK$44 billion is seen as low by the market, resulting in Hutchison's stock being sold off. Photo: Reuters

Low Watson sale spurs sell-off in Hutchison shares

Stock suffers biggest drop of 5 per cent in two years after the disposal of the retail stake at a lower-than-expected price upsets investors

Cheung Kong
Charlotte So

Hutchison Whampoa's shares fell 5.05 per cent yesterday in its largest drop in more than two years as the disposal of a 24.95 per cent stake in its retail arm to Singapore's Temasek last Friday was at a price lower than expected by the market.

The disappointment in the valuation saw the stock skid 5.98 per cent to a low of HK$100.60 before closing at HK$101.60 from HK$107 previously.

Hutchison sold the stake in AS Watson to the Singapore government sovereign fund Temasek for HK$44 billion. That translated into a market capitalisation of HK$176 billion, sharply below the nearly HK$200 billion valuation for the retail arm calculated by the market.

A special dividend of HK$7 per share was seen by some analysts as a negative gesture but welcomed by others.

"By paying a special dividend, the company is suggesting limited acquisition opportunities," a Morgan Stanley report said yesterday. The brokerage firm described the decision as "baffling".

The payout, which accounts for 68 per cent of the gross sales proceeds, would not help deleverage or add firepower to the company for mergers and acquisitions, the report said.

Morgan Stanley downgraded Hutchison to equal-weight from overweight and lowered the stock's target price to HK$108 from HK$116.

Any hope in the market that Watson would be listed was also dashed by the sale.

Nomura disagreed with Morgan Stanley as it rated Hutchison a "buy" with a target of HK$120.

"While some short-term investors [in particular those who have bought Hutchison shares in anticipation of an initial public offering] might be disappointed as the IPO catalyst is now put on hold, thereby potentially leading to some near-term selling pressure from these investors, we also see attractive entry levels for longer-term investors at around the HK$100 level," Nomura said a report, adding the level represented a 30 per cent discount to its net asset value.

It also said "the Watson-Temasek transaction is in some ways positive for longer-term investors".

It praised the decision to adopt "a more generous dividend policy going forward" and that Hutchison was taking steps to achieve the target of doubling recurring earnings per share by the 2015 fiscal year.

Cheung Kong, which owns 50 per cent of Hutchison, will receive HK$14.9 billion in special dividend from the sale. It also decided to hand out HK$7 per share in dividend to its shareholders.

Cheung Kong's shares rose as much as 2.52 per cent before ending up 0.24 per cent at HK$123.10.

This article appeared in the South China Morning Post print edition as: Low Watson sale spurs sell-off in Hutchison
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