Meet Li Ka-shing: The man with O2 in his sights has quietly become one of Britain's biggest investors
Politicians, tabloid press editors and marketers alike are often interested in the benefits or disadvantages of overseas ownership in British brands. Just think about the furore when Kraft, the US food giant, acquired Quaker-founded chocolate maker Cadbury (in what became the Mondelez business) or when Tata, the Indian industrial conglomerate, bought the auto business Jaguar Land Rover.
While these high-profile moves caught the national imagination, a much quieter revolution has been taking place more recently behind the scenes. Until now, very few people in Britain will have heard of Li Ka-shing – Asia’s richest man and Hong Kong’s leading tycoon – even though he has been quietly buying up many of our biggest assets for years.
Li, who owns Northumbrian Water, Northern Gas Networks and Superdrug, is one of Britain’s biggest investors. From chemist chain Superdrug to Felixstowe Port, his investments stretch across almost every area of British life. One quarter of UK homes receive gas through pipes owned by one of his two gas companies. And almost 30 per cent of British residents get electricity delivered through UK Power Networks, the power grid that covers London and the South East.
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But despite that prized low profile, expect to see more public scrutiny in 2015 – as it’s been a busy end to the Chinese Year of the Horse for Li: three deals in as many weeks is fast work even by Hong Kong standards.
First up was a sweeping reorganisation of his company’s assets. The two major companies controlled by the Hong Kong magnate, Cheung Kong and Hutchison Whampoa, are to be reconfigured into two new entities as the Hong Kong real-estate assets of both are extracted and combined to create a new Hong Kong-listed property company, CK Property; the remaining assets of the two companies will be listed separately as CKH Holdings, unlocking shareholder value in the two companies which already have a combined market capitalisation of roughly HK$312bn (US$40bn). The restructure creates two new players: a focused property firm and an international conglomerate, including those British interests in telecoms, utilities and ports.
As soon as the ink was drying on those restructure plans, Li announced that Cheung Kong would be buying its next piece of Britain's infrastructure, Eversholt Rail Group, for £2.5bn.
Eversholt is one of Britain's three main rail rolling stock companies, set up in 1994 as part of the privatisation of British Rail and owning around 3,500 passenger trains (28 per cent of the country's total) along with more than 80 freight locomotives and nearly a thousand freight trains.
Cheung Kong said it expected the deal to be finalised in March and was attracted by the strong growth prospects in the British rail industry, with "more people and more goods than ever... being moved by train in the country".
"The rolling stock leasing business adds a new facet to our transportation business portfolio," said Cheung Kong Holdings' managing director Victor Li, the elder son of Li Ka-shing, who many Asian observers see as his father’s heir-apparent.
Finally, last week saw the most audacious plan yet – with the Hutchison arm of the Li empire (which already owns network operator Three) closing in on the mobile business of O2 for £10bn.
Following BT’s recently announced deal with EE, it’s part of a shake up that sees regulator Ofcom worried that O2's acquisition will reduce industry competition. For Li, with 24 million customers, a deal to buy O2 would catapult the company to become the largest mobile firm in UK, overtaking EE, and confirming his telecommunications-and-infrastructure company as one of Europe’s top wireless providers.
Hutchison said the talks with Telefónica for a deal will be exclusive for a “period of several weeks”, closing a buying spree which has reached fever pitch of late with proposed deals costing more than $20bn in the past month alone.
So why the sudden acceleration?
One reason for the push abroad is that Hutchison and Cheung Kong dominate their home economy of Hong Kong, where they also own ports, electric utilities and supermarkets. Britain offers the scale that isn’t available any more in Hong Kong.
Hutchison and Cheung Kong also are looking for businesses with steady cash flow to balance a corporate empire centered on volatile Hong Kong real-estate holdings.
Finally, there’s political uncertainty in Hong Kong, with the former colony’s Beijing-backed leadership happy to support a small cartel of powerful tycoons under the Chinese “one country, two systems” political structure. But for Li, growing clamour for universal suffrage from the Occupy Central movement for democracy perhaps accelerates a need to diversify to other investment areas.
Of course, Li denies his restructuring and acquisitions have anything to do with a changing political landscape. But as the saying goes, he would say that wouldn't he?
Andrew Harrison is chief operating officer Asia Pacific for WPP’s Brand Union. You can follow him on Twitter @AndJHarrison