25 February 2020
Greene King is expected to bring stable cash flow to CK Assets while providing a business that is internet-proof. Photo: Bloomberg
Greene King is expected to bring stable cash flow to CK Assets while providing a business that is internet-proof. Photo: Bloomberg

Why Greene King is a good fit for CK Asset’s business portfolio

CK Asset Holdings (01113.HK), controlled by Hong Kong billionaire Li Ka-shing, said it will pay 2.7 billion pounds (US$3.28 billion) to acquire the 220-year-old pub and beer company Greene King in the United Kingdom.

In recent years, Li has bet on emerging disruptive technologies such as artificial intelligence and artificial meat as well as traditional businesses that won’t be displaced or made obsolete by the internet.

Greene King traces its history back to 1799 in the small town of Bury in Greater Manchester, England. Now, it’s the biggest pub operator in the UK with over 2,700 pubs, restaurants and hotels and its own brewery.

Chinese President Xi Jinping was pictured drinking in a Greene King pub with then prime minister David Cameron during a state visit in 2015, giving people an idea of how iconic this pub chain is.

CK Asset tends to favor alternative real estate assets in recent years.

For example, it spent C$400 million (US$300.56 million) in 2014 to buy Park’N Fly, Canada’s biggest operator of off-airport carpark solutions.

Such real estate assets usually have special uses and are subject to less competition, thus providing better returns.

Greene King belongs to this type, too. The company owns the property or permanent lease of 81 percent of its outlets. That means the Li family has effectively acquired over 1,000 retail properties in one go.

Greene King reported an operating profit of around 370 million pounds for the year ended April 28, 2019 with a net asset of 2.1 billion pounds. The deal price of 2.7 billion pounds is equivalent to 7.3 times its operating profit or a P/B ratio of 1.3 times.

Some might question the prospects of the pub business given that the young generation has so many entertainment options.

The truth is, the old-style pub business has proved fairly resilient.

No matter how advanced the internet technology is, human beings still need face-to-face social networking.

In the past, we could chat with neighbors when shopping and running errands. But all these tasks can now be done on the mobile phone, and we can literally stay at home all the time. As a result, people badly need a reason to go out to meet others and a venue to hang out.

Some pubs in smaller cities in Europe and America serve as meeting places for the community. Catering for the entire family, these pubs also offer kids’ menu.

That’s exactly how Greene King positions itself. The company said in its 2019 annual report that it intends to explore the breakfast market and add healthier food to its menu.

Greene King would continue to position itself as the third space after home and office.

The acquisition of Greene King is expected to bring stable cash flow for CK Asset right away, and the business is likely to be internet-proof.

This article appeared in the Hong Kong Economic Journal on Aug 21

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist