KKR & Co. (KKR:US), the private-equity firm run by Henry Kravis and George Roberts, is evaluating a bid for billionaire Li Ka-shing’s ParknShop supermarket chain, said two people with knowledge of the matter.
KKR, which is talking to banks about financing for a potential deal, may decide not to make an offer, said the people, who asked not to be identified because the deliberations are private. Li’s Hutchison Whampoa Ltd. (13) has asked potential buyers to submit bids for the Hong Kong chain by Aug. 16, people with knowledge of the process said last week.
Hutchison is seeking $3 billion to $4 billion for ParknShop, one of Hong Kong’s two main supermarket chains, according to a person familiar with the matter. That would make it KKR’s biggest deal in Asia, data compiled by Bloomberg show, surpassing the $1.8 billion purchase of South Korea’s Oriental Brewery Co. in 2009.
“This is ideal for private equity because it’s an asset that can generate very steady cash flows,” Cusson Leung, a Hong Kong-based analyst at Credit Suisse AG, said by phone today. “Even though the growth is slower, ParknShop operates in a very stable market.”
A private-equity buyer could consider spinning off ParknShop as a business trust after acquiring it, Leung said. Buyout firms typically use borrowed money to help finance acquisitions, using the target’s cash flows to repay the debt. Steve Okun, a spokesman for KKR, declined to comment.
Hutchison said this month it’s conducting a strategic review of ParknShop, which had more than 270 stores and sales of HK$21.7 billion ($2.8 billion) in 2012, as it makes acquisitions in faster-growing industries such as telecommunications. Hutchison, which reports results tomorrow, had sales of HK$398 billion last year, according to its website.
Hong Kong-based Hutchison last month agreed to buy Telefonica SA’s O2, Ireland’s No. 2 mobile operator, for as much as 850 million euros ($1.1 billion) to increase the group’s wireless market share to 37.5 percent. The company also held talks with Telecom Italia SpA over a potential merger of their Italian mobile-phone assets.
At $4 billion, Parknshop would be valued at about 1.4 times sales. Chinese supermarket group Wumart Stores Inc. (1025), in which U.S. private equity firm TPG Capital owns a stake, trades at 1.1 times last year’s revenue, while Dairy Farm International Holdings Ltd. (DFI), the owner of the Wellcome supermarket chain in Hong Kong, carries a multiple of 1.65, data compiled by Bloomberg show.
KKR raised $6 billion for its Asia II Fund, making it the largest pan-Asian private equity pool of capital, according to a statement from the New York-based firm this month. The firm more than doubled its stake in a unit of Vietnam’s Masan Consumer Corp. in January, investing an additional $200 million in the manufacturer of food products including fish sauce.
Besides Oriental Brewery, KKR also invested in Asian consumer product makers such as China Outfitter Holding Ltd., India’s Coffee Day Resorts and Hong Kong-based apparel retailer Novo Holdco Ltd., according to the fund’s website.
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