Breakingviews - Ports expose Li family's global dealmaking dilemma

Reuters

2 days ago

HONG KONG, July 3 (Reuters Breakingviews) - Li Ka-shing believed in the power of combined forces, so he named his business Cheung Kong Industries after China's Yangtze River, which aggregates numerous tributaries. The tycoon, now 96, built his plastics manufacturer into a global retail-to-telecoms conglomerate through a wave of acquisitions. Three-quarters of a century later, a battle over a waterway on the other side of the world reflects how a profound shift in geopolitics is forcing the empire of Hong Kong's richest man into a tricky retreat.
Conditions for dealmaking are less favourable for Li's 60-year-old son Victor, who in 2018 took charge of CK Hutchison (0001.HK), opens new tab, the holding company for the family's non-real estate interests. His attempt to sell the group's overseas ports business, including two facilities at either end of the Panama Canal, to BlackRock (BLK.N), opens new tab and the Aponte family's MSC Mediterranean Shipping Company for $23 billion exemplifies the problems he faces: the conglomerate may not be fit for the era of U.S.-China rivalry.
The Hong Kong-listed company's operation of the Panama ports faced scrutiny after U.S. President Donald Trump claimed China was running the strategically important waterway. Two-thirds of all cargo passing through the Panama Canal originates from, or is destined for, the United States. Panamanian authorities launched an audit, setting the stage to potentially strip the company of the concession.
When it was announced in March, the sale appeared an elegant way for Hutchison to extract itself from controversy. Yet China's state media, which has for years criticised the Li family for disposing of assets in mainland China and Hong Kong, accused the billionaire family of selling out Chinese overseas interests to the United States.
With the deal caught between Beijing and Washington, and a July 27 deadline, opens new tab for exclusive negotiations between buyers and seller fast approaching, it is unclear if Hutchison can secure the approvals it needs to go ahead. Cosco Shipping is one of several Chinese state-backed companies in talks to invest in the multinational bid consortium, Bloomberg reported, opens new tab last month, citing sources.
The Li clan, which owns 30% of Hutchison, have always bought and sold. The elder Li acquired a substantial stake in Hutchison Whampoa from HSBC in 1979, becoming the first Chinese national to take control of a British-style 'Hong' trading house. Major disposals include selling its Indian mobile business to Vodafone for $11 billion in 2007.
Hutchison and its subsidiaries have been involved in M&A transactions worth $212 billion over the past decade, Dealogic data shows. This includes a $90 billion reorganisation in 2015 which separated its property assets into a new entity called CK Asset (1113.HK), opens new tab. That rejig was supposed to unlock value. But Hutchison's market capitalisation has since more than halved to $24 billion.
The proposed ports deal would be the company's largest sale this century. Instead of offloading just the Panama concessions, Hutchison opted to sell 43 ports in 23 countries. Ports brought in one-fifth of the company's operating profit in 2024, while the Chinese facilities it plans to retain generated just 9% of the unit's revenue in that year.
If the deal goes ahead, Hutchison's core business would rest on three remaining units: telecoms, retail and infrastructure. Yet the ports saga has revealed an intractable problem. The rest of the world increasingly sees Hutchison not as a Hong Kong capitalist conglomerate but as a Chinese company. Beijing's negative reaction to the proposed sale confirms the situation is more nuanced, but also underscores the challenges the company faces.
Attitudes to Chinese companies operating overseas have hardened following the Covid pandemic, U.S. concerns over the country's military expansion, and its technology and trade practices. Beijing's security crackdown on Hong Kong following anti-government protests in 2019 has also made other countries warier of companies based in the former British colony.
This leaves Hutchison, which generates just 12% of its revenue from Hong Kong and mainland China, facing greater scrutiny as an owner, potential buyer, or seller of assets. The conundrum is evident in its depressed market capitalisation: the company is trading at just one-third of book value, LSEG data shows. Geopolitical uncertainty and aversion to Chinese equities are partly to blame, as is the so-called conglomerate discount which investors typically attach to companies with diverse businesses.
Mergers and acquisitions are one way to eliminate that discount. But the ports situation leaves a big question mark over whether the Li family can deal their way out of the value trap. Though Hutchison shares jumped by a third on news of the deal, they have since retreated.
Despite the setback, Hutchison is still interested in snapping up assets in Europe, where it generates more than half its revenue. In February, its CK Infrastructure unit submitted a preliminary, opens new tab 7 billion pound ($9.60 billion) bid for the UK's Thames Water, the Financial Times reported citing people familiar with the matter, though the offer did not succeed.
Yet despite being one of the largest overseas investors in the United Kingdom, Hutchison is getting a mixed reaction there too: it acquired Phoenix Energy, a gas distribution network in Northern Ireland, for $1.1 billion in 2024, Dealogic data shows. In 2023, though, it accepted a minority position when merging its Three mobile telecom unit with rival Vodafone.
The Lis are hardly alone in facing greater M&A scrutiny. Governments are embracing broader definitions for national security and factoring in economic considerations when reviewing transactions. They may block acquisitions or impose conditions on overseas takeovers, as the United States recently did with the acquisition of U.S. Steel by Japanese rival Nippon Steel (5401.T), opens new tab. Meanwhile, China is closely scrutinising transactions that could appear to endorse the trade policies of the Trump administration, three lawyers specialising in M&A and antitrust told Reuters Breakingviews.
If Hutchison finds it harder to buy and sell assets, one alternative is to pursue stock market listings and spinoffs for its global telecom or retail assets. In August last year, CK Infrastructure (1038.HK), opens new tab established a secondary stock market listing in London. But the unit's market value has since fallen to $17 billion.
Maintaining multiple listings will raise costs and may not be sufficient to deflect geopolitical tensions. The group's global structure and Hong Kong stock market listing look increasingly awkward in an era when investors no longer prize geographic diversification. That could eventually lead to a fuller breakup.
The outlook for Hutchison will be less bleak if markets like Europe, Australia and Asia opt to improve ties with Beijing, despite Washington's attempt to isolate the world's second largest economy. A green light for the ports sale, possibly as part of a U.S.-China trade deal, would also help lift the gloom. For now, however, the sale that was supposed to solve a problem has instead revealed a sea of risks facing the Li family's empire.
Follow Una Galani on Linkedin, opens new tab and X, opens new tab.