Hutchison Whampoa Ltd.

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Hutchison Whampoa Ltd.

Hutchison House, 22nd Floor
10 Harcourt Road
Hong Kong
(852) 8121 0161
Fax: (852) 8121 0705

Public Company (majority-owned by Cheung Kong Holdings)
Founded: 1880
Sales: HK35 billion (US$4.5 billion) (1995)
Employees: 26,855
Stock Exchanges: New York
SICs: 4731 Transportation of Freight and Cargo; 4899 Communications Services; 6552 Land Subdividers and Developers; 6719 Offices of Holding Companies; 7011 Hotels and Motels

Hutchison Whampoa Ltd., a vast conglomerate based in Hong Kong, has become a force to be reckoned with in real estate, ports, retailing, manufacturing, telecommunications, and energy. As one of Hong Kongs most venerable hongs (colonial trading houses, Hutchison began as an importer and wholesaler before diversifying in the 1960s. Bloated and unwieldy in the 1970s, Hutchison unloaded dozens of companies, strengthened its bottom line, and merged with Whampoa. Taken over by Li Ka-shings Cheung Kong Holdings, Hutchison Whampoa soon dominated the worlds second busiest East-West trading and shipment ports system; owned substantial property in Hong Kongs pricey real estate market; and held major shares of top performing energy, investment, retailing, and telecommunications companies. With Hong Kongs return to Chinese ownership in July 1997, Hutchison Whampoa, along with other colony companies, were poised for a new generation of corporate life.

Colonial Roots, 1800s to Mid-1900s

Hutchison Whampoas immense success was in great part due to the Opium Wars between the British and the Chinese. The first round, fought from 1839 to 1842 and easily won by the British, secured the use of Hong Kong and five ports for open trade through the Treaty of Nanking. The second round, from 1856 to 1858, was resolved through the Tientsin treaties that gave Great Britain, France, Russia, and the United States further access to Asian trade through 11 additional ports. Although the resolution of opium conflicts spawned many companies responding to free trade, the two companies that later became Hutchison Whampoa Ltd. were directly influenced by the Second Opium War and its consequences.

Hutchison Whampoas roots lay in two of Hong Kongs earliest colonial trading companies. The first, Hutchison International, was established as an importer and wholesaler of consumer products by John Hutchison in 1880. The second company, Hongkong and Whampoa Dock, preceded Hutchison by nearly two decades. Founded in 1861, a year after the Kowloon peninsula was added to Chinas Treaty of Nanking secessions of 1842, Hongkong and Whampoa Dock was the crown colonys first registered company. In the beginning the companys future was somewhat uncertain; its owner, John Couper, had disappeared during the second opium conflict and was presumed kidnapped and dead.

Whampoa carried on, under new management, with its dry dock operations located on the deepwater port of Canton, one of Chinas largest and busiest cities and the first Chinese port frequented by Europeans. Four years after its charter, Whampoa purchased its first Hong Kong docks. Linked by the Canton-Kowloon railroad, Whampoa expanded its prominence as a transshipment gateway between Hong Kong, China, and the world. By 1898 when the New Territories (the mainland area joining Kowloon, along with Deep Bay, Mirs Bay, and well over 200 offshore islands) were leased to the British for the next 99 years, both Whampoa and Hutchison International were well established in the area.

Hong Kong, though separated from its erstwhile parent country both geographically and politically, was affected by Chinas upheavals over the next several decades. The Boxer Uprising (189890), the end of the Manchu dynasty in 1912, and the advent of World War I sent ripples through Hong Kongs trading, yet World War II by far did the most damage when the Japanese occupied the colony. Throughout these tumultuous years, both Hutchison International and Whampoa continued their businesses and managed to grow.

A Jewel of the Crown, 195079

In the 1950s Hutchison International and Hongkong and Whampoa Dock thrived independently. Hong Kong became an increasingly busy worldwide port despite its small (just shy of 399 square miles) land mass. By the mid-1960s Hutchison International was being run by Sir Douglas Clague, who had big plans for the 85-year-old company. Clague began a far-flung diversification program by buying controlling interest in A.S. Watson and Hongkong and Whampoa Dock. The former retailed soft drinks, drugs, and food through supermarkets and drugstores, while Whampoas dry dock operations had expanded throughout the Hong Kong area. After Watson and Whampoa, Clague caught acquisition fever and gobbled up a myriad of companies in the following years.

By the mid-1970s most of Clagues kingdom was crumbling around him, which forced the Hongkong & Shanghai Bank to step in and rescue Hutchison. Pouring money into the company (for what amounted to more than a 20 percent stake), the Bank sent Clague packing and brought in Australian spinmaster Dollar Bill Wyllie to turn Hutchison around.

Wyllie lived up to his name and reputation during his tenure and markedly reduced expenses in a few short years. In 1976 he sold off 103 companies; a year later he acquired the remaining interest of Hongkong and Whampoa Dock and merged it with Hutchison. The rechristened company, Hutchison Whampoa, was in good financial shape and controlled much of Hong Kongs dock activity through its shipyards and container terminals. In 1978 the company went public, listing on the Hong Kong stock exchange under the ticker symbol HUTH. To Wyllie and Hutchison Whampoas management, the sky was the limit for the revitalized company. Yet despite his profound impact, Wyllie would have a short tenure at Hutchison.

A mere two years after the merger and one year after going public, the Hongkong & Shanghai Bank unexpectedly sold its 22.8 percent interest in Hutchison Whampoa for half of its worth. The new owner, Cheung Kong Holdings, was run by the legendary Li Ka-shing, one of Hong Kongs richest men.

New Ownership, New Directions: 198089

Hutchison Whampoas acquisition thwarted any plans Wyllie may have had of his own and he left the company in 1981. Li Ka-shing came to his power and prominence the hard wayin fact, his childhood and youth purportedly read like a novel. Soon after fleeing China in 1940, Lis father died and the 13-year-old was faced with supporting his family. Working for a manufacturer of plastics and watchbands, Li sold plastic flowers on the street. By the time he was 23, he had saved a few thousand dollars, which he invested in his own plastics company. This company, eventually named Cheung Kong (Holdings) Ltd., became the colonys largest private property developer and was responsible for building about 25 percent of Hong Kongs new apartments annually.

As the 1980s progressed and the Hong Kong-China reunification drew closer (in July 1997), many residents and businesses began to fret about the changes of reverting to Beijings control. When the Chinese government remained adamant about their sovereignty rights, leaving little room for negotiation, the resulting economic slump affected both Hong Kong and the mainland. To all appearances, however, Hutchison Whampoa was doing exceedingly well with revenue (or turnover as the company called it), reaching just over $671 million (HK$5.2 billion) in 1984. That same year China and Great Britain announced a new agreement over the colonys status to quell mounting uneasiness and stop the flight of some 50,000 business professionals per year. Although Hong Kong would be allowed to keep its own legal system and capitalist economy, China, nevertheless, would retain ultimate control of the land mass and its surrounding bays and islands.

Another mitigating factor of the 1980s was the ongoing problem of losing precious land to the sea, making Hong Kong real estate increasingly valuable. In response to the shrinking marketplace, Whampoas former dockyards at Hung Horn were razed to make way for the Whampoa Garden complex. Mid-decade brought Simon Murray, a former French paratrooper and Foreign Legionnaire, to Hutchison Whampoas helm as managing director. By the time Murray arrived, the companys Hongkong International Terminals (HIT) unit had become the worlds largest privately-owned container terminal operator, helping pump turnover to nearly $705.4 million and income to $154 million in 1985 into the company.

Hutchison began diversifying again in the late 1980s, this time into utilities (Hongkong Electric, with a complete monopoly on Hong Kongs electric service), mining (the UKs Cluff Resources), oil (Canadas Husky Oil), and telecommunications (in the UK and Australia). In two short years from 1985 to 87, revenue had almost doubled from $705 million to $1.36 billion and income rose from $154 million to $240 million. By 1989 income had grown to $391 million on turnover of $2.3 billion.

Company Perspectives:

Hutchison Whampoa, based in Hong Kong, is a diversified corporation. Its business success is derived from four core divisions: property development and holdings; ports and related services; retail, manufacturing, and other services; and telecommunications. The Group is committed to the controlled growth of its existing businesses in Hong Kong and overseas, and to long-term investment opportunities presented by the economic growth taking place in China.

A World Leader, 199097

Hutchison Whampoa extended its telecommunications network through a three-way joint venture with Cable & Wireless and the China International Trust & Investment Corporation in 1990, sending the AsiaSat I (a 2,750-lb. refurbished Hughes satellite), into space. The next year Hutchison Whampoa was on a roll: the AsiaSat I was put to use for STAR TV, broadcasting to 38 Asian countries (or roughly 52 percent of the worlds population) through another three-way joint venture between Hutchison (18 percent), News Corp. (63 percent), and Li (19 percent); Millicom, a UK cellular phone company, was added to Hutchisons telecommunications unit (making it the largest cellular provider in the UK); and nearly all of Whampoa Garden had been sold by years end.

The companys HIT unit augmented its operations with 75 percent of Felixstowe Ltd., the UKs leading container port, in 1991 and a half-interest in Shanghais container port in 92, furthering its dominance as the worlds largest privately-owned container terminal operator with 65 percent of Hong Kongs container traffic (over 200 container trucks passed through its gates every hour). On the heels of these accomplishments came 1992 figures of $2.7 billion in turnover and an income dip from 1991s $428 million to just under $393.6 million due to a weak year for Husky Oil (whose shares the company had unsuccessfully tried to sell) and continuing setup costs for telecommunications expansion.

With Hong Kongs 99-year lease nearly over and Communist rule looming on the horizon, Hutchison Whampoa, like many companies based in the colony, hoped a solid footing with Beijing would ensure a smooth transition. To this end Hutchison continued to develop joint ventures for mutual advantage, because, as Li diplomatically told Financial World, economic pluses outweigh political minuses. In 1993, amidst a flurry of new agreements with the mainland, Simon Murray left Hutchison due to disagreement over the companys future. Yet it was business as usual, when Chinese officials announced their intention to build the countrys largest commercial store ever, with the bulk of its financing (95 percent) coming from Hutchison. When year-end figures were released, the company had ample reason to celebrate: income rose 107 percent from 1992s $393.6 million to $813 million on turnover of $3.2 billion.

The next year, 1994, Hutchison bought the remaining interest in Felixstowe Ltd., after paying Orient Overseas a reported $75 million for its 25 percent share. Additionally, Hutchison entered into another deal involving several Hong Kong and Chinese partners investing $120 million in Shanghai property. As Hong Kong real estate reached a critically limited state, Hutchison increasingly turned to China for lucrative property transactions. Hutchison finished the year with slightly less than $3.9 billion in revenue and broke the $1-billion-mark for income, the majority coming from Hong Kong businesses, 5 percent from Asia, 2 percent from the United States, and a loss from the European group due to the costs of setting up its new telecommunications ventures.

The telecommunications unit got a boost in 1995 with the coming expiration of Hongkong Telecoms monopoly on domestic fixed service networks. Along with two other competitors, Hutchison received approval to develop its own services. In real estate, Hutchison paid $125 million to buy out the Hong Kong Hiltons lease to tear down the hotel in favor of more marketable developments. Though the recently refurbished hotel was quite profitable, the value of its land parcel far exceeded its worth.

Hutchison turnover for 95 was $4.5 billion, up 16 percent from 1994, and income rose 19 percent to $1.2 billion.

In 1996 Hutchison announced plans for a new company, Hutchison Telecommunications Ltd., to consolidate its telecommunications interests, which included mobile phones, fixed lines, and paging systems. Hutchison also bought back a 25 percent share of its domestic paging business from Motorola. As the companys last year under British rule, 1996 brought downturns in both Hutchisons container terminals and real estate units. Yet by the end of the year ports and real estate were recovering and expected to post satisfactory gains. Hutchisons 168-year-old retailing and manufacturing division, A.S. Watson & Company, continued to thrive in 1996 with a virtual monopoly of supermarket and drugstores in Hong Kong and more in China, Taiwan, and Singapore; and Orange pic, Hutchisons European telecommunications gamble, was taking hold in its market while a similar service in Hong Kong was expected to rival Hongkong Telecom.

Though few doubted Hutchison Whampoas future was anything but secure, the weight of several factors loomed great. Li, who owned 44 percent of the company and was past the age of traditional retirement at 69, had often said hed retire after Hong Kong reverted to Beijings control. With Murray gone, who would succeed him? For years, rumors swirled about an internal power struggle between Lis two sons, Victor (31) and Richard (29), who were both executive directors, deputy chairmen, and held a host of other posts. Yet regardless of who controlled Hutchison Whampoa and its four core businesses, more significant was the coming political climate: the eyes of the world gazed intently upon Hong Kong as Beijing came calling.

Principal Subsidiaries

Aberdeen Commercial Investments Limited; Binion Investment Holdings Limited; Cavendish Hotels (Holdings) Limited; Cavendish International Holdings Limited; Chung Kiu Telecommunications (China) Limited; Darwin Investments Limited; Elbe Office Investments Limited; Fortress Limited; Foxton Investments Limited; Glenfuir Investments Limited; Grafton Properties Limited; Harley Development Inc.; Hey Wealth Limited; Hongkong and Whampoa Dock Company Limited; Hongkong International Terminals Limited (HIT); Hongville Limited; Hunghom Bay Commercial Investments Limited; Hutchison Communications Limited; Hutchison Delta Finance Limited; Hutchison Delta Ports Limited; Hutchison Estate Agents Limited; Hutchison Freeport Harbour Limited; Hutchison Hotel Hong Kong Limited; Hutchison International Limited; Hutchison International Hotels Limited; Hutchison Mobilefunk GmbH; Hutchison Paging Limited; Hutchison Power Development Company Limited; Hutchison Properties Limited; Hutchison Telecommunications Limited; Hutchison Telecommunications Technology Investments Limited; Hutchison Telecommunications (Australia) Limited; Hutchison Telecommunications (France) S.A.; Hutchison Telephone Company Limited; Hutchison Whampoa (China) Limited; Hutchison Whampoa (Europe) Limited; Hutchison Properties Limited; Lunogo Limited; Mountain Cream (International) Limited; Mossburn Investments Limited; Omaha Investments Limited; Orange pic; Oregon Investments Limited; Palliser Investments Limited; Pan Asian Systems Limited; Park N Shop Limited; Port of Felixstowe Limited; Provident Commercial Investments Limited; Rhine Office Investments Limited; Richmond Investments Limited; Shanghai A.S. Watson Yimim Food Company, Limited; Shanghai Park N Shop Supermarket Company Limited; Strategic Investments International Limited; Tremayne Investments Limited; Trillium Investments Limited; Turbo Top Limited; Union Faith Energy (HK) Limited; United Soft Drinks Limited; Vember Lord Limited; A.S. Watson & Company Limited; A.S. Watson Industries Limited; Watsons The Chemist Limited; Watson Park N Shop Taiwan Limited; Watsons Personal Care Stores Pte Limited; Watson WhaKwong (Hong Kong) Food Company Limited; Whampoa Investments Limited; Yantian International Container Terminals Limited; Zeedane Investments Limited.

Principal Operating Units

Property Development & Holdings; Ports & Related Services; Retail, Manufacturing & Other Services; and Telecommunications.

Further Reading

Canna, Elizabeth, Deal Links Hong Kong Giants, American Shipper, April 1992, p. 67.

Chowdhury, Neel, Hong Kongs Looking Good, Fortune, December 9, 1996.

DuBashi, Jagannath, Changing the Guard, Financial World, April 2, 1991, p. 56.

Goldstein, Carl, Stranglehold Loosens, Far Eastern Economic Review, October 15, 1992, p. 60.

Morton, Peter, Husky Oil Put on Sale Block, The Oil Daily, April 4, 1991, p. 1.

Preparing for China, The Economist, January 11, 1997, p. 58.

Sender, Henny, Boardroom Tangle: Hong Kongs Hutchison in Disarray Over Strategy, Far Eastern Review, November 5, 1992, p. 63.

Tanzer, Andrew, Li Breaks Out, Forbes, November 25, 1991, p. 100.

Taryn Benbow-Pfalzgraf

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Hutchison Whampoa Ltd.

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