A century-old wealthy family that rose from Shanghai

Early 2015.

In Hutchison Whampoa's large conference room, senior executives from Hutchison Whampoa and Temasek were seated on either side, while on the other side, a number of reporters were holding their camera equipment and waiting anxiously.

It turns out that today is the day Hutchison Whampoa signed an agreement with Temasek to sell a 25% stake in Watsons for a whopping HK$650 billion.

Today, Watsons has 16000 stores worldwide, making it a true 'retail giant' with a market valuation of $500-600 billion.

This valuation is naturally much higher than in the previous life, by about 50-60%.

The reason is quite simple: Watsons in this era is much larger, more influential, and has higher sales.

Watsons began to develop cosmetics and beauty products in the late 1980s. Watsons already had a good business in this area, and with the efforts of the Chen family (such as the promotion of ginseng essence, the invention of cushion BB cream, Chinese medicine, cosmetics and other new products).

At the same time, the 'Hong Kong culture' is also an important factor. The 'Hong Kong culture' has swept the world, and Watsons is the 'retail representative' of the Hong Kong culture.

Finally, there's also Watsons, which has been acquiring retail brands and businesses globally since the 1980s, and establishing local retail channels.

"Mr. Li, may we begin?" Huo Jianning asked with a smile.

Temasek CEO Lee Teng-chieh immediately replied, "Of course, we've been looking forward to this day for a long time!"

It turns out that Temasek had been in talks with Hutchison Whampoa since 2014, hoping to reach a cooperation agreement and further promote Watsons' global expansion.

In reality, Temasek, as Singapore's sovereign wealth fund, is merely using an investment strategy to hope for Watsons' future IPO and then make a huge profit.

Investors are very optimistic about Watsons' prospects, after all, it has not only penetrated the retail market in Europe and the United States, but has also developed rapidly in the mainland market (currently reaching 2800 stores in the mainland); in addition, investors believe that 'Hong Kong culture' is now a general trend, and Watsons is a beneficiary of this culture.

Watsons is not only a large retail group, but also a manufacturing giant and a cosmetics giant.

Huo Jianning and Li Tengjie then began signing the agreement, and reporters snapped photos to witness this huge deal.

The following day, numerous media outlets, including The Chinese Street Daily, Sing Tao Daily, and Oriental Daily News, reported this important economic news.

Later, Hutchison Whampoa Chairman Chen Zerui (the third-generation head of the Chen family) held a rare press conference.

"Watsons is prioritizing a separate listing in Singapore and Hong Kong within the next 2-3 years. Due to the complexity of the process, Watsons will abandon its plan to list in London."

A reporter immediately asked, "Were there any major controversies during the negotiations between Temasek and Hutchison Whampoa?"

Chen Zerui laughed and said, "It's ridiculously fast!"

Laughter erupted from the crowd.

Chen Zerui's statement reflects his confidence in Watsons and also indicates that Temasek has high hopes for Watsons.

A reporter then asked, "There are rumors that Chinese capital is also interested in acquiring a stake in Watsons?"

Chen Zerui said, "You can't just look at the price when buying and selling; your partners are also very important."

Later, a reporter questioned, "It is said that brands such as Revlon, Garnier, and MG are considering withdrawing from Watsons?"

Huo Jianning, who was standing next to him, answered the question: "The specific details are not very clear yet. But Watsons is a giant in the cosmetics and beauty industry, so the impact in this regard is not significant."

The reporters naturally agreed with this statement.

Watsons' current success is largely due to the outstanding performance of its 'own brands,' in addition to its large-scale acquisitions of overseas retail brands and its extensive development in mainland China.

Another reporter asked, "Does Watsons place importance on online channels?"

Huo Jianning replied, "With this level of attention, offline channels can certainly provide better service."

Afterwards, various media outlets quickly prepared to publish their articles.

Because we live in the internet age, news quickly appears on the internet.

This news, in the eyes of some politicians and academics, added another layer of damage to Cheung Kong Holdings' reputation—alleging a possible withdrawal from Hong Kong and the mainland. Of course, this had not yet become public knowledge at this point.

"Canning, have Watson's management team strengthen their online development efforts in mainland China," Chen Zerui said to Huo Jianning in his office.

Huo Jianning was somewhat taken aback. First, Chen Zerui took such a small matter very seriously. Second, Watsons did not place much importance on online channels.

"Online channels?"

Chen Zerui said with a smile, "The mainland market is different from other markets. Online channels are developing rapidly, which will definitely have a significant impact on our offline channels. Therefore, we must proactively mitigate the impact rather than be passive. For example, on Taobao, we need live-streaming hosts to actively promote our cosmetics and beauty products, and we also need to pay attention to the operation of Watsons' online store."

Huo Jianning also became serious. He had met three generations of the Chen family and knew that the Chen family had a unique vision.

"Okay, I will pass it on to Watsons management."

After Huo Jianning left, 57-year-old Chen Zerui (born in 1958) fell into deep thought.

Three years ago, he received instructions from his grandfather to reduce assets, specifically real estate assets in mainland China and Hong Kong.

The former refers to the need for the Cheung Kong Group to continue streamlining its operations and avoid excessive financial exposure on wealth rankings; the latter reflects concerns about the future prospects of the real estate markets in mainland China and Hong Kong.

The downsizing of the Cheung Kong Group actually began in 2006, when it sold off the mining giant Norlanda Eaglebridge and listed Husky Energy, raising nearly $300 billion from these two business activities.

Later, in the second half of 2007, Hutchison Whampoa continued to cash out its Husky shares in batches (selling them directly to investment institutions). By October 2008, it had cashed out another 25% of the shares, amounting to nearly US$20 billion.

Therefore, when the 2008 financial crisis hit, Cheung Kong Holdings was once again referred to by the media as a 'master of risk insight'.

Since 2012, Cheung Kong Holdings has stopped acquiring land in mainland China and accelerated the progress of its projects. Its original land reserves of 2800 million square meters have dwindled to only 2000 million square meters, and are expected to decrease by more than 1000 million square meters over the next three years.

In Hong Kong, they basically stopped acquiring land in 2013, but accelerated sales starting in 2014.

Central, Cheung Kong Group Centre.

One floor here is an office building belonging to the "Chan Man Kit Father and Son Trust Fund". Since the 1980s, the "Chan Man Kit Father and Son Trust Fund" has been receiving dividends from "CK Asset Holdings" and reinvesting them.

Chen Wenjie sat at a conference table; he is now 82 years old, but he looks quite energetic.

He began, “The main wealth of my lineage is in the ‘Father-Son Trust Fund’ left to us by your grandfather. Currently, in addition to holding 51% of Cheung Kong Holdings’ shares, this trust fund also has nearly US$50 billion in reinvested assets (reinvesting dividends from Cheung Kong Holdings since the 1980s).” Chen Zerui, Chen Siqi, Chen Zeli, and Chen Zejing, all middle-aged men in their forties and fifties, listened intently.

Chen Wenjie continued:
"Given that you have matured and become more stable, and that the investment assets held by the Father and Son Trust have exceeded US$300 billion, your grandfather and I have decided to divide the assets. Going forward, Cheung Kong Holdings will distribute substantial dividends every year, and the Father and Son Trust will also have considerable profits on its books. Therefore, the Father and Son Trust will distribute a large amount of dividends to you four siblings according to your 'inheritance rights'."

"This money is to help you set up your own trust fund, after all, you are already fathers and grandfathers."

Chen Zerui quickly replied, "Father. We are very willing to put the assets in a trust fund; it is also the best way to pass on the legacy."

Chen Siqi, Chen Zeli, and Chen Zejing all nodded, indicating that they did not have such thoughts.

The money they received from childhood to adulthood was almost entirely used to build a 'father-son trust fund,' starting with tuition and living expenses, and later large sums of money for living expenses.

After they joined the company, apart from the basic salary provided by Cheung Kong Holdings, all their other income came from the "Father-Son Trust Fund".

Even though Chen Zerui is 57 years old this year, he can only receive HK$1.2 million a year in living expenses from the 'Father and Son Trust Fund' (the living expenses for the third-generation family members are HK$1000 million per month); his four children receive HK$500 million per month; and his grandchildren receive HK$200 million per month. When they are minors, their parents receive the living expenses.

Moreover, Chen Zerui, as Chairman and CEO of Cheung Kong Holdings, only received a symbolic salary of HK$1 per year. He lived to be 57 years old without ever truly enjoying the financial wealth of a 'top tycoon'.

Chen Wenjie said with satisfaction, "I know what you're thinking, and I'm very pleased that you've managed to protect your wealth. Of course, the real significance of this diversion is that the father-son trust fund has become too large, and we need to consider the rationale for diversifying our holdings. This is a joint decision made by your grandfather and me."

Upon hearing this, the four of them naturally did not refuse.

Chen Wenjie continued, "The Cheung Kong Group is undergoing a major downsizing, selling assets in mainland China and Hong Kong. The annual dividends will be substantial. The dividends from the 51% stake held by the Father and Son Trust will be distributed to you in a 30%:30%:30%:10% ratio. In addition, the Father and Son Trust will also distribute a portion of its annual profits to you."

In fact, in the father-son trust fund, Chen Siqi's annual dividends are the same as her brothers', 1.2 million. However, the difference is that her children are never listed as beneficiaries of this trust fund, so they will not receive dividends. In addition, it is stipulated that after Chen Siqi's death, she will no longer enjoy any rights, nor can her children inherit her rights.

However, Chen Siqi joined the 'Father and Son Trust Fund' at the age of 28, became the head of investment at the age of 30, and the CEO at the age of 35. During this period, she received a top-level professional manager's salary, which was much higher than that of her brother and two younger brothers. This can be considered as a favor given to her by Chen Wenjie.

Chen Zerui then said, "This year, Cheung Kong Group has distributed HK$200 billion in dividends, which is equivalent to HK$100 billion in dividends from the father-son trust. Even after deducting taxes, it is still very considerable."

A dividend payout of 200 billion is considered top-tier among companies worldwide (in its previous year, Cheung Kong Holdings only paid out 50-70 billion in dividends). Of course, this is mainly due to the Cheung Kong Group's downsizing efforts.

Chan Sze-ki was undoubtedly the happiest of the four siblings. She had always thought she would only be able to enjoy 'living expenses' and 'a salary,' with an annual income of only HK$2-3 million.' Once she passed away, these incomes would no longer be available.

So over the years, she has been very frugal, reinvesting her income, and hopes to establish a decent trust fund for her children before she dies.

Now, the dividends alone can reach more than 10 billion yuan, which is undoubtedly the most unexpected thing for her.

Chen Wenjie nodded and said, "As for the funds you allocate, you can establish your own trust fund. You can decide for yourself what to invest in, but you also know the family's resources, so you can exchange information with each other. I don't want to worry about it!"

"Yes, Father."

Thank you, Grandpa.

The investment direction is actually quite simple. All four of them are successful business people, and they can also gain access to the investment direction and timing of the 'father-son trust,' which means they can get some general trends from Chen Guangliang.

Soon after, CK Asset Holdings distributed a "high dividend" in the first half of the year, paying HK$3.2 per share (39.8 billion shares), making long-time shareholders very happy.

This is only for the first half of the year; CK Asset Holdings typically distributes dividends twice a year.

In Hong Kong, Cheung Kong Holdings' shares are more popular than HSBC's shares, but the market's retail shares actually account for only 25%, or about 10 billion shares, which is far too few.

There was no other way. After the Chen Group donated another 24% to the 'Chen Guangliang Foundation', the Chen Guangliang Foundation only used the dividends for charity or reinvestment and never sold the shares (which is also a family rule of Chen Guangliang).

The large dividend payout by CK Asset Holdings has also drawn criticism from some commentators: "The major shareholder of CK Asset Holdings is suspected of diverting capital; in recent years, it has either been selling assets or distributing high dividends."

As a result, Chen Zerui gave another interview: "I earn money from foreigners and distribute it to Hong Kong shareholders, is that considered a withdrawal of investment? The foundation uses the dividends for charity, is that also considered a withdrawal of investment?"

He reiterated that both CK Asset Holdings and Hutchison Whampoa are large international conglomerates, and their business decisions are not based on any particular geographical considerations. He does not want to see similar discussions in the future and does not rule out the possibility of continuing to sell assets in the next 12 months.

Over the years, Hutchison Whampoa has indeed invested heavily in Europe, but compared to the profits it has made from investments in Orange Telecom, Norlanda Eagle Bridge, Husky Energy, and Watsons, the total investment is not particularly large. Therefore, Hutchison Whampoa maintains high annual dividends, which is one of the profit channels for the Cheung Kong Group (parent and subsidiary companies).

Ultimately, the Cheung Kong Group has too much money and too few investment projects, so it can only distribute dividends.

Sure enough, just six months later, CK Asset Holdings announced another deal: the sale of a 50% stake in HK Electric for HK$260 billion (at this time, HK Electric was a subsidiary of Power Assets Holdings, which was the listed company and held 100% of HK Electric's shares. The original shareholders of HK Electric were transferred to Power Assets Holdings).

This continues to give the impression that Cheung Kong Holdings is accelerating the monetization of assets from mainland China and Hong Kong.

2019 years.

"Father, we've made some progress in acquiring the British pub group 'Green King.' They say they need to continue to consider our offer of £23 billion in acquisition funds and the assumption of £19 billion in debt. Please give us a reply as soon as possible," Chen Chuanxian, the fourth-generation head of the Chen family, reported as he entered his father's office.

Starting in the year 2000, Hutchison Whampoa began to accelerate its investments in Europe, and from 2010 onwards it intensified its investments. Today, its investments include a quarter of the UK's electricity, a seventh of its water, a third of its gas, and the second largest telecommunications company, as well as countless other investments in European telecommunications, ports, and retail.

Overall, although these investments amounted to hundreds of billions of Hong Kong dollars, Hutchison Whampoa's sale of Norlanda Eagle Bridge in Canada and the realization of some of its Husky Energy shares were sufficient to cover these investments. Therefore, it did not affect Hutchison Whampoa's huge annual dividends in the slightest.

The 61-year-old Chen Zerui calmly stated, "The acquisition of Green King should be canceled immediately, or postponed. The specific time is uncertain."

Chen Chuanxian was taken aback, and quickly said, "Father, the local authorities have almost relented. I estimate that they will only add another two or three hundred million pounds at most."

"Then let's not raise any more money, let's stall for now, even if it's a year later."

Chen Chuanxian asked, somewhat puzzled, "Why has Father's attitude changed?"

Chen Zerui couldn't very well say that it was his great-grandfather who had given him guidance, since his grandfather no longer wanted to concern himself with the affairs of the fourth generation. He was already flattered that his grandfather had reminded him, the third generation.

"The plan has changed. Investing in GreenKing is not like investing in infrastructure industries such as water, electricity, and gas, nor is it investing in industries such as telecommunications and real estate, as it carries significant operational risks. In short, hold onto this deal and don't rush into a decision."

"Okay, I understand what you mean!"

At this time, Chen Chuanxian, 34, was the leading figure of the fourth generation of the Chen family and had already served as a director of Hutchison Whampoa, mainly involved in European investment strategies.

Starting with the third generation, Chen Zerui, along with his sister and two brothers, has effectively formed a succession model of "one successor and the rest participating," meaning that Chen Zerui serves as the chairman of the board of directors of Cheung Kong Holdings, while his two brothers only serve as executive directors of the group's subsidiaries.

By the fourth generation, Chen Chuanxian's lineage still maintains the principle of "selecting the best person from the peers to take over, while the rest take on senior management positions based on their abilities." In fact, many of his younger siblings are unwilling to leave the family business and choose to start their own businesses or engage in non-commercial activities.

The elders no longer pressured the fourth generation of family members to go into business, giving everyone more options. (End of Chapter)