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Well, Look What The Cat Dragged In

Analysts believe CNAC's hostile acquisition of China Eastern's stake would push Air China into heavy debt, although there is hope for long-term financial returns, while it will almost have no impact on Cathay Pacific's balance sheet. Even so, you cannot deflect a higher bid based on that conclusion. It is CNAC's strategy, who is to say their planning is improper. If CNAC can muster a higher bid that is funded, everyone else eat crap and shuddup.

"We are not considering any other deals and will continue pushing the partnership with Singapore Airlines," said Li Fenghua, president of China Eastern after the vote at a special meeting. In November, Singapore Airlines and its parent, Temasek Holdings, signed definitive agreements with China Eastern to take a 24% stake in the carrier worth HK$7.2 billion or HK$3.80 per share.

The battle between Air China's (0753) parent China National Aviation Corp(CNAC) and Singapore Airlines over SIA's potential partnership with China Eastern Airlines (0670) took a new twist yesterday after China Eastern shareholders voted against the deal.

The deal was voted down yesterday with 77.61% of attending minority shareholders going against it. Altogether, 75% of H-share and 94% of A-share voting power opposed the deal.

"Air China is not a strategic partner for China Eastern. In this alliance, price is not the only issue that matters. We need foreign rather than domestic management expertise. I do not think Singapore Airlines will walk away from this," Li said.

CNAC said on Monday that it would offer no less than HK$5 per share (HK$9.43 billion) for the 24% stake. Cathay Pacific (0293) said it would "seriously consider any proposal made by CNAC to participate [in a] strategic partnership with China Eastern Airline."

CNAC voted against SIA even though the "higher authority" has already verbally lashed out in the open admonishing all minority shareholders to vote for the deal. CNAC was also reminded NOT to bid higher for CEA. What is pushing boundaries is basically CNAC is saying "fluck you" to the higher authority. The implications are very important. If Beijing does NOTHING, it basically will be seen as allowing business and market forces to dictate matters. What CNAC did is basically challenging state-controlled strategy and advisory control. Let's see if Beijing is pissed off. If Beijing puts more pressure on CNAC to do a reversal, that won't be seen in a good light, and would be a blight in upping China's reputation as a transparent financial center.

Naturally, as long as CEAs management has a say in choosing its partner, there is a chance minority shareholders would receive nothing in the near term, the way it is panning out, obviously CEA's management are the "YES guys" to Beijing. If CNAC succeeds, it would be an interesting corporate action piece for all to see cause China has never really gone down this road of stubborn M&A and hostile management before. No more angpows for you this year, my so called friend.

China Eastern's vice president said the company was studying the possibility of raising the offer price with Singapore Airlines. Singapore Airlines reiterated that it has no plan to do so. Well, it looks like SIA is going to hide behind the headmistress' skirt and let the headmistress teach the bullying student a lesson. SIA is saying nothing probably because it hasn't got the green light on the new strategy from Beijing and CEA. For heaven's sake, if CNAC can offer HK$5, SIA should do so too and then be allowed to gobble up CEA, at least THAT will be fair to minority shareholders. WHY SHOULD TEMASEK BE ALLOWED TO BUY SO CHEAP WHEN THERE IS A MUCH HIGHER OFFER? Sounds like a privatisation tender exercise among the favoured sons - oops, too close to Malaysia ...

In the first half of 2007 China Eastern accounted for 36.57% and 30.18% of all flights from Shanghai's two airports, Hongqiao and Pudong International, respectively. " We've been listing for 10 years and the stock price was always lower than HK$6, nobody cared about us, until Singapore Airline offered help," said Luo. So what Luo, so that makes it OK to accept the first offer on the table, you need to grow up. You sound very un-independent and not to be working for ALL shareholders' interest - esp the minority.

Shares in China Eastern were suspended yesterday pending the shareholder vote. Air China's H shares plunged 3.04% to close at HK$10.20. Cathay Pacific shares rose 1.25% to close at HK$20.25. There is certainly a very nice business book in this deal.


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