Shareholders in China Eastern Airlines (CEA) shareholders voted on January 8 to reject a bid by Singapore Airlines (SIA) and Temasek Holdings, the investment arm of Singapore’s government, for a stake in the mainland carrier.
The Singaporeans had offered HK$3.80 per share for 24% of the airline, a valuation that they insisted was fair. However, it was rejected after Air China’s parent, China National Aviation Holding Company (CNAHC), said it would offer HK$5 a share for a similar stake.
A last-minute announcement by Cathay Pacific Airlines – it and Air China hold shares in one another – that it would likely back CNAHC sealed the fate of the SIA-Temasek bid.
CEA at first reacted negatively to the CNAHC offer, refusing to consider a partnership with one of its main rivals. This refusal led some observers to forecast a highly unusual hostile takeover and merger of CEA by Air China.
Later, both sides appeared to soften their stances, with Air China saying it would seek merely a cooperation agreement, and CEA suggesting it would consider “any sincere bid” by CNAHC. CEA’s requirement of sincerity was not meant lightly: The airline later questioned the motives behind an official CNAHC offer.
The negotiations have taken place in a confusing regulatory environment. China is attempting to balance the liberalization of its airline industry with the desire to develop a large, globally competitive airline.
CEA returned to profitability in 2007 after several years of losses. While enjoying comparable passenger numbers to China Southern and Air China, it has struggled to convert those numbers into profits.
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