Cathay Pacific stops offer for China Eastern

First the Daily Telegraph in London reported Cathay Pacific was preparing a bid for a major stake in China Eastern, China’s third-biggest airline.

Cathay, whose largest shareholder is the British-Asian trading group Swire Pacific and with which the writer had a long and intimate relationship, was expected to make an offer for a large stake in China Eastern Airlines, which is valued at about $4bn.

You may find this confusing because the news was that Singapore Airlines and Temasek, Singapore’s state investment vehicle, had agreed a deal to pay $923m for a 24% stake in China Eastern. Well, yes, the deal was ’set’. But not, as they say in some American business circles, ’set set.’

The combined offer of US$920 million has been approved by both China’s Cabinet and the China Eastern board which means it is ’set, but still requires the support of two-thirds of minority shareholders at a meeting in December which means it is not ’set set.’

Now, the Cathay Pacific offer is definitely off.

A Cathay Pacific representative told the Hong Kong Stock Exchange, ‘A proposed acquisition by Cathay Pacific Airways together with China National Aviation Holding of shares in China Eastern Airlines will not now proceed.The acquisition would have replaced that previously proposed by Singapore Airlines and a subsidiary of Temasek Holdings.’

That sounds fairly definite.

There are still some complexities. Air China, the country’s largest state-owned carrier, is owner of more than 10% of China Eastern’s Hong Kong-listed shares. Under a complex deal struck last year Cathay with a 20% stake in Air China and also full control of Dragonair, a Hong Kong-based regional carrier with a well developed China network. Air China, its parent and another mainland company in turn received a 35% stake in Cathay. The two airlines also are joined together in a range of co-operative agreements and joint ventures.

The Financial Times reported: ‘The failed counter-bid for China Eastern will come as a huge disappointment to Li Jiaxiang, Air China chairman, who in a new book, In Route to Fly, criticises foreign investment in the country’s aviation sector. In his book, Mr Li warns that when overseas companies invest in Chinese airlines “domestic companies only get the money to develop, while foreign companies acquire the long-term occupation of China’s air resources”.’

Our illustration comes from a parade of Cathay Pacific hostess uniforms over the years. The one with a silly hat dates back to the writers’ time.