Cathay Pacific may raise the ante against SIA for China Eastern stake
Cathay Pacific Airways appears to be heading for a costly tug of war with rival Singapore Airlines over a contested stake in mainland carrier China Eastern Airlines.
Following up on reports in the South China Morning Post on Saturday that Cathay Pacific planned a counter offer for a stake in China Eastern to thwart a bid from Singapore Airlines, British media reported at the weekend that Cathay Pacific was preparing a formal offer that could value China Eastern at more than US$4 billion.
However, if the bid comes, it may involve the mainland's State-owned Assets Supervision and Administration Commission, since it has reportedly already agreed to SIA's bid.
British newspaper The Daily Telegraph at the weekend reported that Cathay Pacific, majority controlled by Swire Pacific, was now expected to unveil an offer that would exceed SIA's earlier bid to buy a 24 per cent stake in China Eastern for US$918 million.
Industry watchers were sceptical about the acquisition's status, however, since the mainland authorities had already agreed to sell the stake to SIA and Temasek Holdings, Singapore's state investment vehicle.
That agreement, which has yet to be approved, is still pending the support of about 66 per cent of minority shareholders voting at a shareholders' meeting in December.
'I think it will be difficult for Cathay Pacific to get a stake in China Eastern as it would result in less competition in the mainland aviation sector, which is what the government wants to avoid. Besides, it has approved the stake transfer to Singapore Airlines already,' said Pegasus Fund Managers managing director Paul Pong.
But talk in the industry was that Cathay Pacific would seek to enlist support from Air China to vote down Singapore's bid for China Eastern in a forthcoming special shareholders' meeting.
Under a deal struck last year, Cathay Pacific and Air China already own 17.5 per cent stakes in one another. Air China has meanwhile been aggressively boosting its stake in China Eastern since April and now owns 11 per cent in the Shanghai-based carrier.
'Air China may take aggressive actions to derail China Eastern's stake sale to Singapore Airlines,' investment bank Citigroup said in a report last Friday.
Cathay Pacific declined to comment on the speculation.
Shares in the Hong Kong carrier meanwhile rose 10.73 per cent on Friday to a record HK$22.70 before trading was suspended pending the announcement of a price-sensitive proposed transaction.
