SIA deal vulnerable as HK carrier's plan to team up with CNAC may spark bidding war Cathay Pacific Airways rejoined the dogfight over the proposed sale of a strategic stake in China Eastern Airlines Corp by announcing yesterday that it would consider teaming up with Air China or its parent company to make a counter-offer. The move will tip the scale more in favour of market talk that shareholders will reject the HK$7.2 billion offer by Singapore Airlines and Temasek Holdings. In a statement filed with the Hong Kong exchange yesterday, the Hong Kong flag carrier said it would 'seriously consider any proposal that Air China [or its parent CNAC] may make ... to participate in a strategic partnership with China Eastern Airlines'. Along with China National Aviation Corp (Group), it aborted in September last year a bid to take a stake in the Shanghai-based carrier supposedly on central government opposition. Cathay's move would potentially trigger a bidding war and make it increasingly likely for China Eastern shareholders to reject the HK$3.80 per share Singapore offer for a 24 per cent stake at the extraordinary general meeting in Shanghai this afternoon, analysts said. CNAC said on Sunday that it would offer at least HK$5 per share, or a 31.58 per cent premium over the Singapore deal, should China Eastern's minority shareholders vote against the deal. 'I think minority shareholders will vote down the deal,' Tung Tai Securities research director Kenny Tang Sing-hing said. 'The offer price is too low.' Investors yesterday cast doubts over the success of the offer by SIA, sending its share price down 2.59 per cent to close at S$16.52 (HK$89.74). China Eastern H shares shed 3.76 per cent to HK$6.66, still well above any of the bids being bandied about. Shares in Air China, which at HK$5 per share would be paying an inflated 3.5 times book value for China Eastern, fell 2.59 per cent to close at HK$10.52. Cathay's shares were little changed, rising 0.1 per cent to HK$20 per share before the company's announcement. Cathay and Air China each holds a 17.64 per cent stake in the other's shares. Mainland media reports said Cathay and CNAC were forced to abort their counter-offer in September due to opposition from the State-owned Assets Supervision and Administration Commission (Sasac). Analysts yesterday said political winds in Beijing had shifted recently in favour of CNAC after the appointment last week of Air China chairman Li Jiaxiang to head the Civil Aviation Administration of China. 'Political uncertainty has cleared,' Citigroup analyst Ally Ma wrote in a research note. 'CNAC's counter-proposal is backed by Sasac.' Cathay's announcement yesterday did not commit to an investment, nor did it say how it will consider co-operating with CNAC and China Eastern. 'If Cathay can get an operational say in China Eastern, it will make sense for them to participate,' said a transport analyst. 'But if they just get an equity stake, it doesn't.' SIA and Temasek so far have declined to raise their offer. 'SIA based its bid on the financials of the company and those haven't changed,' a source familiar with the tabled offer said. Still, analysts say the strategic appeal of the stake may force the Singaporeans to sweeten their offer if their original deal is rejected. 'This may be the last opportunity for Singapore to enter the China market,' Mr Tang said. 'I think they will raise the offer.'