China Eastern Rejects Air China Approach

Growing airline group China Eastern has today rejected a bid from the parent company behind Air China which would see the acquisition of a 30% stake in the company as incomplete and unacceptable, in a move that was rejected outright by the airline earlier today.

Government owned parent company China National Aviation Corp made the move to acquire the stake in China Eastern with the promise of a substantial cash injection of some $2 billion along with a commercial alliance which could provide mutual benefit to both organisations.

However the approach was initially rejected by China Eastern’s parent company as a result of an incomplete directors’ endorsement, which would prevent the deal from going through in any event with company law restrictions.

It is thought that the value of the potential approach, which was voiced by CNAC as no less HK$5 per share - some HK$1.2 more per share than the recent rejected bid from Singapore Airlines, the world’s most profitable airline operator, which would inevitably make it an attractive offer were the full legalities put in place.

The approach from Singapore Airlines ten days ago sought to acquire a 24% stake in China Eastern, but was rejected by the shareholders on a number of grounds, including the depressed valuation it gave to the company.

It is thought in the market that the CNAC bid, looking to increase its current holding in the group from just under 4%, is designed to prevent any further interest from Singapore Airline, thus preventing it from gaining any further input into the Chinese air-travel market and mounting any serious competition to Air China’s domination.

It remains to be seen whether CNAC will come back with a complete or revised bid, and whether this will have the desired blocking effect on the interest shown by Singapore Airlines over the coming weeks.

Story link: China Eastern Rejects Air China Approach