Shareholders in China Eastern Airlines rejected the proposed sale of 24 per cent of the company to Singapore Airlines and its parent Temasek for HK$7.16bn ($918m) on Tuesday after an unprecedented campaign by larger rival Air China to block the deal.
The rejection leaves China National Aviation Corp, Air China’s parent company, free to make its own bid for CEA, which it said would come within two weeks and be no less than HK$5 a share, a large premium to the HK$3.80 offered by SIA and Temasek, Singapore’s sovereign wealth fund.
Hong Kong-based Cathay Pacific Airways, which has a cross-shareholding arrangement with Air China, said it might also support a bid by CNAC to take the CEA stake.
CNAC, which last year built a 12 per cent stake in CEA’s Hong Kong-listed shares, has already hired an investment bank to start working on the terms of its own offer. China Eastern Air Holdings, a state-owned company, holds a further 60 per cent stake in CEA.
SIA would not say if it planned to launch a new bid for CEA but said it “will continue to support the building of a relationship with China Eastern”.
SIA has said it believes the price on offer was fair and “the maximum justified on the business fundamentals”.
Following the shareholder vote in Shanghai, Li Fenghua, chairman of CEA, said his airline still believed the arrangement with SIA was its best choice and that management would continue to work hard on a deal with the Singaporean carrier.
He said CEA had not yet received a formal proposal from CNAC, which he accused of conducting “many non-public operations” to oppose the SIA investment.
The sustained public opposition from state-owned CNAC is highly unusual, considering the SIA bid was approved by China’s central government.
Analysts and bankers close to negotiations said the fact CNAC was allowed to oppose the deal so strongly indicates the SIA offer had lost the support of senior Chinese officials.
Thanks in part to speculation over CNAC’s counter-bid, CEA’s Hong Kong share price has risen to more than double the amount offered by SIA and its Shanghai-listed price is nearly six times higher, making it difficult for senior leaders to allow the sale to go ahead and not face accusations of selling state assets on the cheap.
The SIA investment required approval from shareholders representing two-thirds of the votes that showed up on Tuesday but CEA said about 78 per cent of those who attended voted against the deal, thanks in part to a low turnout by large minority shareholders.
The proposed deal called for an issue of new equity by CEA, which would have diluted CEA’s parent’s holding to 51 per cent.
Get alerts on Transport when a new story is published