Air China takeover bid for China Eastern fails

An bid by China's flag carrier Air China to take over rival China Eastern Airlines, so as to stave off an earlier bid by Singapore Airlines and its parent Temasek Holdings to take a significant stake in the airline, has fallen apart. (See: Battle for Shanghai: Cathay Pacific, Singapore Airlines, in acquisition dogfight over China Eastern)

Air China had bought an 11-per cent stake in China Eastern, the country's third-largest airline, with the help of its parent China National Aviation Holding. Together with the HongKong-based Cathay Pacific, the flag carrier hoped to mount a rival takeover bid, to consolidate the Chinese domestic aviation industry.

Air China and Cathay have had a cross-shareholding relationship since June last year.

The move by Air China could have derailed China Eastern's agreement, signed earlier this month, to sell a 24-per cent stake to Singapore Airlines and Temasek, for HK$7.2 billion ($923 million). (See: Air China raises stake in China Eastern Airlines; to take on SIA?)

"A proposed acquisition by Cathay Pacific Airways together with China National Aviation Holding of shares in China Eastern Airlines will not now proceed," Cathay said in a statement to the Hong Kong stock exchange late at night on Monday 24 September. No further comment was forthcoming, either from Air China or Cathay.

Cathay halted trading in its shares on Friday, pending clarification of its intentions. Air China did the same on Monday. Prospects of a possible battle for control led to a 50 per cent jump in China Eastern's Hong Kong-traded H-shares, but the scrip lost 10 per cent on Monday.

The failed counter-bid for China Eastern will probably come as a huge disappointment to Air China chairman Li Jiaxiang, who in a new book has strongly criticised foreign investment in the country's aviation sector.

In 'Route to Fly', a 234-page work that outlines Li's vision of transforming Air China into an "international super-carrier", he says that too many stake sales by Chinese airlines to overseas rivals will impede mergers and acquisitions in the domestic aviation sector.