They Don't Want Air China Involved, Either

ANN REALTIME UPDATE: 01.09.08 0000 EST: Now, this is interesting. On Tuesday, minority shareholders in China Eastern struck down an offer from Singapore Airlines, and government investor Temasek Holdings, to purchase a stake in the state-owned airline. The shareholders apparently held out for more money, in hopes of sparking a bidding war.

Despite having the support of the China Eastern board and the China State Council, the Singapore deal -- in the works for over two years -- was opposed by 78 percent of the minority shareholders, reports The New York Times. The proposed sale price of 3.80 Hong Kong dollars per share was significantly less than China Eastern's current value, which is close to 7.00 Hong Kong dollars.

That figure is probably shaky, however, as news of the Singapore offer drove the stock price up when China Eastern announced it in September 2007. Now that Singapore is probably out of contention -- analysts agree it's not likely to rebid -- the stock price could fall.

The decision leaves the door open for a likely counteroffer from China National Aviation Holding, the parent company of China Eastern rival Air China. Both airlines are majority-controlled by the Chinese government; China National said it plans to offer at least 5.00 Hong Kong dollars per share for the airline.

Further muddying the waters is the fact China Eastern chairman Li Fenghua supported the Singapore offer... and openly opposes a bid by China National to gain control of China Eastern. It could take weeks for everything to sort out.

Analysts say a combined Air China-China Eastern would amount to a single Chinese superairline, with firm control over China's two primary hubs in Beijing and Shanghai.

Original Report

01.08.08 1035 EST: As China's communist regime struggles to embrace some elements of capitalism, the Chinese people will have to learn some new vocabulary. This week's lesson is "hostile takeover," which possibly for the first time now has a non-military definition in China.

Government-owned China Eastern Airlines has been losing money, and Singapore Airlines has offered to buy a stake in the company worth $923 million US. Late Sunday, however, Air China -- itself wholly-owned by the government -- told China Eastern shareholders that if they would vote down the offer from Singapore, Air China would buy the same stake for 30 percent more, according to Forbes.

In addition to the concept of the government offering to, in essence, bail itself out, another wrinkle in the new semi-capitalist Chinese paradigm is a question of whether the Air China consolidation proposal could win regulatory approval. While it's not uncommon for Chinese state-owned companies to compete fiercely against one another, a direct assault like Air China's offer is unprecedented.

The new limits on monopolies in Chinese corporate law suggest Air China's bid probably wouldn't pass regulatory muster... but then again, Air China is owned by the government, and Air China Chairman Li Jiaxiang was appointed a few days ago to head the commission which would have to approve his own airline's takeover bid.

China Eastern stockholders vote Tuesday on the original Singapore Airlines bid. No matter how it turns out, it'll be fun to watch.

FMI: www.ce-air.com/, www.airchina.com.cn/en/index.jsp