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China Eastern shareholders vote down Singapore Air tie-up
2008-01-08
China Eastern's ambition of inviting Singapore Airlines on board as a major partner was scuttled by its own shareholders Tuesday, but its chairman angrily said a rival bid from Air China would fail. Nearly four in five of China Eastern's minority shareholders voted down a proposal to let Singapore Airlines buy 24 percent in the carrier, throwing the battle for the hugely lucrative skies around Shanghai into disarray. "I regret the deal has been voted down," China Eastern Chairman Li Fenghua told a gathering of shareholders meeting at a hotel near the carrier's headquarters in China's largest city. Singapore Airlines and Temasek, the city-state's government-linked investment firm, signed a preliminary deal in September to take the stake in China Eastern for 923 million US dollars, or 3.80 HK dollars a share. But on Sunday, the China National Aviation Corp. (CNAC), the parent of rival Air China, promised at least 5.00 Hong Kong dollars (64 US cents) a share for shares in the Shanghai-based carrier if the Singaporean deal was voted down. Blaming "unstandardised procedures by some competitors in the industry" for the rejection of the tie-up, Li made it clear he still wanted Singapore Airlines as a partner, and not Air China. "When it comes to introducing a strategic investor, we will not consider Air China... we still think Singapore Airlines is the best cooperation partner," Li said. "It's not simply the price that I look at. It's like if you don't like her, no matter how big the dowry is, it wouldn't work." For Singapore Airlines, a successful deal would have made it one of a very few foreign airlines with a major presence in China, which is seeing passenger growth explode by more than 15 percent a year. China Eastern is so sought after because it is has about 35 percent of the flights in and out of Shanghai, while Shanghai Airlines is in second place with a market share of 17 percent and Air China accounting for about 12 percent. The Singaporean carrier reacted to the vote by releasing a statement saying it was "disappointed" but that would also "continue to support the building of a relationship with China Eastern", indicating it may try again. For China Eastern, Singapore Airlines' main attraction, apart from the money, has been the lure of management expertise from one of the world's most respected airlines. But with Hong Kong's Cathay Pacific expressing an interest Tuesday in joining CNAC to form a strategic alliance with China Eastern, this may be less appealing, analysts said. As a substantial shareholder in CNAC's subsidiary Air China, Cathay Pacific said late Monday it would give serious consideration to joining CNAC and form a strategic partnership with China Eastern. Despite Li's anger at the Singaporean bid being derailed, CNAC will likely succeed in its campaign to expand its investment in China Eastern -- unless Singapore Airlines ramps up its offer, Citi Investment Research group said. If CNAC does succeed, it would form an overwhelming presence in the Chinese aviation market, with a dominant role in the two main hubs, Beijing and Shanghai. A total of 77.61 percent of the minority shareholders assembled at the hotel near Shanghai's Hongqiao International Airport voted against the deal, according to a China Eastern official. Both holders of Hong Kong and Shanghai-listed shares could vote. Among owners of Shanghai-listed shares, 94.09 percent voted against Singapore Airlines' bid.
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