The most acrimonious takeover battle in recent Chinese history took another twist today when shareholders in its third largest airline rejected attempts by Singapore Airlines to buy a strategic stake.
The vote, by 78pc of China Eastern’s non-state shareholders, came after a last-minute counter offer by its larger rival Air China, which some analysts interpret as indicating a government-sponsored bid to consolidate the industry. Both are majority state-owned.
But this was immediately rejected by China Eastern’s chairman, Li Fenghua, who said he would continue to find ways to pursue a relationship with Singapore Airlines.
“I regret the deal has been voted down,” he said. Air China’s counter offer was substantially higher at Hong Kong dollars 5 a share as against HK$3.80.
“When it comes to introducing a strategic investor, we will not consider Air China,” Mr Li added, in a rare public rebuke to what is in effect a competing arm of the Chinese government. “We still think Singapore Airlines is the best cooperation partner.
“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.”
He accused Air China of misleading shareholders and using “unstandardised procedures”.
China Eastern is the worst performing of the country’s three big carriers, but with its base in Shanghai represents a tempting target for Singapore’s flagship airline, which is itself controlled by the state investment house Temasek.
It was offering a cash injection, as well as the expertise needed to modernise its fleet, management and safety systems, in return for a 24 pc stake priced at HK$7.16bn (£465m).
The two Chinese carriers, which have minority listings on the Shanghai and Hong Kong exchanges, are under the majority control of separate wholly state-owned holding companies. Both are ultimately answerable to the State-owned Assets Supervision and Administration Commission (SASAC), which in turn answers to the State Council, or cabinet.
SASAC has asserted its neutrality in the battle, and may even value the opportunity presented for state firms to learn the arts of merger and acquisition – including those of being forced to make their case to private shareholders, including international investors.
But the fact that Air China, along with its own minority shareholder Cathay Pacific, made and then withdrew a bid last year suggests to many that government forces are at work behind the scenes.
One source told Caijing, the country’s leading business magazine: “These capital market issues are totally new for the government – we’ve never had this sort of situation before.
“As long as the deal’s legal and in line with regulations, we should accept it. But I’m afraid that at the end of the day the decision on the deal is in the hands of the State Council.”