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View Full Version : Cathay swallows the Dragon.


Leo Hairy-Camel
8th Jun 2006, 11:51
Fascinating developments in the mysterious East, according to the Financial Times. Given past rather public enmities, should be interesting to observe the parachutes from Dragon management. Can’t wait to see how the unions get on together, and merging seniority lists is always such a terrific spectator sport.

Cathay Pacific to take over Dragonair
By Justine Lau and Tom Mitchell in Hong Kong
Published: June 5 2006 10:05 | Last updated: June 5 2006 22:33

Cathay Pacific is set to take over Dragonair, its smaller rival, in a long-awaited deal that will give Hong Kong’s de facto flag carrier much wider access to China’s tightly-regulated skies.
In return, Air China, the country’s national carrier and Dragonair’s largest shareholder, will gain a stake in Cathay, according to people close to the negotiations.
The transaction, expected to be announced this week, will help to clear the complex shareholding structure between the three airlines and their parent companies, which have been in restructuring talks for months.
The deal will give Cathay a strong boost as the carrier has been attempting for years to expand its presence in China’s fast-growing aviation market. Cathay pulled out of the mainland market in 1990 after buying a stake in Dragonair, which mainly flies between Hong Kong and China.
Cathay returned to China in 2003 but still only flies passengers to two mainland cities – Beijing and Xiamen in south-east China.
Dragonair, meanwhile, has been expanding rapidly and serves 23 mainland destinations – more than any other non-Chinese airline. It is also highly profitable.
Analysts said there was a compelling strategic argument for Cathay to take over Dragonair and create one of the strongest networks in Asia.
The skies are clearing around Cathay Pacific. The Hong Kong airline has weathered more storms than most.
Although the benefits to Air China seem less obvious, analysts said the deal would help the country cement its relationship with Cathay, which has a 10 per cent stake in the Chinese carrier, as it seeks to become a more serious player in the international aviation market.
Air China will also profit from its stake in the merged Cathay/Dragonair, which is expected to be even better run and more efficient than the current Dragonair.
According to a Hong Kong newspaper report, Cathay, which has a 17.8 per cent stake in the unlisted Dragonair, would pay at least HK$10bn (US$1.29bn) to buy out other shareholders in the airline.
Air China controls 43.3 per cent of Dragonair through a Hong Kong-listed subsidiary called China National Aviation Holding.
Citic Pacific, a Beijing-backed conglomerate, owns 25.4 per cent of Cathay and has a 28.5 per cent stake in Dragonair.
Swire Pacific, Cathay’s largest shareholder with a 46.4 per cent stake, also owns 7.7 per cent of Dragonair.
After the deal, Cathay will become sole owner of Dragonair, which is expected to maintain its brand.
Citic is expected to lower its stake in Cathay.
Shares in Cathay, Air China, Citic, Swire and CNAC were suspended from trading on Monday.
The companies declined to comment.

captplaystation
8th Jun 2006, 13:53
Wow , such a shock to see you posting on a subject other than our esteemed employer Leo, even if it is merely a precursor to a bit of union-bashing. Have to agree with you though, it is going to be a bit messy, what with IFALPA recruitment ban's etc. I guess there will be much poring over "Squadron" and "Free-masonic" records in prospect too.

Copenhagen
9th Jun 2006, 07:44
Well, we all know that Leo is planning to leave FR soon....

Wonder if he's been approached by Cathay pacific?

:eek:

HotDog
9th Jun 2006, 08:24
It's done.

HONG KONG, China (Reuters) -- Hong Kong's main airline Cathay Pacific Airways Ltd.said on Friday it will pay HK$8.22 billion ($1.05 billion) in cash and shares to take over rival Hong Kong Dragon Airlines Ltd.
The long-expected deal will expand Cathay's access to the fast-growing mainland China aviation market.
As part of the deal, Cathay will also pay HK$4.07 billion ($522 million) to double its stake in Beijing-controlled Air China Ltd. from 10 percent to 20 percent.
In turn, Air China will pay HK$5.39 billion ($691 million) for a 10.16 percent stake in Cathay, the companies said.
Air China controls China National Aviation Co. Ltd. (CNAC), which is the largest shareholder in unlisted Dragonair, owning 43 percent.
Cathay already held a 17.8 percent stake in Dragonair and Cathay's parent, Swire Pacific, had a separate 7.71 percent holding.
Cathay Pacific and Air China said they planned to set up a jointly owned cargo airline based in Shanghai, to be held 51 percent by Air China and 49 percent by Cathay. The companies also said Hong Kong Dragon Airlines, better known as Dragonair, would keep its current branding for six years.
Cathay has been frustrated by its limited access to mainland China, where its only passenger routes are to Beijing and Xiamen. Dragonair, which flies to 23 mainland cities including the lucrative Shanghai market, fills that gap in Cathay's network.
Cathay is buying the shares in Dragonair that it does not already own from Swire Pacific, as well as CITIC Pacific and CNAC, for HK$820 million in cash and the remainder in new Cathay shares issued at HK$13.50 each, a premium of 4.2 percent over their last closing price.
Air China is buying its shares in Cathay for HK$13.50 each from Swire and CITIC, the companies said. Cathay will pay HK$3.45 per share in Air China to double its holding in the carrier, a premium of 11.3 percent over the last close.
Cathay also said it would pay a special dividend of HK$0.32 per share on completion of the deal.
Shares in all five companies, which have been suspended since Monday morning, were to resume trading on Friday, the companies said.
The deal will see Swire's stake in Cathay pared from 46.3 percent to 40 percent, while CITIC Pacific's holding in Cathay will fall from 25.4 percent to 17.50 percent.