2008-01-09

China Eastern Airline Deal (ii) - 東航之戰

This blog switches between languages from time to time, depending on the audience group I anticipate. The google translation tool is not getting better these days, if you click this or paste the link under "translate webpage" to read an approximate translation, you will see how ridiculous it is -- let's stick to babelfish (see the right column link).

中環博客認為東航之戰是一場鬧劇。我不這麼認為。東航的問題,正正表現了國資委正在朝市場化的方向走。可惜的是,一些歷史的包袱阻礙了這市場化的進程。因為,假如航空業市場改革是完善的,本來就不應該有國航持有大量東航股票的問題。因此,我也有同意中環博客的地方。不過,中航既然是股東之一,站在競爭立場上攪局,和站在股東回報立場,都是合情合理的。而且,即使中航不來搞,David Webb也會來。

A few pieces of facts (some of which I listed in a previous post)
  • CA will not merge with MU (CEA), it will lead to monopoly and is against the objectives of de-regulation (and making Chinese business more competitive post-WTO)
  • SIA's price is way too low. Even if SIA walks away right now, the market price for MU is still way over RMB3.8
  • CA, as a shareholder, will want a higher price, as discussed above
  • CA, as a competitor, will try everything to delay SIA entering, as SIA will definitely make MU much more competitive. The proposed SIA price gives CA a perfect excuse to execute its hideous plan.
  • The State Asset Committee, from the perspective of shareholder, should support CA. It therefore gave CA a free hand and let the markt decide. It did its best job in keeping silent in this deal (Note the SAC's interests is not necessarily the same as that of the Anti-trust Commmittee, or that of the "nation"). In this I see a much more mature management of China's SOEs
  • If anyone is to be blamed for the delayed SIA entry. It would be SIA and CEA. They did not proactively raise the price to prevent this from happening. If they did, they would not have to lose a few month. My bet is SIA/Temasek will raise their bid in the next 2 weeks, to around 4.5-5.0
  • When SIA raise its bid, CA will be forced (by the state) to back out and perhaps (better) sell all its holding. The subsequent issue is that CNAC will no longer be in absolute control of CEA. However, the solution is to let some Private Equity, either the State Fund, or a JV of State Fund with international PE Crocodiles (e.g. Blackstone), to enter with SIA/Temasek to counter-balance, with some legal structure to make sure that the foreign ownership percentage is not exceeded
  • Finally, yes, CA is no way as good as SIA in terms of management. But CA is partnered with CX, which is arguably stronger than SIA (A close friend had a disastrous experience with SIA's ground staff recently, holding F class ticket between SIN and HKG). More importantly, CA management is much stronger now. MU used to be better run and more profitable than CA, until the last 3 years. The whole thing was reversed, so was the stock price. The only reason was the change in management in these two companies. But this does not change what I discussed above. (IMO MU's management should have been fired long ago, replace them with a team of 5-8 managers from KA/CX/SQ will achieve the same result as )

5 comments:

Brough said...

I'm confused. I find the Google translations vastly better than those of Babblefish, including in this case.

The first few lines of the Babblefish translation are a garble:
"Center □the abundant guest □□□navigation □is one □□□. I not □□□□. □the navigation □□, the table □□committee has been facing the city □direction to walk. What a pity is, some □histories cloth wrapper anti- □city □□regulations."

While the corresponding Google translation is quite readable:
"Central Eastern Airlines blog that the war is a farce. I do not think so. Eastern Airlines, is precisely the performance of the SAC is moving in the direction of the market. It is a pity that some of the baggage of history hinder the process of this market."

Did you mean that the other way around? i.e. Google beats Babblefish???

Sun Bin said...

it reads smooth. but the translation is totally off.
(babelfish is no better, but is not that much off)

this is the proper translation. you can see the difference.

Central Blogger think the 'war on CEA" was a farce. I do not think so. The issue of CEA, precisely reflected the State Asset Commission is moving toward the 'market oriented' direction. The pity is, some historical baggage is blocking this move to market orientation...........

老麥 said...

國航好厲害

竟然想一個仙都唔出,用share swap "掩"死東航?

Sun Bin said...

but this deal is impossible, as it is against the direction of deregulation and anti-trust.

so SQ will just wait, or just need to sweeten the offer a bit

老麥 said...

Well in any case, CA has won a great battle.

If SIA choose to quit and CA is not buyint it, CEA will be left with very poor financial position to compete with CA and CSA.

If CA buys CEA, then it will be the #1 player and has absolute advantage over CSA.

If SIA choose to raise price, the cost of entry has blown up by more than 3 times (since CA's first announced purchase of CEA H share)