The planned takeover of fellow Hong Kong-based carrier Dragonair by Cathay Pacific Airways looks set to be formalised around the end of August, following a generally positive market reaction.
Cathay announced in June that it had agreed to buy the 82.21% of Dragonair that it does not already own for HK$8.22 billion ($1.1 billion) from Air China-owned China National Aviation (CNAC), CITIC Pacific, Swire Pacific and a handful of minority shareholders. Air China and CNAC will, in turn, acquire a combined 17.5% of Cathay from CITIC and Swire for HK$5.4 billion, while Cathay will double its stake in Air China to 20% for HK$4.1 billion.
No formal completion target has been set, but Cathay says it expects the Dragonair takeover to be firmed up late in August after ratification by shareholders. A vote in favour must come from minority shareholders because Swire and CITIC, which are the biggest single shareholders in Cathay, will be excluded from voting. Analysts and key minority shareholders have generally been positive about the deal, saying the price for Dragonair is high but worth it for the long-term benefits. "We are paying a full price for Dragonair, but it is worth it for us," said Tony Tyler, Cathay's chief operating officer.
Through the takeover, Cathay will be able to expand its limited presence in China, which it has been trying to do for some time, as Dragonair earns most of its revenue from services to 23 Chinese cities. "For Cathay Pacific to organically grow that network would take forever and we can't afford to wait that long," said Tyler. "Dragonair has very attractive slots at Beijing and Shanghai too."
Cathay has agreed to retain the Dragonair brand for six years but both airlines will continue to operate flights of their own to points in China. ■
Source: Airline Business
