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 )