Cathay’s $1 billion deal for Dragonair agreed
Hong Kong-based Cathay Pacific Airways said today it has reached agreement to purchase the remaining 82.21 percent shares in Hong Kong Dragon Airlines Ltd. (Dragonair) that it does not already own for HK$8.22 billion ($1.06 billion).
The much-anticipated deal, subject to shareholder approval, would make Cathay Asia’s biggest airline by offering it far greater access to the mainland China market.
To make Dragonair a wholly owned subsidiary, Cathay will take over Air China-subsidiary China National Aviation Co.’s (CNAC) 43.29 shareholding, CITIC Pacific’s 28.50 percent, Swire Pacific’s 7.71 percent share, and another 2.71 percent from unspecified others.
The purchase of Dragonair’s shares will be settled by a combination of the issue of 548 million new Cathay shares at HK$13.50 ($1.74) each and cash.
Also included as part of the deal is an agreement for Cathay and Air China to increase their joint involvement. Air China and its subsidiary CNAC will raise their stake in Cathay to 17.5 percent, purchasing a 10.16 percent equity interest from Swire Pacific and CITIC Pacific for HK$5.39 billion ($695 million).
In return, Cathay will double its shareholding in Air China to 20 percent from 10 percent at a total cost of HK$4.1 billion ($528 million). Swire Pacific will remain the principal shareholder in the enlarged Cathay Pacific group.
Both Swire Pacific and CITIC have also agreed to reduce their respective shareholding in Cathay to 40 percent and 17.5 percent within a year of the completion of the agreement.
To underline their extended partnership, Air China and Cathay Pacific will enter into an operating agreement that will include the setting up of a joint cargo airline in Shanghai and the extension of code share arrangements between Hong Kong and Mainland China.
“Cathay Pacific taking full control of Dragonair and strengthening its partnership with Air China will reinforce Hong Kong’s role as the premier aviation hub in the Asia-Pacific region, and create one of the world’s strongest airline groupings here in Hong Kong,” said Philip Chen, Cathay’s chief executive. “It will improve flight connectivity and route management, mean more destinations and greater travel choices for passengers and strengthen both Hong Kong and Beijing as major aviation hubs.”
“This is an exceptional deal for Air China both in terms of valuation and strategy. Air China, Cathay Pacific and the Chinese aviation industry have much to gain, and our long term position, both in the domestic and international markets, will benefit significantly from the Operating Agreement between Cathay Pacific and Air China,” said Air China Chairman Li Jiaxiang.
Cathay’s share price jumped 6.95 percent to HK$13.85 ($1.78) at close of business today on the Hong Kong Stock Exchange.