THE joint bid by Singapore Airlines (SIA) and Temasek Holdings for a 24 percent stake in China Eastern Airlines looks doomed after China National Aviation Holding Co. (CNAHC) Sunday confirmed it would make a higher bid of not less than HK$5 a share if the Singapore deal is rejected at a shareholders meeting today.

    Singapore Airlines and Temasek agreed with China Eastern’s board in September to buy the stake for HK$3.80 a share, a total HK$7.2 billion.

    China Eastern’s shares have more than doubled since it sealed the deal.

    The transaction was thrown into doubt last week when CNAHC, which controls 12.07 percent of China Eastern’s H shares, said the Singaporean offer was too low and it would vote against it at the shareholders meeting.

    It is unusual for such a battle between competing visions for a Chinese State-run company to be played out in public. It is especially surprising given that the proposed Singaporean investment had won approval from China’s highest administrative body, the State Council. That led many observes to believe Air China’s parent would give up its fight against the deal after a failed pitch in September.

    But in a rare case of divergence that indicates possible high-level disagreement on the deal, CNAHC has persisted in its opposition to the Singaporean offer, culminating in Sunday’s proposal.

    CEA’s deal with the Singaporean companies requires two-thirds of minority holders of both its Shanghai and Hong Kong-listed shares to vote in favor for it to pass.

    CNAHC must persuade other shareholders holding a combined 21.3 percent of H shares to reject the deal in order to block it and make its counterbid.

    At the moment, China Eastern’s parent, China Eastern Air Holding Co., owns 59.67 percent of the carrier. A further 8.14 percent of the firm is publicly traded in Shanghai via A shares, while 32.19 percent of the company is publicly traded in Hong Kong via H shares.

    Alarm bells on the deal’s prospects had sounded in some quarters after the recent promotion of the chief proponent of Air China’s fight against the Singaporeans to head up China’s aviation regulator.

    Li Jiaxiang, former chairman of Air China, has just been appointed minister of the General Administration of Civil Aviation of China, or CAAC, a post which, while not giving him the power to block M&A deals, allows him to promote his views on domestic industry structures to the highest levels of the government.

    Li has long advocated the consolidation of all the nation’s major carriers under Air China.

    Despite all the threats to the deal, neither Singapore Airlines nor Temasek are willing to increase their offer.

    CNAHC said it believed its offer for CEA is more beneficial to the company and investors.

    “The Singapore Airlines proposal merely brings together one China-based airline, one Singapore-based airline and an investment agency and lacks the synergy potential that can be created by the cooperation of two major China-based airlines,” it said in its proposal statement Sunday.

    CNAHC plans to communicate its offer to CEA’s board within two weeks of the shareholders’ meeting. (SD-Agencies)