Joint PrivatisationAnnouncemt
Air China Ld
22 June 2006
The Stock Exchange of Hong Kong Limited takes no responsibility for the contents
of this announcement, makes no representation as to its accuracy or completeness
and expressly disclaims any liability whatsoever for any loss howsoever arising
from or in reliance upon the whole or any part of the contents of this
announcement.
This announcement appears for information purposes only and does not constitute
an invitation or offer to acquire, purchase or subscribe for securities of Air
China Limited or China National Aviation Company Limited.
AIR CHINA LIMITED CHINA NATIONAL AVIATION
COMPANY LIMITED
(Incorporated in the PRC with limited (Incorporated in Hong
liability under Kong under the Companies
the Company Law of the PRC) Ordinance of Hong Kong
with limited liability)
(Stock Code: 753) (Stock Code: 1110)
JOINT ANNOUNCEMENT
Proposed Pre-Conditional Privatisation of China National Aviation Company
Limited by
Air China Limited
By way of a Scheme of Arrangement under Section 166 of the Companies Ordinance
and
Possible Discloseable Transaction of Air China Limited
Exclusive financial advisers to Air China Limited
CHINA INTERNATIONAL CAPITAL Merrill Lynch (Asia Pacific)
CORPORATION (HONGKONG) LIMITED Limited
Financial adviser to China National Aviation Company Limited
in relation to the Proposed Pre-Conditional Privatisation of
China National Aviation Company Limited
Citigroup Global Markets Asia Limited
Air China and CNAC jointly announce that, subject to satisfaction of the
Pre-Condition, Air China will make the Proposals to privatise CNAC by way of a
scheme of arrangement under Section 166 of the Companies Ordinance. The
Proposals are made at the request of the CNAC Board who believes the Proposals
to be in the interest of CNAC.
Pursuant to the Share Proposal, all Scheme Shares will be cancelled in exchange
for the Share Proposal Price of HK$2.80 in cash for each Scheme Share. As at the
date of this announcement, the Scheme Shareholders are interested in
1,048,052,000 Shares, representing approximately 31.6% of the issued share
capital of CNAC.
In parallel with and separate from the Share Proposal, Air China will make the
Option Proposal to purchase the Outstanding Options, for cancellation in
exchange for HK$1.66 in cash for each Outstanding Option, subject to and
conditional upon the Scheme becoming effective.
Save and except for the Options outstanding as at the date of this announcement,
there are no outstanding options, warrants, derivatives or other securities
issued by CNAC that carry a right to subscribe for or which are convertible into
Shares.
As the Proposals are initiated by the CNAC Board, Air China has the full support
of CNAC's executive management team to implement the Proposals and to privatise
CNAC.
The total amount of cash required for the Proposals is approximately HK$3,226.8
million, assuming all the Options are exercised prior to the Option Exercise
Date. Air China intends to fund the cash required to effect the Proposals from
financing arranged through bank borrowings. Air China's exclusive financial
advisers, CICC and Merrill Lynch, are satisfied that sufficient financial
resources are available to Air China for the implementation of the Proposals.
If the Scheme is implemented, the listing of the Shares on the Stock Exchange
will be withdrawn. The Scheme is subject to the satisfaction or waiver, as
applicable, of the Pre-Condition and the Conditions.
Upon the Scheme becoming effective, CNAC will become a wholly owned subsidiary
of Air China.
Air China reserves the right to implement the Scheme through one or more of its
wholly owned subsidiaries. Air China also reserves the right to implement the
Proposals by way of a general offer prior to the despatch of the Scheme
Document.
The Independent Board Committee, comprising all non-executive directors of CNAC,
other than Mr. Hu Hung Lick, Henry who is also an independent non-executive
director of Air China, has been appointed to advise Independent Scheme
Shareholders and Optionholders in respect of the Share Proposal and the Option
Proposal, respectively.
CLSA Equity Capital Markets Limited has been appointed as the independent
financial adviser to advise the Independent Board Committee in connection with
the Proposals. Such appointment has been approved by the Independent Board
Committee.
Subject to the High Court's approval for the despatch of the Scheme Document
being obtained, the Scheme Document will be despatched to Shareholders and
Optionholders within seven days upon satisfaction of the Pre-Condition, or as
soon as practicable thereafter, in accordance with the requirements of the
Takeovers Code. Assuming Air China and CNAC each despatches its notice of
meetings and circular to shareholders to consider and approve the transactions
contemplated by the Restructuring Agreement by 30 June 2006, the Relevant
Shareholders' Meetings are expected to take place in the second half of August
2006. As the Restructuring cannot be effected until after the shareholders of
Air China and the shareholders have approved the Restructuring, the
Pre-Condition is not expected to be satisfied until after the holding of the
Relevant Shareholders' Meetings. The Scheme Document will include, among other
things, further details of the Proposals and the Scheme, the expected timetable,
the recommendations of the Independent Board Committee in respect of the
Proposals, a letter of advice from the independent financial adviser to the
Independent Board Committee, an explanatory statement as required under the
Companies Ordinance, and notices of the Court Meeting and the Extraordinary
General Meeting.
Shareholders, Optionholders and/or potential investors in CNAC should be aware
that the making of the Proposals is subject to satisfaction of the Pre-Condition
(namely, the completion of the transactions contemplated by the Restructuring
Agreement), and the implementation of the Proposals is subject to satisfaction
or waiver (as applicable) of the Conditions. In particular, if the Restructuring
is not completed, the Proposals will not be made. Even if the Proposals are
made, the Proposals may or may not become effective. Accordingly, Shareholders,
Optionholders and/or potential investors in CNAC are advised to exercise caution
when dealing in Shares and/or Options.
INTRODUCTION
Air China and CNAC jointly announce that, subject to satisfaction of the
Pre-Condition, Air China will make the Proposals to privatise CNAC by way of a
scheme of arrangement under Section 166 of the Companies Ordinance. The
Proposals are made at the request of the CNAC Board who believes the Proposals
to be in the interest of CNAC.
If approved, the Scheme will be binding on all Scheme Shareholders, irrespective
of whether or not they attended or voted at the Court Meeting or the
Extraordinary General Meeting. 2,264,642,000 Shares held by Air China and its
Concert Parties, representing approximately 68.4% of the existing issued capital
as at the date of this announcement, and 66.3% of the enlarged issued share
capital, assuming the Options are exercised in full prior to the Option Exercise
Date, will not form part of the Voting Shares. As such, Air China and its
Concert Parties are required to abstain from voting at the Court Meeting. The
14,000 Shares currently held by a Concert Party will however form part of the
Scheme Shares. In addition, an Optionholder, who exercised his or her Option
prior to the Record Date, would also be required to abstain from voting at the
Courting Meeting for the reasons set out in the paragraph headed 'General
Information', but the Option Shares will form part of the Scheme Shares.
THE SHARE PROPOSAL AND THE OPTION PROPOSAL
Subject to the satisfaction of the Pre-Condition, Air China will make the
Proposals on the following basis:
The Share Proposal
For each Scheme Share HK$2.80 in cash
The Option Proposal
For each Outstanding Option HK$1.66 in cash
PRE-CONDITION TO MAKING THE PROPOSALS
The making of the Proposals is conditional upon completion of the transactions
contemplated under the Restructuring Agreement, details of which are set out in
the Restructuring Announcement (the Pre-Condition).
If the Pre-Condition is not satisfied, the Proposals will not be made. Air China
will, to the extent that it is within its power to do so, use its reasonable
efforts to ensure that the Pre-Condition will be satisfied as soon as
practicable.
The Share Proposal
The Share Proposal involves the following principal steps, all of which will
occur on the Effective Date:
(a) the share capital of CNAC will be reduced by canceling the Scheme Shares;
(b) CNAC will apply the credit arising in its books of account as a result of
the reduction of capital to pay up in full, at par, a number of New Shares which
is equal to the number of Scheme Shares cancelled, and the New Shares will be
allotted and issued, credited as fully paid, to Air China or its nominees (which
may include a subsidiary of Air China); and
(c) in consideration for the cancellation of the Scheme Shares and the
allotment and issue of New Shares to Air China or its nominees, Scheme
Shareholders will receive HK$2.80 in cash per Scheme Share.
Comparisons of value
The Share Proposal
The Share Proposal Price represents:
(a) a premium of approximately 65.9% over the average closing price of
approximately HK$1.69 per Share for the six months up to and including the Last
Trading Date;
(b) a premium of approximately 50.3% over the average closing price of
approximately HK$1.86 per Share for the three months up to and including the
Last Trading Date;
(c) a premium of approximately 49.8% over the average closing price of
approximately HK$1.87 per Share for the last 30 trading days up to and including
the Last Trading Date;
(d) a premium of approximately 52.2% over the average closing price of
approximately HK$1.84 per Share for the last 10 trading days up to and including
the Last Trading Date;
(e) a premium of approximately 45.8% over the average closing price of
HK$1.92 per Share for the last five trading days up to and including the Last
Trading Date;
(f) a premium of approximately 42.1% over the closing price of HK$1.97 per
Share as quoted on the Stock Exchange on the Last Trading Date;
(g) a premium of approximately 199.9% over the audited net asset value per
Share of approximately HK$0.93 as at 31 December 2005, equivalent to a multiple
of 3.0x net asset value (adjusted for year-end dividends) of CNAC of HK$3,092.7
million and 3,312,680,000 Shares in issue as at 31 December 2005; and
(h) a price earnings multiple of approximately 41.2x based on the audited net
profit attributable to Shareholders of approximately HK$225 million for the
financial year ended 31 December 2005 and 3,312,680,000 Shares in issue as at 31
December 2005.
The Option Proposal
In accordance with the terms of the Share Option Scheme, Optionholders are
entitled to exercise their Options, which confer on them rights to subscribe for
Shares at a price of HK$1.14 per Share, in full or in part at any time up to the
Option Exercise Date. Shares issued upon exercise of the Options in accordance
with the terms of the Share Option Scheme prior to the Record Date will form
part of the Scheme Shares. If the Scheme becomes effective, Options which are
not exercised in accordance with the terms of the Share Option Scheme will
lapse.
Under the Option Proposal, Air China will offer to purchase Outstanding Options,
for cancellation in exchange for HK$1.66 in cash for each Outstanding Option,
subject to and conditional upon the Scheme becoming effective. Further
information on the Option Proposal will be set out in the Scheme Document and
the Option Proposal will be made by or on behalf of Air China in a letter to
Optionholders to be despatched on the same day as the Scheme Document.
Trading Prices
The highest and lowest prices at which Shares were traded on the Stock Exchange
in the six-month period immediately prior to the Last Trading Date were HK$2.10
on 6 April 2006 and 10 April 2006 and HK$1.40 on 13 December 2005, 15 December
2005 and 16 December 2005, respectively.
Total Consideration
On the basis of the Share Proposal Price of HK$2.80 per Scheme Share and
3,312,680,000 Shares in issue of which 1,048,052,000 are Scheme Shares as at the
date of this announcement, the Scheme Shares are valued at approximately
HK$2,934.5 million.
According to CNAC, there are 104,378,000 Options, giving rights to subscribe for
104,378,000 Shares, outstanding as at the date of this announcement. There are
no other outstanding options, warrants, derivatives or other securities issued
by CNAC that carry a right to subscribe for or which are convertible into
Shares. Assuming that none of the Options is exercised prior to the Option
Exercise Date and the Option Proposal is accepted in full, on the basis of a
consideration of HK$1.66 payable for the cancellation of each of the 104,378,000
Outstanding Options, the Option Proposal is valued at HK$173.3 million.
Assuming that all Options are exercised in full by Optionholders prior to the
Option Exercise Date in accordance with the terms of the Share Option Scheme,
the consideration payable by Air China pursuant to the Share Proposal will be
increased to approximately HK$3,226.8 million. No consideration for cancellation
will then be payable under the Option Proposal.
Air China intends to fund the cash required to effect the Proposals from
financing arranged through bank borrowings. The financing agreement for such
bank borrowings is governed by PRC law and the performance of such agreement may
be limited by force majeure provisions under the PRC Civil Code and the PRC
Contract Law.
Confirmation of Financial Resources
CICC and Merrill Lynch, the exclusive financial advisers to Air China in respect
of the Proposals, are satisfied that sufficient financial resources are
available to the Air China to implement the Proposals.
CONDITIONS OF THE PROPOSALS
The Scheme will become effective and binding on CNAC and all Scheme Shareholders
subject to satisfaction or waiver (as applicable) of the following conditions:
(a) the approval of the Scheme by a majority in number of the Independent
Scheme Shareholders representing not less than three-fourths in value of the
Scheme Shares held by Independent Scheme Shareholders, present and voting either
in person or by proxy at the Court Meeting, provided that:
(i) the Scheme is approved by at least 75% of the votes attaching to Scheme
Shares held by Independent Scheme Shareholders that are cast either in person or
by proxy at the Court Meeting (by way of poll); and
(ii) the number of votes cast against the resolution to approve the Scheme at
the Court Meeting (by way of poll) is not more than 104,803,800, representing
10% of the votes attaching to all Scheme Shares held by Independent Scheme
Shareholders;
(b) the passing of a special resolution to approve and give effect to the
cancellation of the Scheme Shares and the reduction of the relevant portion of
the issued share capital of CNAC by a majority of at least three-fourths of the
votes cast by Shareholders present and voting in person or by proxy, at the
Extraordinary General Meeting by way of poll;
(c) the sanction of the Scheme (with or without modifications) by the High
Court and the delivery to the Registrar of Companies in Hong Kong of an official
copy of the order of the High Court for registration;
(d) the compliance with the procedural requirements of Section 58 of the
Companies Ordinance in relation to the reduction of the issued share capital of
CNAC;
(e) the receipts of all relevant authorisations, consents and/or approvals
from each of State Administration for Foreign Exchange of the PRC, National
Development and Reform Commission of the PRC, Ministry of Commerce of the PRC,
China Civil Aviation Authority, Ministry of Finance of the PRC, State Assets
Supervision and Administration Commission of the PRC, China Securities
Regulatory Commission, China Banking Regulatory Commission and Hong Kong and
Macau Affairs Department of the State Council necessary for the implementation
of the Proposals, and all such authorisations, consents and/or approvals
remaining in full force and effect;
(f) no act referred to under Rule 4 of the Takeovers Code having been or
being proposed or threatened to be carried out by the CNAC Board;
(g) since the date of this announcement, there having been no force majeure
event, including, without limitation, act of God, war, riot, public disorder,
civil commotion, economic sanctions, fire, flood, explosion, epidemic,
terrorism, labour dispute strike, lock-out, out-break, escalation, declaration
or threat of war or hostility, or disaster which is outside Air China's control
that would render it impossible for Air China to implement the Proposals; and
(h) save for the payment of a final dividend of HK cent 1.0 per Share as
approved by the Shareholders on the annual general meeting of CNAC held on 25
May 2006, since the date of this announcement and up to the Effective Date, CNAC
not having declared, made or paid any dividend or distribution of any kind, and
not agreeing or proposing to declare, make or pay any dividend or distribution
of any kind.
Air China will use its reasonable endeavours to fulfill the Conditions which are
reasonably within its powers in a timely manner. If the Conditions are not
satisfied on or before the specific date to be set out in the Scheme Document,
the Scheme will lapse.
The Option Proposal will be subject to and conditional upon the Share Proposal
becoming or being declared effective.
Air China reserves the right to implement the Proposals by way of a general
offer prior to the despatch of the Scheme Document. Air China also reserves the
right, at its absolute discretion, to waive, in whole or in part, any of the
Conditions referred to in paragraphs (f) to (h) above. Conditions (a) to (e)
cannot be waived by Air China. In the event that any of Conditions (a) to (e) is
not satisfied on or before the specific date to be set out in the Scheme
Document, the Scheme will lapse. Air China may only invoke any or all of
Conditions (a) to (h) as a basis for not proceeding with the Scheme if the
provisions of Note 2 to Rule 30.1 of the Takeovers Code are satisfied. Note 2 to
Rule 30.1 of the Takeovers Code provides that an offeror should not invoke any
condition (other than the acceptance condition) so as to cause the offer to
lapse unless the circumstances which give rise to the right to invoke the
condition are of material significance to the offeror in the context of the
offer.
Scheme Document
Subject to the High Court's approval for the despatch of the Scheme Document
being obtained, the Scheme Document containing, among other things, further
details about the Proposals and the Scheme, the expected timetable, the
recommendation of the Independent Board Committee in respect of the Proposals,
the letter of advice from the independent financial adviser to the Independent
Board Committee, an explanatory statement as required under the Companies
Ordinance, and notices of the Court Meeting and the Extraordinary General
Meeting will be despatched to Shareholders and the Optionholders within seven
days of satisfaction of the Pre-Condition, or as soon as practicable thereafter,
in accordance with the requirements of the Takeovers Code. Assuming Air China
and CNAC each despatches its notice of meetings and circular to shareholders to
consider and approve the transactions contemplated by the Restructuring
Agreement by 30 June 2006, the Relevant Shareholders' Meetings of Air China and
CNAC are expected to take place in the second half of August 2006. As the
Restructuring cannot be effected until after the shareholders of Air China and
the Shareholders have approved the Restructuring, the Pre-Condition is not
expected to be satisfied until after the holding of the Relevant Shareholders'
Meetings. A further announcement will be made regarding the expected timetable
for the Proposals.
The Independent Board Committee, comprising all non-executive directors of CNAC,
other than Mr. Hu Hung Lick, Henry who is also an independent non-executive
director of Air China, has been appointed to advise Independent Scheme
Shareholders and Optionholders in respect of the Share Proposal and the Option
Proposal, respectively.
CLSA Equity Capital Markets Limited has been appointed as the independent
financial adviser to advise the Independent Board Committee in connection with
the Proposals. Such appointment has been approved by the Independent Board
Committee.
INFORMATION ON THE CNAC GROUP
Business of the CNAC Group
CNAC was incorporated in Hong Kong in 1997 and was listed on the Stock Exchange
on 17 December 1997, trading under the stock code 1110. The CNAC Groups'
principal activities are airline operations and aviation related businesses.
The principal business activity of CNAC is that of an investment holding
company. Following the completion of the Restructuring Agreement, the core
businesses of CNAC will include air transportation services (Air Macau, Macau
Asia Express Limited and a minority stake in Cathay), airline catering services
(Beijing Air Catering Co. Ltd., Southwest Air Catering Company Limited, and LSG
Lufthansa Service Hong Kong Ltd.), airport ground handling services (Jardine
Airport Service Ltd. and Menzies Macau Airport Services Ltd.) and logistics
services (Tradeport Hong Kong Ltd.).
According to CNAC, the number of Shares in issue is 3,312,680,000 as at the date
of this announcement and Air China and its Concert Parties are interested in
2,264,642,000 Shares, representing approximately 68.4% of the entire issued
share capital in CNAC as at the date of this announcement.
Key financial information of the CNAC Group
A summary of the audited consolidated results and net asset value of the CNAC
Group for each of the two years ended 31 December 2004 and 31 December 2005 is
set out below:
For the year ended 31 December
2004 2005
HK$'000 HK$'000
Turnover 1,890,710 2,620,033
Operating profit 16,733 (52,317)
Profit before tax 406,808 221,966
Profit after tax but before minority 394,464 211,924
interests (Note 2)
Profit attributable to Shareholders (Note 1) 360,969 225,000
Net asset value as at 31 December 2005 3,125,837
Earnings per share (HK Cents) 7
Net asset per share (HK Cents) 94
The above financial information is extracted from the financial statements set
out in the CNAC 2005 annual report, which had been prepared in accordance with
Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards and
interpretations issued by the Hong Kong Institute of Certified Public
Accountants.
Shareholding Structure of CNAC
Immediately Immediately
after after
the Effective the Effective
Date Date
and the and the
Shares Shares
are delisted are delisted
on on
As at the the Stock the Stock
date of Exchange Exchange
Shareholders this (Note 3) (Note 4)
announcement
Number of % Number of % Number of %
Shares Shares Shares
Air China 2,264,628,000 68.4 3,312,680,000 100 3,417,058,000 100
Concert Parties 14,000 0 Nil Nil Nil Nil
Subtotal for Air
China and
Concert Parties 2,264,642,000 68.4 3,312,680,000 100 3,417,058,000 100
Independent Scheme
Shareholders (Note 1,048,038,000 31.6 Nil Nil Nil Nil
2)
Total 3,312,680 100.0 3,312,680,000 100 3,417,058,000 100
Optionholders
As at the date
Names of Optionholders (Note 5) of this announcement
Number of %
Options
Chuang Shih Ping 33,126,000 31.7
Gu Tiefei 5,000,000 4.8
Tsang Hing Kwong, Thomas 33,126,000 31.7
Zhang Xianlin 33,126,000 31.7
Total 104,378,000 100.0
Note 1: The profit refers to profit after tax and extraordinary items.
Note 2: The Independent Scheme Shareholders include the non-profit
organisations who will receive the Shares from Cathay prior to the Court
Meeting, details of which are set out in the paragraph headed 'Interest of Air
China and the Concert Parties in CNAC'.
Note 3: Assuming no Options will be exercised before or on the Option
Exercise Date.
Note 4: Assuming the Options will be exercised prior to the Record Date.
Note 5: All the Optionholders are executive directors of CNAC.
The Options were granted on 25 July 2003 and are exercisable during the period
from 26 October 2003 to 25 October 2009 at an exercise price of HK$1.14 per
Share.
INFORMATION ON AIR CHINA
Air China is a company incorporated in the PRC on 30 September 2004, whose
shares were listed on the Main Board of the Stock Exchange on 15 December 2004
under the stock code 753. Air China's shares were also listed on the London
Stock Exchange in December 2004 by way of a secondary listing. As at the date of
this announcement, China National Aviation Holding Company, a state-owned
company established under the laws of the PRC, directly and indirectly owns
65.80% of Air China. Air China is a leading provider of air passenger, air cargo
and airline-related services in the PRC.
According to Air China, the number of shares in issue of Air China is
9,433,210,909 as at the date of this announcement.
GENERAL INFORMATION
Assuming the Proposals are implemented in full, the consideration ratio pursuant
to Rule 14.07 of the Listing Rules in connection with the issue of New Shares by
CNAC to Air China pursuant to the Scheme is expected to be 10.9% and therefore
would constitute a discloseable transaction for Air China under Chapter 14 of
the Listing Rules. Air China will despatch a circular on the possible
discloseable transaction to its shareholders within 21 days after publication of
this announcement pursuant to Chapter 14 of the Listing Rules.
The Optionholders are all executive directors of CNAC, currently holding in
aggregate 104,378,000 Options in CNAC and are therefore deemed to have a
material interest in the Proposals. As such, an Optionholder who exercises his
or her Options prior to the Record Date would then be required to abstain from
voting at the Court Meeting in respect of the Option Shares. Assuming all the
Options are exercised in full prior to the Record Date, the issued share capital
of CNAC so enlarged will comprise 3,417,058,000 Shares, of which 104,378,000 are
Option Shares, representing approximately 3.05% of the enlarged issued capital
of CNAC.
Mr. Zhang Xianlin, an executive director of CNAC, is a supervisor of Air China
and therefore a connected person of Air China. As such, if Mr. Zhang Xianlin
accepts the Option Proposal from Air China or becomes a Scheme Shareholder, it
would constitute a connected transaction for Air China under Chapter 14A of the
Listing Rules. Air China will fully comply with the requirements under Chapter
14A of the Listing Rules if and when Mr. Zhang Xianlin accepts the Option
Proposal or the Share Proposal.
Save as disclosed above, neither the Proposals nor the issue of New Shares by
CNAC to Air China would constitute connected transactions for Air China under
Chapter 14A of the Listing Rules.
Overseas Shareholders
The making of the Share Proposal to and acceptance of the Share Proposal by
persons not resident in Hong Kong may be subject to the laws of the relevant
jurisdictions. Such persons should inform themselves about and observe any
applicable legal or regulatory requirements. It is the responsibility of any
overseas Shareholders wishing to accept the Share Proposal to satisfy themselves
as to the full observance of the laws of the relevant jurisdiction in connection
therewith, including the obtaining of any governmental, exchange control or
other consents which may be required, or the compliance with other necessary
formalities and the payment of any issue, transfer or other taxes due in such
jurisdiction. The arrangements for the despatch of the Scheme Document to the
Shareholders, including the overseas Shareholders, will be set out in a further
announcement regarding the despatch of the Scheme Document, to be made by CNAC.
AIR CHINA - BACKGROUND TO, REASONS FOR AND BENEFITS OF THE PROPOSALS
On 8 June 2006, Air China, Cathay, CNAC, CITIC Pacific Limited and Swire Pacific
Limited made a joint announcement that they had entered into the Restructuring
Agreement in respect of their shareholdings in Dragonair, Cathay and Air China.
Concurrent and conditional upon the Restructuring Agreement becoming effective,
Air China and Cathay also announced that they had entered into the Operating
Agreement which represents a far reaching agreement to enhance cooperation
between Air China and Cathay in a number of key operational areas. Air China
believes that the Restructuring Agreement and Operating Agreement represent an
extremely attractive package of initiatives that will bring substantial benefits
to the Air China Group as a whole.
Implementation of the Restructuring Agreement will involve the following
actions:
(i) Air China acquiring a 10.16% shareholding in Cathay from CITIC Pacific
Limited and Swire Pacific Limited, at HK$13.50 per Cathay share;
(ii) Cathay increasing its ownership in Air China from 10% to 20% through the
subscription of new Air China H-shares at HK$3.45 per Air China H-share;
(iii) Cathay acquiring the remaining 82.21% shareholding in Dragonair that it
does not already own from CNAC (43.29%), CITIC Pacific Limited (28.50%) and
Swire Pacific Limited (7.71%) and others (2.71%) for a combination of equity
(548 million new Cathay shares at HK$13.50 per Cathay share) and cash (HK$822.1
million), valuing 100% of the equity of Dragonair at HK$10.0 billion; and
(iv) Swire Pacific Limited and CITIC Pacific Limited further reducing their
shareholdings in Cathay to 40.00% and 17.50%, respectively.
Execution of the Operating Agreement will include:
(i) implementing reciprocal sales representation for passenger services,
where Air China will be exclusively responsible for Cathay's passenger sales in
Mainland China, including those of Dragonair, while Cathay will be exclusively
responsible for Air China's passenger sales in Hong Kong, Macau and Taiwan;
(ii) the extension of code share arrangements between Hong Kong and Mainland
China such that Air China and Cathay will operate all their passenger services
(including those of Dragonair) between Hong Kong and Mainland China under a
code-share arrangement;
(iii) the operation of all shared routes between Hong Kong and Mainland China
as joint venture routes under revenue and cost pooling arrangements;
(iv) the creation of a cargo joint venture based in Shanghai which will be
majority controlled by Air China;
(v) maintaining Dragonair as a principal airline for at least six years; and
(vi) the strengthening of business cooperation in a number of other areas.
Implementation of the Restructuring Agreement and the Operating Agreement will
bring significant benefits to Air China including the realisation of substantial
revenue and cost synergies by leveraging integration advantages including
improved load factors and better route management, sharing operating results,
creating economies of scale, optimising resource allocation and the transfer of
know-how between the airlines.
Furthermore, Air China believes that the HK$10.0 billion valuation achieved for
100% of the equity of Dragonair represents realisation of the full value of
CNAC's 43.29% shareholding in Dragonair, including a fair attribution of
expected synergies. This valuation represents a price-to-earnings ratio of 33.3
times Dragonair's reported earnings of HK$300.4 million for the year ended 31st
December 2005. In recent years the Chinese aviation industry has experienced
rapid growth and development: the creation of three Chinese airline groups, the
continuing liberalization of the market to international airlines and the
increasing internationalisation of the Chinese airlines' route networks. In the
context of these market developments, Air China Directors are of the view that
the competitive position of Dragonair has deteriorated (especially in the face
of intensive competition on its HK-Mainland routes) and the shareholding
structure of Dragonair has proved to be inefficient with the result that
Dragonair is unable to take full advantage of potential economies of scale and
the management of its business is not optimised. The rationalisation of the
shareholding structure of Dragonair will benefit all the companies that are
current shareholders of Cathay and Dragonair itself.
Upon completion of the Restructuring Agreement, CNAC will own a 7.34%
shareholding in Cathay. Air China wishes to rationalise its shareholding in
Cathay so that Air China directly controls a 17.5% shareholding in Cathay,
allowing Air China greater influence over Cathay and to equity account for a
higher percentage of Cathay's financial results. As a result, Air China wishes
to privatise CNAC so that CNAC becomes a wholly owned subsidiary of Air China.
Announcement of the proposed pre-conditional privatisation of CNAC will also
enable Air China to fulfill a condition of an irrevocable undertaking to Air
China and CNAC by On Ling Investments Limited (which beneficially owns
approximately 9.75% of the issued share capital of CNAC) to vote in favour of
the shareholders' resolutions to be proposed at the Relevant Shareholders'
Meeting of CNAC. This irrevocable undertaking is a key component in providing
execution certainty for both the Restructuring Agreement and the Operating
Agreement.
CNAC - BACKGROUND TO AND REASONS FOR THE SCHEME
The completion of the Restructuring will result in CNAC holding a 7.34% minority
interest in Cathay, instead of 43.29% interest in Dragonair, thereby effectively
becoming largely a passive investment holding company. In view of the subsequent
material changes in CNAC's business and prospects, it is the view of the CNAC
Directors that certain Scheme Shareholders may consider whether they would
continue to hold their Scheme Shares. Considering this factor as well as the
above-mentioned On Ling Investment Limited's conditional irrevocable
undertaking, CNAC Directors are of the view that the Proposal would be in the
interest of CNAC and the Shareholders as a whole.
For Scheme Shareholders, the Share Proposal Price of HK$2.80 per Scheme Share
represents an excellent opportunity to exit from their investment in CNAC and
realise immediate cash proceeds. The Share Proposal Price reflects:
(i) a premium of approximately 71.8% over the initial public offering price
of HK$1.63 per Share;
(ii) a premium of approximately 65.9% over the average closing price of
approximately HK$1.69 per Share for the six months up to and including the Last
Trading Date; and
(iii) an implied price-to-book multiple of 3.0x based on the net asset value
of CNAC (adjusted as for year-end dividends) of HK$3,092.7 million as at 31
December 2005.
As approximately 68.36% of CNAC is already owned by Air China as at the date of
this announcement, it is unlikely that Scheme Shareholders will receive any
other offer from a third party to acquire the Shares. In addition, Scheme
Shareholders should note that no discussions have taken place (or are taking
place) with any third party regarding the disposal of any of the Shares held by
Air China and Air China has no intention of selling any of its holding in CNAC
to any third party.
AIR CHINA'S INTENTION IN RELATION TO CNAC
Intention regarding CNAC
It is the intention of Air China to apply for a withdrawal of the listing of the
Shares from the Stock Exchange pursuant to Rule 6.05 of the Listing Rules.
Scheme Shareholders will be notified by way of press announcement of the exact
dates on which the Scheme and the withdrawal of the listing of the Shares from
the Stock Exchange will become effective. Air China has no current intention to
introduce any major changes to the existing operating and management structure
of CNAC, nor does Air China have any current intention to discontinue the
employment of any employee of the CNAC Group as a result of the implementation
of the Proposals or the Scheme becoming effective.
Lapsing of the Scheme
The Scheme will lapse if it does not become effective on or before a date to be
set out in the Scheme Document, or such other later date as Air China and CNAC
may agree or as the High Court may direct, and the Scheme Shareholders will be
notified by way of a press announcement accordingly. The listing of Shares will
not be withdrawn if the Scheme is not approved or lapses.
INTEREST OF AIR CHINA AND THE CONCERT PARTIES IN CNAC
Cathay, who is deemed to act in concert with Air China in respect of the Scheme,
holds approximately 1.95% of the Shares as at the date of this announcement.
Cathay has agreed to donate its entire shareholdings in CNAC to a group of
independent non-profit organisations, for otherwise, certain transactions
contemplated under the Restructuring Agreement and Shareholders Agreement would
amount to a special deal between Air China and Cathay under Rule 25 of the
Takeovers Code. Cathay is currently in the process of selecting the non-profit
organisations and is mindful of the need to make the donations in sufficient
time to enable the non-profit organisations to decide on how to vote on the
Proposals or whether to accept the Proposals. As such, Cathay will not be a
Shareholder anymore by the date of the Court Meeting.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, which is under the same
control as Merrill Lynch, and presumed to be acting in concert with Air China in
respect of the Scheme, sold 2,000 Shares on 1 June 2006 at an average price of
US$0.27 per Share and holds 14,000 Shares as at the date of this announcement,
which will be cancelled pursuant to the Scheme.
CICC and Merrill Lynch are exclusive financial advisers to both Air China and
CNAC with respect to all aspects of the Restructuring.
Save as disclosed in this announcement, or the Restructuring Announcement, none
of Air China and the Concert Parties has any other interest or dealings in CNAC
during the Relevant Period.
Save as disclosed in this announcement, or the Restructuring Announcement, there
is no arrangement (whether by way of option, indemnity or otherwise) in relation
to shares of Air China or the Shares and which might be material to the
Proposals, nor is there any agreement or arrangement to which Air China is a
party which relates to the circumstances in which it may or may not invoke or
seek to invoke a Pre-Condition or a condition to its offer and the consequences
of its doing so.
As at the date of this announcement, there is no irrevocable commitment given by
any Shareholder to accept the Proposals.
Shareholders, Optionholders and/or potential investors in CNAC should be aware
that the making of the Proposals is subject to satisfaction of the Pre-Condition
(namely, the completion of the transactions contemplated by the Restructuring
Agreement), and the implementation of the Proposals is subject to satisfaction
or waiver (as applicable) of the Conditions. In particular, if the Restructuring
is not completed, the Proposals will not be made. Even if the Proposals are
made, the Proposals may or may not become effective. Accordingly, Shareholders,
Optionholders and/or potential investors in CNAC are advised to exercise caution
when dealing in Shares and/or Options.
DEFINITIONS
In this announcement, the following expressions have the meanings set out below
unless the context requires otherwise.
'acting in concert' has the meaning ascribed to it in the Takeovers Code;
'Air China' Air China Limited, a company incorporated in the PRC
with limited liability whose shares are listed on the
Main Board of the Stock Exchange under the stock code
753;
'Air China Directors' the directors of Air China;
'Air China Group' Air China and its subsidiaries;
'Business Day(s)' a day on which banks are opened for business in Hong
Kong (excluding Saturdays, Sundays or public holidays
in Hong Kong);
'Cathay' Cathay Pacific Airways Limited, a company
incorporated in Hong Kong with limited liability,
whose shares are listed on the Main Board of the
Stock Exchange under the stock code 293;
'CICC' China International Capital Corporation (Hong Kong)
Limited, a licensed corporation for type 1 (dealing
in securities), type 4 (advising on securities), type
6 (advising on corporate finance) and type 9 (asset
management) regulated activities under the Securities
and Futures Ordinance, being an exclusive financial
adviser to Air China in relation to the Proposals;
'CNAC' China National Aviation Company Limited, a company
incorporated in Hong Kong with limited liability,
whose shares are listed on the Main Board of the
Stock Exchange under the stock code 1110;
'CNAC Board' the board of CNAC Directors;
'CNAC Directors' the directors of CNAC;
'CNAC Group' CNAC and its subsidiaries;
'Companies Ordinance' the Companies Ordinance (Chapter 32 of the Laws of
Hong Kong);
'Concert Parties' persons who are acting in concert with Air China;
'Conditions' the conditions of the Proposals, as set out under the
paragraph headed 'Conditions of the Proposals' of
this announcement;
'Court Meeting' a meeting of the Independent Scheme Shareholders to
be convened at the direction of the High Court at
which the Scheme will be voted upon;
'Dragonair' Hong Kong Dragon Airlines Limited, a private company
incorporated in Hong Kong;
'Effective Date' the date on which the Scheme, if approved, becomes
effective in accordance with its terms, being the
date on which an official copy of the order of the
High Court sanctioning the Scheme together with the
minutes containing the particulars required by
Section 61 of the Companies Ordinance are registered
by the Registrar of Companies in Hong Kong;
'Extraordinary the extraordinary general meeting of CNAC to be held
General Meeting' to consider and approve, among other matters, the
capital reduction arising as a result of the Scheme,
or any adjournment thereof;
'High Court' the High Court of Hong Kong;
'HK$' Hong Kong dollars, the lawful currency of Hong Kong;
'Hong Kong' the Hong Kong Special Administrative Region of the
PRC;
'Independent Scheme Scheme Shareholders other than Concert Parties and,
Shareholders' in respect of the Option Shares, the Optionholders;
'Independent Board the independent board committee, comprising all
Committee' non-executive directors of CNAC, other than Mr. Hu
Hung Lick, Henry who is also an independent
non-executive director of Air China, appointed to
advise Independent Scheme Shareholders and
Optionholders in respect of the Share Proposal and
the Option Proposal, respectively;
'Last Trading Date' 2 June 2006, being the last day on which Shares were
traded prior to the publication of the Restructuring
Announcement;
'Listing Rules' the Rules Governing the Listing of Securities on The
Stock Exchange of Hong Kong Limited;
'Merrill Lynch' Merrill Lynch (Asia Pacific) Limited, a licensed
corporation for type 1 (dealing in securities), type
4 (advising on securities), type 6 (advising on
corporate finance) and type 7 (providing automated
trading services) regulated activities under the
Securities and Futures Ordinance, being an exclusive
financial adviser to Air China in relation to the
Proposals;
'New Share' new Share(s) to be issued to Air China or its
nominees, credited as fully paid, pursuant to the
Share Proposal;
'Operating Agreement' the agreement entered into by Air China and Cathay on
8 June 2006, details of which are set out in the
joint announcement made by Air China and Cathay on 8
June 2006;
'Options' the share options granted pursuant to the Share
Option Scheme;
'Optionholders' the holders of one or more Options, and as at the
date of this announcement, means Chuang Shih Ping,
Zhang Xianlin, Tsang Hing Kwong, Thomas and Gu
Tiefei, who altogether hold 104,378,000 Options (or,
if Air China so elects prior to the Scheme lapsing or
becoming ineffective, the offer by Air China to
acquire all of the Outstanding Options not owned by
Air China at a price equl to the Option Proposal
Price);
'Option Exercise the date which is fourteen days after the Effective
Date' Date;
'Option Proposal' the proposal to Optionholders for cancellation of all
Outstanding Options (or, if Air China so elects prior
to the despatch of the Scheme Document, a general
offer by Air China to acquire all of the Outstanding
Options not owned by Air China at a price equal to
the Option Proposal Price);
'Option Proposal HK$1.66 per Outstanding Option pursuant to the Option
Price' Proposal;
'Option Shares' Shares that are subscribed for in exercise of the
Options pursuant to the Share Option Scheme;
'Outstanding Options' Options not exercised as at the Option Exercise Date;
'Pre-Condition' the Pre-Condition to making the Proposals, as set out
under the paragraph headed 'The Pre-Condition to
making the Proposals' of this announcement;
'Proposals' the Share Proposal and the Option Proposal;
'PRC' the People's Republic of China, excluding, for the
purpose of this announcement, Hong Kong, Macau and
Taiwan;
'Pre-Conditions' the Pre-Conditions to making the Proposals, as set
out under the paragraph headed 'The Pre-Conditions to
making the Proposals' of this announcement;
'Proposals' the Share Proposal and the Option Proposal;
'Record Date' two Business Days prior to the Court Meeting;
'Relevant Period' the period from 8 December 2005 to the date of this
announcement;
'Relevant the shareholders' meetings to be convened by Air
Shareholders' China, CNAC, Cathay, CITIC Pacific Limited and Swire
Meetings' Pacific Limited to approve the Restructuring;
'Restructuring' the restructuring referred to in the Restructuring
Agreement;
'Restructuring the restructuring agreement dated 8 June 2006 entered
Agreement' into by Swire Pacific Limited, CITIC Pacific Limited,
CNAC, Air China and Cathay, details of which are set
out in the Restructuring Announcement;
'Restructuring the joint announcement dated 8 June 2006 published by
Announcement' Air China, CNAC, Cathay, CITIC Pacific Limited and
Swire Pacific Limited;
'Scheme' a scheme of arrangement under Section 166 of the
Companies Ordinance;
'Scheme Document' the document to be issued to all Shareholders and
Optionholders containing, among other things, further
details of the Proposals and the Scheme, the
recommendation of the Independent Board Committee in
respect of the Proposals, the letter of advice from
the independent financial adviser to the Independent
Board Committee, an explanatory statement as required
under the Companies Ordinance, the expected
timetable, and the notices convening the Court
Meeting and the Extraordinary General Meeting;
'Scheme Shareholders' Shareholders except Air China, but including the
Shares held by Concert Parties and Option Shares;
'Scheme Shares' the Share(s) held by Scheme Shareholders;
'SFC' the Securities and Futures Commission of Hong Kong;
'Shares' ordinary shares of HK$0.10 each in the issued share
capital of CNAC;
'Share Option Scheme' the share option scheme adopted by CNAC on 29 May
2002, the major terms of which are set out in the
audited annual report of CNAC for the year ended 31
December 2005;
'Share Proposal' the proposal to Scheme Shareholders for the
cancellation of all Scheme Shares pursuant to the
Scheme (or, if Air China so elects prior to the
despatch of the Scheme Document, a general offer by
Air China to acquire all of the Shares not owned by
Air China at a price equal to the Share Proposal
Price);
'Share Proposal HK$2.80 per Scheme Share pursuant to the Share
Price' Proposal;
'Shareholders' registered holders for the time being of Shares;
'Shareholders the shareholders agreement referred to in the
Agreement' Restructuring Announcement;
'Stock Exchange' The Stock Exchange of Hong Kong Limited;
'subsidiaries' has the meaning ascribed to it in Section 2 of the
Companies Ordinance;
'Takeovers Code' The Hong Kong Code on Takeovers and Mergers;
'Voting Shares' Scheme Shares other than the Option Shares and those
held by Concert Parties.
By order of the Board By order of the Board
Air China Limited China National Aviation Company
Limited
Li Jiaxiang Kong Dong
Chairman Chairman
Hong Kong, 21 June 2006
The directors of Air China jointly and severally accept full responsibility for
the accuracy of the information contained in this announcement (other than that
relating to the CNAC Group) and confirm, having made all reasonable enquires,
that to the best of their knowledge, opinions expressed in this announcement
(other than those expressed by CNAC) have been arrived at after due and careful
consideration and there are no other facts (other than those relating to the
CNAC Group) not contained in this announcement, the omission of which would make
any statements in this announcement misleading.
As at the date of this announcement, the board of directors of Air China
comprises Li Jiaxiang, Kong Dong, Wang Shixiang, Yao Weiting, Christopher Pratt
as non-executive directors, Ma Xulun, Cai Jianjiang, Fan Cheng as executive
directors, and Hu Hung Lick, Henry, Wu Zhipan and Zhang Ke as independent
non-executive directors.
The directors of CNAC jointly and severally accept full responsibility for the
accuracy of the information contained in this announcement (other than that
relating to the Air China Group) and confirm, having made all reasonable
enquires, that to the best of their knowledge, opinions expressed in this
announcement (other than those expressed by Air China) have been arrived at
after due and careful consideration and there are no other facts (other than
those relating to the Air China Group) not contained in this announcement, the
omission of which would make any statements in this announcement misleading.
As at the date of this announcement, the board of directors of CNAC comprises
Kong Dong, Chuang Shih Ping, Zhang Xianlin, Zhao Xiaohang, Tsang Hing Kwong,
Thomas, Gu Tiefei as executive directors, Lok Kung Nam, Hu Hung Lick, Henry, Ho
Tsu Kwok, Charles, Li Kwok Heem, John, Chan Ching Har, Eliza as independent
non-executive directors.
This information is provided by RNS
The company news service from the London Stock Exchange