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Airlines to merge in share swap deal

CHINA Eastern Airlines is to take over its smaller local rival, Shanghai Airlines, in a share swap.

Shanghai Airlines shareholders will be able to exchange one share for 1.3 shares in China Eastern, the country's third-largest carrier, or exercise their cash options, China Eastern said in a statement to the Shanghai Stock Exchange yesterday.

The swap price will be 5.28 yuan (77 US cents) apiece for China Eastern and 5.50 yuan for Shanghai Airlines, based on their average share prices in the 20 trading sessions before June 8, the day the two stocks were suspended from trading, the statement said. The carriers resume trading today.

"The merger can increase China Eastern's share in the Shanghai air passenger market to 47 percent and air cargo market to 27 percent, which can consolidate its dominant position in the air hub," the carrier said.


Shanghai Air will be delisted from the Shanghai Stock Exchange, and all its assets, including planes and routes, will be transferred to China Eastern.

Liu Jiangbo, spokesman for a joint working team overseeing the takeover, said yesterday that Shanghai Airlines would remain as an independent brand.

The takeover will generate synergy on networks, flight schedules, purchasing of jet fuel, materials and aircraft, sales outlets and finance.

The two carriers run some identical routes in the domestic market, and the takeover will help them optimize that network. In the overseas market, China Eastern runs many routes to the United States and Europe, while Shanghai Airlines focuses on East Asia and the Southeast Asia.

China Eastern said the deal would reduce its debt-to-asset ratio and improve its financial structure.

After the takeover, the carrier will expand its shares to 9.44 billion from 7.74 billion, and China Eastern Air Holding Co will hold a 61.24 percent stake in it with Shanghai Lianhe Investment Co, parent of Shanghai Airlines, holding 5.32 percent.

The deal still requires approval from shareholders and government.

China Eastern runs 240 airplanes on 439 routes and Shanghai Airlines 66 airplanes on more than 180 routes. The takeover will make it the second largest carrier by fleet size in China after China Southern Airlines.


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