China's HNA to Buy Airline Caterer Gategroup for $1.5 Billion

  • Asian company agrees to pay 20% premium for Swiss business
  • Deal will add to purchaser's global roster of aviation assets

Chinese conglomerate HNA Group Co. agreed to buy Gategroup Holding AG, the world’s second-biggest airline-catering company, for 1.4 billion francs ($1.5 billion) as billionaire Chairman Chen Feng continues an acquisition spree targeting aviation-related assets around the world.

Gategroup investors stand to get 53 francs a share plus a previously declared 30 centimes a share dividend, valuing the the Swiss company at about 20 percent more than Friday’s closing price, HNA said in a statement Monday.

The acquisition by HNA amid a boom in Asian air travel will add to the clutch of aviation assets that the hotels-to-supermarkets group has carved out from Brazil to Dublin. Inflight caterers are struggling with a tougher operating environment as consolidation in Europe and the U.S. boosts carriers’ bargaining power, and a switch to low-cost flights means fewer passengers take meals.

“The catering business can be very good if you have the volume,” said Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul. “In the long run, HNA can bring some know-how into China and help improve the service quality of its airlines.”

Shares of Gategroup, based in Kloten, near Zurich, closed up 8.9 francs, or 20 percent, at 53 francs, matching the offer price, after their biggest one-day gain since May 2009, the month the former Swissair arm was first listed.

Negative Return

Gategroup had a loss of 63.4 million francs on sales of 3 billion francs last year, when the company said it would cut 300 jobs in locations such as Zurich and London, and came up with the Gategroup 2020 plan to revive itself.

The caterer’s 24.5 percent negative return on equity compares with plus 10.1 percent at Hainan Airlines Co., HNA Group’s flagship carrier. HNA’s listed transportation catering arm, HNA-Caissa Travel Group Co. boasted an 18.4 percent return in 2015, while Singapore-based SATS Ltd., Asia’s biggest airline caterer, had a 13.7 percent figure in the fiscal year ended March 2015, according to data compiled by Bloomberg.

With airlines increasingly outsourcing non-core activities, some caterers are seeking to sell out. Air France-KLM Group will enter into talks with an exclusive buyer for its inflight service unit, Servair, within the next few weeks, a person familiar with the plan has said.

HNA Acquisitions

“Buying what appears to be a mature business in Europe represents an opportunity to grow, gain scale and enter overseas markets for Asian companies,” said Zhang Qi, a Shanghai-based analyst at Haitong Securities Co.

Upon completion of the public tender offer, HNA intends to delist Gategroup, according to the statement. The public offer is subject to a minimum acceptance level of 67 percent and regulatory approvals, it said.

The Swiss company’s directors unanimously supported the offer, according to the statement. Credit Suisse Group AG acted as the financial adviser and Homburger AG as legal adviser to Gategroup, according to the statement. UBS Group AG is acting as financial adviser to HNA.

HNA and related companies have announced acquisitions and investments worth at least $19 billion since 2009, according to data compiled by Bloomberg. It bought world-leading ground handler Swissport International AG for 2.73 billion Swiss francs in July 2015, and was said to be among bidders for London City Airport earlier this year.

The latest deal would add to the Chinese group’s existing airline-catering business that now falls under HNA-Caissa, though the two will remain separate, HNA Chief Executive Officer Adam Tan told reporters Monday.

“It will help HNA cover more ground in airline services, particularly after its Swissport acquisition last year, and expand their footprint globally,” said Cao Xuefeng, an analyst with Huaxi Securities in Chengdu, China.

— With assistance by Clement Tan, and Kyunghee Park

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