Gategroup bid Chinese Firm Bids for Swiss Airline Caterer

China’s HNA Group hopes to buy the airline services firm Gategroup, but some of its major shareholders are unhappy with the proposal.
Meals on wheels... and wings.

It’s not only high-quality watches that the Chinese find appealing in Switzerland. Chinese investors are also attracted to the country’s traditional firms.

Among the first Swiss companies to draw their attention were agrochemical giant Syngenta and bottle manufacturer Sigg. Now Gategroup, which provides catering services to airlines, is joining the group.

Chinese conglomerate HNA Group, owned by the billionaire Chen Feng, has offered 1.4 billion Swiss franks (€1.29 billion, $1.47 billion) for the former Swissair subsidiary.

HNA is one of China's biggest aviation, logistics and services conglomerates, controlling more than ten companies listed on the mainland China and Hong Kong stock markets. Its interests span airlines and airports, aviation leasing and hotels and tourism.

HNA's goal with Gategroup is to make the catering company the uncontested market leader, according to HNA chief executive Adam Tan. The Swiss currently share the top ranking with the Lufthansa subsidiary LSG Sky Chefs.

It's too bad if the company is sold before the fruits of the new strategy have been gathered. Rudolf Bohli, Investor, Gategroup

Gategroup’s management board unanimously supports the offer. But some shareholders are voicing criticism.

“It's too bad if the company is sold before the fruits of the new strategy have been gathered,” said Rudolf Bohli, who with his fund RBR together with Colony Capital owns 11.3 percent of Gategroup.

Jon Cox, an analyst at the brokerage Kepler Cheuvreux, said: “We believe that investors should remain on the lookout for a higher bid.” He considers a price of 60 to 70 francs to be more appropriate.

The experts from Vontobel bank and Züricher Kantonalbank, on the other hand, view the HNA offer as interesting.

Gategroup, has been struggling to restructure. The company is eliminating around 300 jobs, as one of several efforts to lower operating costs. It posted a loss of 63.4 million francs in 2015 with stable revenues of 3 billion francs.

The catering industry is in upheaval. Caterers' customers, the airlines, are increasingly uniting and driving down prices. Companies like Gategroup are also suffering from the ongoing success of no-frills airlines, where in-flight catering plays a much smaller role than with classic airlines such as Lufthansa and Air France.

Bloomberg, the news agency, reported that Air France is thinking of selling its catering subsidiary Servair.

Six months ago, the head of Gategroup, Xavier Rossinvol, introduced his strategy “Gateway 2020,” calling for a greater focus on the company's core airline catering business and winning over new clients from developing countries. It also envisions selling more consumer goods in flight, up to 50 percent of total sales by 2020, compared with 18 percent today.

Gategroup hopes the new owner will provide it with tailwind for conquering the Asian market.

Kepler analyst Mr. Cox also believes that the merger makes strategic sense, although he considers the HNA bid to be too low.

Mr. Bohli, a large shareholder, shares that opinion. For months, he has been sniping at the supervisory board’s president, Andreas Schmid, expressing his discontent with Gategroup's earnings and with what he views as a too modest austerity program. He thinks the salaries of the management and supervisory boards are also too extravagant.

HNA Group’s bid for Gategroup is part of an ongoing trend: Chinese companies have spent about €20 billion on acquisitions or stakes in European companies, and the pace shows no signs of slowing. Chinese companies have invested nearly $3.2 billion in 12 German companies so far this year, far outbidding their international counterparts.

 

Holger Alich is Handelblatt's Switzerland correspondent, covering the financial industry. To contact the author: [email protected]