The Business Daily
Monday, December 7, 1998
HONGKONG – Lehman Brothers said it viewed news that Cathay Pacific Airways Ltd. had abandoned talks for a stake in Philippine Airlines Inc. (PAL) as mildly negative for Cathay shares.
Lehman Brothers said in a report dated December 3 it considered the pullout as mildly bad news as it believed the market expected Cathay to invest in PAL with both full management control and the resolution of many of PAL's outstanding issues.
The Hongkong flag carrier on Wednesday confirmed that negotiations with PAL had broken down due to differences on issues such as management control and valuation.
Lehman Brothers believed Cathay Pacific's interest in PAL stemmed from the carrier's view that the Philippines is one of its core markets which it intends to defend and where acquisition would have made long-term strategic sense.
Between five and 10% of Cathay Pacific's business is derived from the Philippines, Lehman said.
Lehman Brothers said regardless of the outcome of the Cathay Pacific-PAL saga, the slowing global economy and the effect this will have on passenger traffic remained the more important issue for Cathay Pacific on a three-year view.
"We will retain our negative view on Cathay Pacific until we see definite, tangible efforts to reduce capacity to profitable levels,” said Lehman Brothers analyst Philip Tulk.
"We reiterate our 4-Underperform rating and HK$7 price target of the share," he said.
Cathay Pacific shares last week closed at HK$7.65, unchanged on the day.
– Reuters
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