HNA Agrees to Buy Airline Caterer Gategroup for $1.5 Billion

Chinese conglomerate HNA Group Co. agreed to buy Swiss airline catering company Gategroup Holding AG for 1.4 billion francs ($1.5 billion), as billionaire Chairman Chen Feng continues on an acquisition spree of aviation-related assets around the world. Gategroup shares jumped the most in almost seven years.

Shareholders would get 53 francs a share as well as the previously declared 30 centimes per share dividend, HNA said in a statement Monday. The offer is about 20 percent more than the closing price Friday.

The acquisition – amid a boom in Asian air travel – builds on the aviation-related assets the hotels-to-supermarkets conglomerate has created from Brazil to Switzerland. Airline 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 on short-haul routes means a lower proportion of passengers take meals.

“Catering business can be very good if you have the volume,” said Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul. “The acquisition will help address the growing need for catering as more and more people travel by air. In the long run, HNA can bring in some of the know-how into China and help improve the service quality of its airlines.”

Shares of Gategroup jumped as much as 18 percent to 52 francs, the largest intraday gain since May 2009. It traded at 51.55 francs as of 9:31 a.m. in Zurich trading.

Gategroup had a loss of 63.4 million francs in the year ended December, on sales of 3 billion francs. That gave the company a 24.5 percent negative return on equity. Last year, Gategroup said it will cut 300 jobs from places such as Zurich and London and came up with the Gategroup 2020 plan to revive itself.

Its negative return compared with Hainan Airlines Co., HNA Group’s flagship carrier, which had a 10.1 percent return on common equity.

Singapore-based SATS Ltd., Asia’s biggest airline caterer, had a 13.7 percent return on equity 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 said.

“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 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 its HNA-Caissa Travel Group Co. unit, said Cao Xuefeng, an analyst with Huaxi Securities in Chengdu, China.

“It will help HNA cover more ground in airline services, particularly after its Swissport acquisition last year, and expand their footprint globally,” Cao said.