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Onex bids for Air Canada
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August 24, 1999: 12:23 p.m. ET
Conglomerate buys Canadian Air, seeks combination worth $3.8B
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NEW YORK (CNNfn) - Onex Corp., a Toronto-based conglomerate, Tuesday offered to buy Air Canada and merge it with the struggling Canadian Airlines Corp. -- whose acquisition it also announced -- in a deal worth an estimated C$5.7 billion (U.S.$3.81 billion).
Onex, one of Canada's biggest corporations and the operator of the leading airline catering company Sky Chefs, made the bid following the Canadian government's decision earlier this month to waive competition laws for 90 days to help find a private-sector solution to Canadian Airlines' financial woes.
Canadian Airlines, the country's No. 2 airline after Air Canada, has been seeking cash aid to help offset heavy debts.
Onex is creating a new unit called AirCo, which would offer C$8.25 a share cash or one share of AirCo for each Air Canada share.
Onex also said it had reached a deal to buy Canadian Airlines for C$2 cash or 0.2424 common share of AirCo for each share of the struggling carrier.
At a Montreal news conference announcing the bid, Onex CEO Gerald Schwartz said that within two years there would be a workforce reduction of about 10 percent, or 5,000 employees, at the combined airline. The merged company would retain the name Air Canada, and keep its headquarters in Montreal.
"We are pleased to be able to put forward a plan that addresses industry and government objectives, provides a substantial working capital infusion and, at the same time, offers clear benefits for Canadian travelers and communities," Schwartz said in a statement announcing the offer.
Onex said AirCo will invest a total of C$1 billion in these transactions. Onex will invest C$475 million in AirCo equity, of which C$225 million would be financed by a loan from AMR Corp. (AMR) the owner of American Airlines. AMR would also invest C$275 million in AirCo equity and convertible debt, and would join Onex in an additional C$250 million investment in AirCo debt and warrants.
Once the deals are completed, Onex would own a 31 percent equity stake in the new combined airline, AMR 14.9 percent and public shareholders 54 percent. AMR now holds a 33 percent equity stake and a 25 percent voting interest in Canadian Airlines.
"AMR intends to be a passive investor and eventually to divest its equity interest in the merged airline," Onex said.
On a pro forma basis, the combined company had annual revenue of more than C$9 billion in 1998, Onex said. The company said it has submitted its plan to Canada's transportation ministry for review.
The offer follows widespread speculation in the Canadian press that Onex was considering buying and then merging the two airlines.
Canada Industry Minister John Manley said earlier Tuesday that he would welcome bids for Canada's carriers.
"It's good news that there's somebody who apparently wants to invest in the airline industry," he said.
-- staff and wire reports
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