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Onex drops Air Canada bid
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November 5, 1999: 7:17 p.m. ET
Court ruling blocking hostile bid is defeat for AMR, win for UAL in global air battle
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Onex Corp. reluctantly dropped its hostile bid for Air Canada late Friday after a Quebec judge ruled its plans to buy and merge the nation's two air carriers was illegal.
The decision brings an end to an attempt to create a single, healthier air carrier for the country. It was also was a victory for the largest U.S. carrier, United Airlines, and a defeat for No. 2 carrier American Airlines. The two U.S. companies had chosen sides in the dispute north of the border in an attempt to keep the partners they wanted in the growing global alliances that share passengers and facilities with one another.
AMR Corp. (AMR), owner of American, was one of the key financial backers of Onex's bid for Air Canada, while UAL Corp. (UAL), United's owner, was one of the major carriers helping finance Air Canada's defense.
Blocks plan to dump Air Canada board
Onex, the Toronto conglomerate that proposed purchasing and merging troubled Canadian Airlines and Air Canada, said late Friday it was dropping the plans to put its proposal to Air Canada shareholders on Monday.
"Onex is disappointed in the Quebec court's conclusion that shareholders cannot accept our offers," said the statement from Gerald Schwartz, the company's chairman. "Naturally, we will respect that decision."
He called for a change in Canadian law to remove restrictions which stopped Onex from taking control of the recently privatized carrier.
"It has become clear to us during the past 12 weeks that the 10 percent ownership restriction at Air Canada serves neither the shareholders' nor the public's interest," he said. "We hope that both Air Canada and Parliament will now act to remove this restriction."
A higher bid on the table
The decision came at the end of the day that saw Onex raise its stock and cash bid to C$3.3 billion (US$2.25 billion) in response to the national carrier's efforts earlier in the week to remain independent.
The Onex bid included C$1.2 billion in cash, which is more than the stock was trading at in early August before the takeover battle started.
The new Onex offer is worth C$17.50 for each Air Canada share. That's up from its initial offer of C$13 a share for the company. The minimum cash component of the offer is C$6.55 a share, which Onex said is 73 Canadian cents above the Air Canada management plan to repurchase shares announced earlier this week.
Air Canada announced plans to buy 36.4 percent of its common shares and class A shares for C$16 a share, an offer worth C$1.1 billion. Air Canada also is bidding for Canadian Airlines, although it planning to operate it as a separate carrier, rather than merging operations.
Pacific routes at stake for American
Canadian Airlines is 25 percent owned by AMR Corp., which depends on its route authority and hub in Vancouver, B.C., as part of its "one world" alliance. AMR put up C$100 million in financing for the improved Onex offer on Friday.
Air Canada is part of the Star Alliance, along with United and Lufthansa, which both offered help its takeover defense.
"It looks like it's a big deal for them (AMR and UAL) because they keep raising the ante," said Ray Neidl, analyst at ING Barings in New York. "Canada by itself is a very small market, but it does have a strategic geographic importance, and it's right next to the American market, which makes it all the more important."
Neidl said that since true cross-border mergers are generally illegal in the airline industry because of each nation's airline ownership laws, the Air Canada battle is probably as close as the industry will come to a true global bidding war. He said he thought it was worth the money AMR was investing in the fight, given the importance of Canadian Airline's Pacific flight authority to its network.
"American is weak in the Pacific. It only has route authority to Japan," he said. "So I'm not surprised by this because I knew it was important to American, and I knew that in turn would arouse the interest of United."
Air Canada's shares were the second most actively traded stock on the Toronto Stock Exchange Friday with more than 3.3 million shares changing hands. It closed trading early after the judge's announcement, ending at C$10.90, up 5 Canadian cents. Its non-voting American depository receipts (ACNAF) closed at 7-1/16, up 1/16, in trading on the Nasdaq market.
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