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Gold/Mining/Energy : Air Canada is taking off? -- Ignore unavailable to you. Want to Upgrade?

To: Serge Collins who wrote (821)	9/14/1999 1:04:00 AM
From: Kitskid	Read Replies (1) \| Respond to of 1033

theglobeandmail.com - Onex bought airline stock before bid Acquired more than $43-million of Air Canada shares month before Ottawa suspended competition rules JACQUIE McNISH The Globe and Mail Monday, September 13, 1999 - Onex Corp. quietly took steps to prepare its controversial airline merger proposal months before the federal government suspended competition rules in August to make such a bid possible. According to an affidavit submitted by an Air Canada executive in the Ontario Superior Court, numbered companies linked to Onex spent more than $43-million to acquire Air Canada stock one month before Aug. 13, when the federal government temporarily lifted competition rules. The shares were purchased by two numbered federal companies that were incorporated nearly three months before Aug. 13. These two companies were merged on Aug. 23 to create AirCo, the corporate entity through which Onex has launched its hostile bid to merge Air Canada with its ailing competitor Canadian Airlines International Ltd. Onex chairman and chief executive officer Gerald Schwartz has previously said that he and his staff have been in discussions with Canadian Airlines since the spring to explore a number of proposals to salvage the troubled company. But Mr. Schwartz said he did not get "seriously interested" in a merger proposal involving Air Canada until the government gave the go ahead with its Aug. 13 announcement. The fact that companies linked to Onex spent $43-million to acquire Air Canada shares one month before the government opened the door is likely to raise questions about how much Onex knew ahead of time. Mr. Schwartz, a long-time Liberal party fundraiser and supporter, has repeatedly denied that he had any advance discussions with federal government officials about his merger plans. A spokesman for Onex declined to comment. The federal government took the extraordinary step of lifting competition rules in the airline industry because of the perilous financial condition of Canadian Airlines, which is rapidly running out of cash. The suspension was made possible when the government invoked an obscure clause of the Canada Transportation Act, known as Section 47. The so-called Section 47 Order expires Nov. 10. Onex has billed its $1.8-billion merger proposal as a private sector solution to the troubled airline industry. But Air Canada, which has rejected Onex's offer as inadequate, argues that Onex has designed the merger to put the burden of Canadian Airlines' financial woes on Air Canada's shareholders. According to the affidavit of Paul Brotto, an Air Canada senior vice-president, the airline had $712-million in cash and short-term investments as of June 30, while at the same time Canadian Airlines' cash had dropped dramatically to $70.5-million from $302.4-million on Dec. 31. Canadian Airlines has said it needs an infusion of as much as $500-million by year-end. Through AirCo, Onex is only offering to invest $150-million of new money into the proposed merged airline, although it will have total long-term debt of $4.6-billion. "Since AirCo is only proposing to bring $150-million of new financing to the table, it is clear that Canadian Airlines is intended to live on the lifeline of Air Canada's cash," Mr. Brotto said in his affidavit. Mr. Brotto also objected to stringent lockup agreements Onex has struck with Canadian Airlines and its major shareholder AMR Corp. of Fort Worth, Tex., the parent of American Airlines Inc. AMR has irrevocably agreed to support Onex's bid. Canadian Airlines is forbidden from considering alternative merger proposals unless the new plan preserves AMR's lucrative service contracts with Canadian. "The actions of Canadian Airlines, AMR and Onex have been designed to frustrate entirely the stated purpose of the Section 47 Order by ensuring that -- effectively from the very beginning -- the only proposal that could be seriously considered is one sponsored by AMR," he said. Onex and its airline partners entered their lockup agreements, Mr. Brotto said, "to ensure, in my view, that there is almost no practical prospect of any proposal emerging under the Section 47 Order." Onex and Air Canada are set to appear in court Sept. 22 to argue over the timing of a meeting at which Air Canada shareholders will vote on the proposed merger. Air Canada has set the shareholder meeting for Jan. 7. But Onex and two mutual funds managed by Royal Bank of Canada have filed a requisition seeking to have the meeting moved up to early November before its offer expires Nov. 9. In recent takeover cases, the courts have urged companies to hold shareholder meetings before a bid expires. But Air Canada argues it is entitled to delay the meeting until January, because potential suitors have until Nov. 10 under the government's order to draft competing bids. After the deadline, Air Canada would mail a special circular concerning any takeover proposal to its holders, which are entitled by law to examine it for 21 days before voting on the matter.