AC Files Challenge Against Onex Takeover Of WestJet
Bruce Parkinson, Open Jaw
Air Canada has filed a challenge with federal regulators to Onex Corp.’s takeover of WestJet Airlines Ltd., arguing that the deal could give foreign investors majority ownership of the Calgary-based airline, in violation of Ottawa’s rules.
Onex, a Toronto-based private-equity firm, announced a friendly $3.5-billion takeover of WestJet this spring. The airline’s shareholders voted in July to approve the deal, but it now must be approved by regulators.
Canadian Press reports that Onex, like most companies in its industry, takes money from foreign investors into its funds, and in a letter sent to the Canadian Transportation Agency, Air Canada said Onex’s “opaque” private-equity structure and the “fluidity” of its shareholder base could make it difficult for WestJet to stay onside ownership limits.
Federal rules cap the total foreign ownership of any Canadian airline at 49%. No single foreign investor may hold more than 25%, and a maximum of 25% of the equity can be owned by foreign airlines.
If the deal is completed, Onex will control a company that controls WestJet, but it will have other investors in the deal, Air Canada says in its filing. The structure of the deal raises the risk that “co-investors will participate in a manner that provides them with control in fact” over WestJet, the Montreal-based airline said.
“We urge the agency to carefully consider whether the transaction will result in an undertaking that is Canadian and to use its powers to investigate and uphold the act as necessary,” Air Canada’s general counsel David Perez said in the letter, referring to the law that regulates foreign ownership in Canadian airlines.
Onex, which had $23.2-billion of capital invested at the end of 2018, is controlled by Canadian chief executive officer Gerry Schwartz.
Air Canada said in its letter to Canada’s transportation regulator that “due to the structure of the transaction and the capital and corporate governance structure of Onex, the transaction may result in an undertaking that is not ‘Canadian.’ "
Bruce Parkinson Editor-in-Chief
An observer and analyst of the Canadian and international travel industries for over 25 years, Bruce uses the pre-dawn hours to prepare a daily news and information package to keep industry members up to date.