Air Canada files challenge over Onex buyout of WestJet

Bloomberg

Air Canada is calling on the country’s transportation regulator to take a closer look at Onex Corp’s takeover of WestJet Airlines Ltd, arguing that the C$3.5 billion ($2.6 billion) deal may run afoul of foreign-ownership rules.
“I am writing to express the concern 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’ within the meaning” of the Canada Transportation Act, Air Canada’s general counsel David Perez wrote in a letter to the Canadian Transportation Agency.
“Onex’s structure also appears to provide insufficient protections to ensure that WestJet continues to be Canadian in the future.”
Onex, the Toronto-based buyout firm founded and led by Gerry Schwartz, agreed in May to buy Canada’s second-biggest carrier in a cash deal and take the company private. The acquisition was valued at C$31 a share, or C$5 billion including debt, Toronto-based Onex said at the time.
Air Canada’s letter said that WestJet’s purchaser will also have a number of co-investors that may include foreign sovereign wealth funds, foreign airlines and other non-Canadians, and that Onex lacks the necessary internal controls
to ensure that Calgary-based WestJet remains Canadian.
Foreign ownership rules under Canada’s transportation act require a company to be 51 percent owned and controlled by Canadians, with no more than 25 percent voting interest held by any single non-Canadian.
“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 said.
The appeal was reported earlier in the Globe and Mail.
“Onex is pleased to have received approval from the minister of transport and the Competition Bureau for the WestJet transaction,” the company said. “Onex is engaged with the CTA on the regulatory approval process of our transaction.”
WestJet spokeswoman Lauren Stewart said the arrangement is still subject to the receipt of the Canadian Transportation Agency’s review of the ownership structure.
“Assuming the timely receipt of this approval, the transaction is expected to close in the fourth quarter of 2019,“ Stewart said. “As the deal remains under regulatory review, we will not be providing further comment.