Frothy private markets, which Onex executives cited in a conference call with analysts last week - driven by "dry powder" looking to be deployed by global institutional investors - could have contributed to the premium offer for WestJet, according to a note published Monday by Canaccord.
The Onex bid follows a deal last week where low-priced Latin American airline Viva Air received a $50 million investment from USA capital fund Cartesian Capital Group that it will direct toward expansion. Twenty years ago, it teamed up with American Airlines' parent company AMR Corp.in a hostile $1.8-billion bid, plus the assumption of deb, t to acquire and merge Canadian Airlines - then the country's second-biggest carrier - and Air Canada. By the end of the trading day on Monday, stock in WestJet was trading at $29.61 per share, up from $18.52 when the Toronto Stock Exchange closed Friday.
In February, WestJet announced plans to scale back capacity growth to cut costs and attract higher-paying customers to turn it around after a hard 2018.
The deal is expected to close in the latter part of this year or early next year, the company said.
WestJet's board formed a special committee to consider the offer after an approach by Onex in March.
But WestJet founder and chairman Clive Beddoe said the deal retained WestJet's commitment to provide better options for the Canadian traveling public.
Alberta's Premier said on Monday that WestJet and Onex have assured him the carrier's headquarters will remain in Calgary after the deal.
Interest in joining Unifor has increased in recent weeks as WestJet imposed arbitrary changes to scheduling and uniforms while it moved to worldwide flights, and announced a zero-per-cent wage increase one day ahead of posting a 33.4-per-cent boost in profits.
Analyst Benoit Poirier of Desjardins Securities said Onex might also look to acquire Transat A.T. The tour operator, which owns Air Transat, competes with WestJet for sun destinations and launched in 2017 a $750-million plan to develop a hotel chain in Mexico and the Caribbean.
"Other workers at WestJet are able to sit down at the table and negotiate with the company when changes are made because they are unionized", Scanlan said.
"WestJet was generally well funded and was already embarking on a large and highly competitive expansion plan", he wrote.
"In our view, a private equity owner of an airline is likely to remain rational with respect to its approach to yields and profitability vs. market share".
The committee recommends shareholders vote in favour of the deal, which is subject to regulatory approval, at an upcoming meeting.
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