Buyout firm Onex to acquire Canada's WestJet for US$2.6b in cash

[MONTREAL] Canada's second-biggest carrier WestJet Airlines Ltd on Monday accepted a US$2.63 billion cash buyout offer from private equity fund Onex Corp , ending a two-month long strategic review.

WestJet shares, which have lagged those of bigger rival Air Canada, soared 62 per cent to trade slightly below the US$31-per-share offer price. Onex shares inched lower on the Toronto Stock Exchange.

Onex first approached WestJet's board in March. The private equity firm is not new to investing in the aerospace industry - it bought Spirit Aerosystems from Boeing Co in 2005 and exited its investment in 2014, having made US$3.2 billion.

Onex tried to buy Air Canada in 1999 but was prevented from doing so under the existing regulations.

The investment to buy WestJet will be led by Onex Partners, Onex's private equity platform focused on larger investments. The airline's board has urged shareholders to vote in favor of the deal.

Founded in 1984 and headquartered in Canada, Onex manages US$31 billion of assets.

"We do not believe this transaction dramatically alters the competitive landscape, at least negatively," Canaccord Genuity analyst Doug Taylor said.

"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."

WestJet has had a rough start to 2019 as the worldwide grounding of Boeing 737 Max jets forced it to suspend its full-year outlook in March.

The company has struggled with costs as its workforce unionised, while it added international routes and launched its budget carrier Swoop.

In February, the airline announced plans to scale back capacity growth to cut costs and attract higher-paying customers to turn it around after a turbulent 2018.

The deal, which has a value of US$5 billion including debt, is expected to close in the latter part of this year or early next year, the company said.

AltaCorp analyst Chris Murray said it may take until 2020 to see a potential close to the transaction because of the "significant number of steps required between now and the close of any transaction, with a number of interested stakeholders expected to weigh in on the merits of the acquisition."

CIBC Capital Markets and BofA Merrill Lynch were the financial advisers to WestJet, while Barclays, Morgan Stanley and RBC Capital Markets advised Onex.

Up to Friday's close, WestJet shares had fallen 5.5 per cent in the last 12 months while Air Canada shares gained 58 per cent. American rival United Continental Holdings, the company that owns United Airlines, rose 28 per cent in the same period.

REUTERS