Onex Corp. has signed a friendly deal to buy WestJet Airlines Ltd. in an all-cash transaction it valued at $5 billion, including assumed debt.
Under the agreement announced Monday, Onex will pay $31 per share for WestJet, which will operate as a privately held company.
The price represents about a 67 per cent premium to the shares, which closed at $18.52 on Friday. The stock shot up 61 per cent or $11.23 to $29.75 in mid-morning trading Monday.
WestJet founder and chairman Clive Beddoe said Onex is an ideal partner for the airline.
“I am particularly pleased that WestJet will remain headquartered in Calgary and will continue to build on the success that our 14,000 WestJetters have created,” Beddoe said in a statement.
The deal comes after Onex, a Toronto-based private equity firm, approached the airline in March.
“WestJet is one of Canada’s strongest brands and we have tremendous respect for the business that Clive Beddoe and all WestJetters have built over the years,” said Tawfiq Popatia, a managing director at Onex.
In the past six years, WestJet has created both regional and budget airlines – WestJet Encore and Swoop – and set its sights on long-haul routes with an order for 10 Boeing 787 jetliners set for delivery before 2022, receiving the first one earlier this year.
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“WestJet has been challenged by all this diversification that’s been crunched into this very short space of time,” said Robert Kokonis, president of Toronto-based consulting firm AirTrav Inc. “Shareholders were wondering whether WestJet could execute all these things.”
The airline’s ongoing transition from a low-cost regional carrier to a full-service international airline targeting higher-yield business passengers gives it potential that renders the premium reasonable, Kokonis said.
“Onex has very deep pockets…If that means WestJet growing faster internationally, acquiring more long-haul fleets to fly abroad, those are good things and that will create a positive pricing environment for consumers.”
This isn’t Onex’s first attempt to acquire an airline. Twenty years ago it teamed up with American Airlines parent company AMR Corp. in a hostile $1.8-billion bid plus the assumption of debt to acquire and merge Canadian Airlines and Air Canada. The plan was dropped after being ruled illegal by a Quebec court.
Onex also failed in its effort in 2007 as part of a consortium to buy Australia’s Qantas Airways Ltd.
WestJet’s current growth spurt could generate profits that offset the rising cost of labour.
LISTEN: Alan Carter talks to Global’s Consumer Reporter Sean O’Shea, who has been digging into the details of the purchase of WestJet by Onyx
The nearly 4,000 flight attendants at WestJet and WestJet Encore have unionized over the past year. Meanwhile, Encore pilots have voted in favour of a five-year agreement that runs until Jan. 1, 2024, and WestJet pilots agreed to a settlement process last May.
“With all these new deals that have been put in place, there’s labour peace,” Kokonis noted.
Analyst Doug Taylor of Canaccord Genuity said the Onex deal likely will not “dramatically alter” the competitive landscape.
“WestJet was generally well-funded and was already embarking on a large and highly competitive expansion plan. 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,” he said in a note to clients.
WATCH: WestJet sold to Onex. Sean O’Shea reports.
Completion of the transaction is subject to a number of conditions, including court, regulatory and shareholder approvals.
WestJet’s board of directors has unanimously recommended shareholders vote in favour of the deal at a meeting expected to be held in July.
Speaking to the media on Monday, Calgary Mayor Naheed Nenshi said he was told no jobs would be lost in the process.
“But we’ll be watching very carefully to make sure those promises are kept.”
Premier Jason Kenney applauded the sale, calling WestJet “a great Alberta success story.”
“This $5-billion investment in WestJet is an important sign of confidence in the future of Alberta’s economy,” Kenney said in a statement. “Our government’s Job Creation Tax Cut and Red Tape Reduction Strategy sends a message to investors like Onex that Alberta is open for business.
“By moving to private ownership, it is our hope that WestJet will have greater latitude to make long-term strategic investments, growing its fleet and global network of destinations, including direct overseas flights from Alberta,” Kenney added.
“This in turn will support our government’s tourism and economic development strategies, connecting Alberta to a growing number of markets around the world.”
The deal is expected to close in the latter part of 2019 or early 2020.