In the office towers along Bay Street, Toronto's Wall Street, Onex Corp. Chairman Gerald W. Schwartz is known as Canada's LBO king. Until lately, though, that has been something of an ironic moniker, given that most of Schwartz's major deals have been in the U.S. But with his latest move, Schwartz may earn his title: He's set on winning a hostile $1.7 billion tender offer for John Labatt Ltd., Canada's second-largest brewer and owner of the Toronto Blue Jays. Unless a higher offer emerges before his tender expires on June 9, he seems likely to win.
For Schwartz, 53, the Labatt bid is a departure--not just because the target is Canadian but because it's so well known. Since founding Onex in 1983, he has bought relatively obscure outfits. Among his best deals: the paltry $90 million Schwartz spent for stakes in six U.S. companies, including parts maker Automotive Industries and airline caterer Sky Chefs Inc., acquired from AMR Corp. Today, Onex' investment is worth some $500 million.
SHARING THE WEALTH. Schwartz's success formula? He gives managers up to a 20% stake in his companies and urges them to be aggressive acquirers. For instance, by this fall Sky Chefs expects to close on a $520 million buyout of Caterair International, another airline caterer. The move will make it the world's dominant in-flight caterer. It also will raise Onex' sales to $5.9 billion, up from $2.6 billion last year, when it earned $121 million.
Schwartz says he thinks he can make Labatt a "western hemisphere [beer] powerhouse." The brewer has a 22% stake in Mexico's Femsa Cerveza. And if Onex' bid succeeds, it will get help in expanding from Quilmes Industrial, the Argentine brewer that is paying $231 million for a 27.5% stake. Schwartz plans to shed entertainment and European beer assets to help pay off the $1 billion of debt in his bid, though he says he intends to keep the Blue Jays.
Trouble is, Labatt CEO George S. Taylor opposes the bid, charging that Schwartz is trying to "steal the company." And analysts figure Labatt could be worth up to 25% more than Onex is offering. But Schwartz is so sure no higher bid will emerge that he plans to spend much of the summer sailing off Nantucket. If he's right, Canada's LBO king will rule over two of Canada's prized fiefdoms: Labatt and the Blue Jays.