With its vast geography and relatively small population, Canada has the feel of a small town spread across a massive landscape. So it’s no surprise that the twelve-week battle for control over the Great North’s airline played out like an unusually rowdy town hall meeting. With two national newspapers, two political parties, two official languages, the country could also be described as somewhat divided. Living in the shadow of their southern neighbors and under threat of Quebec sovereignty, Canadians constantly struggle to re-affirm their national identity. No wonder the entire population, not merely the investment community, waited with bated breath as the national airline industry was almost taken over by leveraged buy out specialist Onex Corp.
The contest lasted more than six months, beginning in August when the Canadian government suspended competition rules in the airline sector to stimulate action for cash-trapped Canadian airlines. With the regulation strings loosened, Onex Corp, a holding company with about $11 bn in assets, was free to bid for both Air Canada and rival Canadian Airlines. Just prior to the takeover bid, Onex started buying up Air Canada stock, acquiring 8.1 mn shares. The battle was spearheaded by Onex’s chairman and chief executive officer, Gerry Schwartz. The 57-year-old tycoon had an ambitious plan: backed by AMR Corp, American Airlines’ parent which owns a stake in Canadian Airlines, Onex would buy and merge Air Canada and Canadian Airlines for C$1.8 bn and assume $3.9 bn in debt.
This initial bid prompted the dog fight between Air Canada and Onex Corp. At center stage were Gerry Schwartz and Robert Milton, president and chief executive of Air Canada. The two leaders were locked in a national popularity contest, each vying for the support of the investment community and the general public. From an IR standpoint, there are definite lessons to be had from the communications program put forth by Air Canada’s investor relations department.
Indeed the team was recognized by the financial community this past February at the Investor Relations Magazine Canada Awards in Toronto, where they took home the award for best IR during a takeover.
Ultimately, Air Canada captured the hearts and minds of the public, the government, and the financial community. It is the story of how one company capitalized on the very notion of a ‘Canadian identity’ to keep its traveling public and investors on side. Also from an IR perspective, Air Canada’s communication strategy offers a study in the art of media relations. Throughout the battle, Air Canada pulled ahead by using both the mainstream and business media to tell its side of the story.
Delayed departure
In late August 1999, when Onex Corp first announced its plan to buy and merge Montreal-based Air Canada with its Calgary-based rival, Canadian Airlines, Air Canada took about three weeks to respond. At the time, the delay may have caused concern among investors. But it was probably the best move. ‘That was a great strategy,’ comments Jacques Kavafian, an analyst with Yorkton Securities. ‘When they finally went public they had a well thought-out defense against the Onex offer.’
The wait meant everyone was kept in suspense, including the press. ‘This was smart,’ says a reporter covering the story for a Canadian newspaper. ‘It was really frustrating for Onex. They wanted a fight, and because theirs was the only deal on the table, that left the press to poke around and tear into the Onex bid.’
Large institutional shareholders were also kept in the dark during those first few weeks after the Onex bid. The Caisse de depot et placement du Quebec, Air Canada’s largest shareholder with around 11 percent of the company’s shares, approved of the airline’s tight-lipped strategy. Jean Claude Scraire, chairman of the board and CEO of the Caisse, recounts, ‘For a few weeks, Air Canada had to think of what was in the best interest of shareholders. And when you don’t know, you don’t speak; that was very responsible on their part.’ He adds that once Air Canada did know what to recommend to shareholders, ‘They told us. That was how they managed their communications, and from our point of view, it went fine.’
Hot air
While legal wrangling continued behind the scenes, Air Canada announced a counterbid in mid-October. Financed jointly by Canadian Imperial Bank of Commerce and the airline’s Star Alliance partners, United Airlines and Lufthansa, Air Canada proposed a share buy-back along with an offer to purchase Canadian and then create a new discount airline based in Hamilton, Ontario.
Valerie Peck, director of investor relations for Air Canada, says the communications strategy during the takeover battle was simple: ‘We tried to make everything as clear and timely as possible and to use every resource available,’ she explains. ‘It was definitely an effort that had to be made on all fronts: the Canadian public had to be kept informed, the government had to be worked with, and the investors had to be kept up-to-date on a fairly complex story.’
To help with that task, Air Canada hired a fleet of consultants: National Public Relations, Georgeson Shareholder Communications Canada and GPC Government Policy Consultants. The team pulled together an effective advertising and media campaign that caught the attention of both the investment community and the public at large. As one analyst puts it, ‘Communication through the media was very well done. Everyone knew what was going on.’
Georgeson Shareholder Communications Canada was Air Canada’s information agent, fielding calls from shareholders and employees. ‘This was the largest takeover attempt in Canadian history; not only did it touch the shareholders, it affected thousands of jobs and travelers,’ comments Glenn Keeling, president of Georgeson Shareholder Communications Canada. ‘We were even getting phone calls from Canadian Airlines personnel.’
Because it affected such a wide audience, the media embraced the takeover battle ‘like no other fight’, notes Keeling. ‘It garnered unbelievable attention,’ he says. ‘And not just from an editorial point of view. Each day there were new national stories.’ Along with this onslaught of media coverage, Keeling says, Air Canada ran 57 full-page newspaper and magazine ads. ‘They were creative ads,’ he remembers. ‘For example, one said, Onex is trying to bump you.’
According to Valerie Peck, the key to Air Canada’s advertising campaign was that ‘everything had to be tailored to the given audience.’ She adds, ‘When you are dealing with the institutions you’ll give a heavier financial component in an advertisement. But it was the same basic message all the time.’
Because there was so much information coming from a wide variety of sources, the ads were an excellent way to highlight and simplify Air Canada’s message. For example, in mid-September, there was confusion among shareholders over the court battle waged by Air Canada. The company had asked a Quebec court to rule that Onex’s bid went against Canada’s federal Competition Act. Under the act, no single shareholder can own more than ten percent of Air Canada. This legal battle went on for two months and confused matters because, as Yorkton’s Jacques Kavafian explains, ‘It added new deadlines for shareholders – deadlines that were now dictated by the court case.’
During the week of the Quebec court decision, Air Canada ran 30-second spots, 13 hours-a-day on 43 radio stations across Canada. ‘Each one encouraged shareholders to call us,’ says GSCC’s Keeling. ‘While the courts decided whether this deal would fly or not, much attention had to be paid to shareholders to make sure they got a clear message,’ he adds.
The Caisse’s Jean Claude Scraire was impressed by Air Canada’s advertising campaign. ‘It was geared towards shareholders’ needs,’ he says. ‘They had an excellent communications plan; their objectives were clear and they were active through the media.’
‘They also provided daily news for shareholders on their web site,’ Scraire adds. For its part, the Caisse was being actively courted by both Onex and Air Canada. But outside of that privileged contact, Scraire says Air Canada held numerous meetings with institutional investors and provided research analysts with updates on the battle and their strategy.
On Keeling’s recommendation, Air Canada also put in a serious effort to contact individual shareholders. ‘In four days, we called 23,000 shareholders,’ says Keeling. ‘To execute the campaign, we had call centers all across North America – people in Toronto, 65 people in Pittsburgh and about 300 people in New York and New Jersey.’
However, according to Kavafian, even with the constant flow of information from Air Canada, there was still some misunderstanding in the market over which deal was better. ‘It was tough for shareholders to decide who was telling the truth because they were each giving only one side of the story,’ he says. From this analyst’s perspective, the battle played out like a ping pong match: ‘Air Canada would say something and then Onex would refute it and then Air Canada would refute Onex’s claims – it would go on and on and no-one knew what to believe.’
Bums on seats
Along with the campaign to communicate with shareholders, Air Canada also made a special effort to communicate with the traveling public. ‘With a deal like this you must consider public perception as well because the outcome affects not only shareholders but ordinary people, travelers and employees,’ explains Keeling. By mid-September 1999, public opinion polls showed strong support for the Air Canada side, with two thirds of Canadians backing the idea of a single national airline carrier and only 40 percent endorsing the Onex bid.
Naturally, the Canadian public was less interested in the complex issues of the battle. ‘The general public doesn’t tend to keep track of those things,’ says Jennifer Hillard, vice president of the Consumer’s Association of Canada. ‘They were more concerned with the price of air travel and the quality of customer service.’ According to Hillard most of the public were rooting for the Air Canada side. But, as she explains, ‘People were not reading between the lines because at the same time they were saying, We support Air Canada, they were also shouting, We don’t want a monopoly!’
Hillard says the public’s failure to recognize Air Canada’s proposal as eventually resulting in a monopoly was a result of Air Canada’s media-savvy campaign. ‘Their communication to the public was quite brilliant. They used media coverage so the public didn’t even realize that we’d have an airline monopoly if they won,’ she explains. During the battle, Hillard had little contact with the Air Canada. ‘On the other hand,’ she adds, ‘I picked up my phone one afternoon and this guy said, Hi, this is Gerry Schwartz, and he sounded very personable and pleasant.’
The real clincher for the Canadian public was the idea of their airline being taken over with the backing of American Airlines parent AMR Corp. As a Canadian newspaper reporter explains, ‘Everyone recognizes the Air Canada name and regards it as Canada’s airline. With AMR backing Onex, people felt suspicious about what Gerry Schwartz was doing.’
This suspicion made Schwartz the loser in the national popularity contest. A poll conducted in early December 1999 by Goldfarb Consultants indicated Schwartz may have been his own worst enemy in selling the deal. Only 36 percent of respondents found his statements credible compared to 54 percent for Air Canada’s Robert Milton. ‘Milton was viewed as charismatic, passionate and knowledgeable about the airline industry,’ comments Keeling.
Happy landings
After all was said and done, the attenuated battle came to a relatively anti-climatic end. On November 4, 1999, a Quebec Superior court ruled the Onex bid was illegal because it contravened Air Canada’s ownership limits. The day after the court decision, Air Canada mailed out a $92 mn bid for Canadian Airlines Corp. At the time, Air Canada’s Milton told a reporter, ‘It’s our intention to initiate a comprehensive restructuring of Canadian’s debt and other obligations as soon as possible in order to ensure that Canadian can be returned to profitability.’ Air Canada also announced plans to start up a new low-fare carrier based in Hamilton. Now, after acquiring Canadian Airlines, Air Canada’s restructuring efforts are in full swing.
When asked to explain the secret behind the airline’s fierce communication strategy, Air Canada’s Valerie Peck says, ‘Plenty of hard work by everyone concerned and also a lot of commitment from management to ensure the Air Canada message was understood.’ Peck sounds confident about her IR team’s performance: ‘Under the circumstances where everything is compressed into such a short time frame, I think we, as a company, did a very good job at turning our story around quickly.’ When asked it she would do anything different if faced with a similar situation in the future, Peck laughs and says, ‘I don’t think we’ll ever see anything like this again.’
