Onex Corporation - Company Profile, Information, Business Description, History, Background Information on Onex Corporation

P.O. Box 153
Ontario M5L 1E7

Company Perspectives:

Onex Corporation is a diversified company that operates through autonomous subsidiaries and strategic partnerships. Our long-term objective is to maximze the value of Onex Corporation for its shareholders by: acquiring high-quality companies at reasonable prices; creating value through the entrepreneurial management of these companies; redeploying assets at opportune times.

History of Onex Corporation

Onex Corporation is not only one of the largest and most successful of all the holding companies in Canada, it is also one of the youngest. A highly diversified firm that is comprised of autonomous subsidiaries, associated companies, and strategic partnerships, Onex Corporation posted revenues of $6.5 billion in fiscal 1995, an astounding increase of 86 percent over the previous year. The company's operations include: Sky Chefs, the largest in-flight caterer to both domestic and international airlines in the world; ProSource Distribution, the largest foodservice systems distributor in the continental United States; Dura Automotive, the biggest North American supplier of parking-brake systems; and Tower Automotive, one of the leading North American manufacturers of structural-metal stampings. The company also has significant holdings in such businesses as Phoenix Pictures, a newly formed entertainment company, and Purolator Courier, the leading overnight courier service in Canada.

Early History

The history of Onex Corporation is actually the biography of one man, Gerald Schwartz. A young man with ambition and bold ideas, Schwartz graduated from the University of Manitoba with degrees in commerce and law. Upon graduation, he headed for Harvard University and earned a degree in business administration in 1970. Schwartz then took a job in Europe, working for Bernard Cornfield, a rather eccentric and flamboyant international financier based in Switzerland. When Cornfield's company, Investors Overseas Services, was investigated for fraud and then collapsed in 1973, Schwartz moved on to the United States, seeking work in the financial caverns of Wall Street in New York City. Hired by Bear Stearns & Company, Schwartz learned the intricacies of hostile takeovers and corporate mergers. Two of his most renowned and notorious colleagues included Henry Kravis and Jerome Kohlberg.

After a stint of four years in America, Schwartz decided to return to his hometown of Winnipeg. There, he formed a partnership with a lawyer, Israel Asper, an astute and driven entrepreneur, and together they founded CanWest Capital Corporation, the forerunner of CanWest Global Communications Corporation, which would own numerous broadcasting businesses throughout western Canada. The partnership first acquired several small to mid-sized Canadian firms during the late 1970s and early 1980s, and seemed to be heading in a promising direction. Yet Schwartz and Asper began to quarrel about strategic issues surrounding acquisitions, venture capital, and timing, and before long decided to end their partnership.

A New Company in the 1980s

In 1983, Schwartz relocated to Toronto and, with the financial backing of former investors at CanWest, formed Onex Capital Corporation, which he intended to use as a holding company for widely diversified acquisitions. The first such acquisition was Onex Packaging, the Canadian subsidiary of the American Can Company based in Connecticut. With a purchase price of approximately $220 million, the acquisition was the largest leveraged buyout in the history of Canada.

Schwartz was not afraid of debt and had learned his lessons well while working at Bear Stearns in New York. His modus operandi was to use debt or other innovative financing to purchase undervalued companies, and then initiate a comprehensive restructuring of the company purchased. He would then sell either parts of the company or the whole at a profit. Onex Packaging, a manufacturer of rigid packing materials, offered an initial public sale of its stock in 1987, to cover the costs of the restructuring and to raise additional funds for the expenses incurring in modernizing the company. Unfortunately, by 1987, Onex Packaging was losing money and Schwartz decided to take the company private once again. Not long afterwards, he sold Onex Packaging for less than he had originally anticipated.

Having learned a hard lesson about economies of scale in the North American market with Onex Packaging, Schwartz wasn't about to make the same mistake twice. During 1987, as Onex Packaging began to flounder, Schwartz acquired both Norex Leasing, a leading leasing company owned and operated by Citibank, and Purolator Courier Ltd., the leading overnight delivery service in Canada. At the same time, Schwartz made a conscious decision to make more acquisitions in the United States and began to decrease his holdings in Canada, although his company would always remain based in his native country. This strategy led him to one of the most important acquisitions during the late 1980s: the purchase of the airline catering company called Sky Chefs.

Growth Through Acquisition in the 1990s

One of the first huge successes of Schwartz's acquisition strategy was Beatrice Foods Canada, Ltd. Purchased in 1987 when its parent firm was in the course of being dismantled in Chicago, Schwartz paid a bargain-basement cash price of $21.9 million for the company, although it was valued at a purchase price of just over $300 million. In 1991, the entrepreneur resold the company at a cost of $475 million, after a complicated but productive restructuring plan that involved merging Beatrice Foods Canada with two other Canadian dairy firms. Additional acquisitions followed at a quick pace, including ProSource Distribution, a foodservice distributor in both the United States and Canada, and Dura Automotive Systems and Tower Automotive, two high-quality automotive parts manufacturers.

Schwartz's goal with Sky Chefs was to transform it into a leader in the in-flight catering industry. The first step in this direction was an alliance formed between Sky Chefs and LSG Lufthansa Service in 1993. The alliance was formed to give Sky Chefs access to international airline customers that it did not previously have. Revenues for Sky Chefs remained relatively the same from 1991 through 1994, hovering around $470 million annually. During this time, however, Sky Chefs was transformed into the leading low-cost producer of in-flight meals for the airline industry. A policy of cycle-time reduction was implemented in 1992 and resulted in a 30 percent labor production increase over a three-year period.

Although many innovative alliances and policies had been implemented at Sky Chefs during the early 1990s, it wasn't until 1995 that the company developed a worldwide reputation. Much of this was due to the takeover of Caterair International Corporation, one of the preeminent in-flight catering companies. Funded entirely by third-party lenders, the acquisition of Caterair International propelled Sky Chefs to the top of the industry with just under 50 percent of the American domestic airline catering market and 30 percent of the international airline catering market. The acquisition of Caterair International and the earlier alliance with LSG Lufthansa gave Sky Chefs access to airline customers around the world, including new contracts in Central and South America, as well as in Australia. As the consolidation of in-flight catering services continued through 1995, additional contracts were signed with British Airways, Delta Airlines, USAir, and Midway. By the end of fiscal 1995, Sky Chefs counted more than 250 airline customers located in every part of the world, while revenues shot up to $739 million, an increase of 58 percent over the previous year.

ProSource, Onex Corporation's foodservice distributor for restaurant chains, was the largest in North America. Starting in 1992 with a single customer, Burger King, the company expanded to provide services for over 22 different types of restaurants and fast-food establishments. In 1993, ProSource acquired Valley Food Services, and in 1994 Malone Products, but the most significant addition was the acquisition of the National Accounts division of the Martin-Brower Company in 1995. These three acquisitions expanded and diversified the ProSource Distribution customer base, so that instead of relying exclusively on quick-serve restaurants, there was more of a balance, with distribution to quick-serve establishments comprising 75 percent and distribution to casual dining restaurants totaling 25 percent of ProSource business. Revenues in 1995 for ProSource were reported at $3.5 billion, compared to the 1994 figure of $1.6 billion. Much of the increased revenue was derived from the acquisition of the National Accounts division of Martin-Brower, but a significant portion of the increase was due to implementing highly successful cost-effective distribution techniques. One such technique involved "rolling shelving," wherein carts used by ProSource delivery trucks could also be used for instant in-store shelving at restaurants. Another cost-effective distribution method involved the company's electronic ordering system, which reduced time and effort. These innovations helped ProSource develop into one of the leading-edge distributors in the food service industry.

Hidden Creek Industries was formed as a partnership by Onex Corporation to manage the operations of Dura Automotive and Tower Automotive. Dura Automotive, purchased in 1990, became the largest supplier of parking-brake systems to original equipment manufacturers (OEM) in North America. In 1994, Dura acquired the Orscheln Company, to increase its market share of the parking-brake systems industry. With the purchase of Orscheln, Dura achieved its goal; revenues increased 34 percent from 1994 to 1995, jumping from $189.7 million to $253.7 million. Tower Automotive was purchased in 1993 and was transformed by management into one of the leading developers and manufacturers of structural metal stampings and various other assemblies for original equipment manufacturers. In 1994, Tower purchased Edgewood Tool and Manufacturing, as well as Kalamazoo Stamping and Die, and the following year added the Trylon Corporation to its holdings. These acquisitions not only increased revenues from 1994 to 1995 by 35 percent, but complemented Tower Automotive's already existing line of products. While Dura Automotive's major customers included Ford, Chrysler, General Motors, and Toyota, Tower Automotive negotiated lucrative contracts with Ford and Honda motor companies.

As a holding company, one of Onex Corp.'s top priorities was to enhance the value of shareholder equity. During 1995, this goal was pursued by a number of strategic investments, made primarily under the direction of Gerald Schwartz. Onex invested $20 million in Phoenix Pictures, a brand new film production company owned by Onex, Sony Pictures Entertainment, and Britain's Pearson PLC. The company also purchased Vencap Equities Alberta, Ltd., a promising venture capital fund located in western Canada. And finally, management at Onex formed Rippledwood Holdings, an acquisition fund developed to hold the 52 percent of the company's interest in Dayton Superior Corporation. Other continuing strategic investments included a 19 percent share of Purolator Courier (down from majority ownership a few years earlier), 16 percent of Scotsman Industries (a manufacturer of ice machines, freezers, food preparation workstations, and refrigerators), and an 8.1 percent share in Alliance Communications, the leading producer and distributor of television entertainment in Canada.

Looking Toward the Future

In the spring of 1995, Gerald Schwartz decided to launch a $2.3 billion hostile takeover of John Labatt Ltd., one of the most prominent brewers in Canada. Located in Toronto, Labatt had a long and distinguished history that started as a brewer of fine beers in London, England in 1847. Controlling approximately 45 percent of the Canadian beer market in North America, second only to Molson, by 1995, Labatt had also diversified into businesses unrelated to the brewing industry. At the time of Schwartz's attempted takeover, Labatt owned The Sports Network, Le Reseau des Sports, an 80 percent interest in The Discovery Network, a 42 percent interest in Toronto's SkyDome, and a 90 percent stake in the Toronto Blue Jays baseball team.

Unwilling to join the Onex Corporation holdings, management at Labatt began looking for a "white knight" to foil the hostile takeover attempt. After meetings with a number of possible suitors, Labatt finally arranged a deal with Interbrew S.A., a Belgian-based brewery that had been attempting to break into the North American beer market for years. Interbrew cooked up a deal that amounted to $2.7 billion, successfully outbidding Onex Corporation for control of Labatt. After the acquisition was finalized, Interbrew began to sell off Labatt's non-brewing operations, which had been the sole purpose of Schwartz's attempted takeover of the company.

Although Schwartz was frustrated in his attempt to acquire Labatt, he continued to seek out undervalued companies for acquisition. And though committed to running his company from Canadian headquarters, he was reportedly increasingly interested in looking south towards the United States in order to expand his operations.

Principal Subsidiaries: Sky Chefs, Inc.; ProSource Distribution, Inc.; Hidden Creek Industries, Inc.; Norex Leasing, Inc.; ONEX Food Services, Inc.; Purolator Courier, Inc. (19%); Scotsman Industries, Inc. (16%); Alliance Communications (8.1%).

Additional Details

Further Reference

Dalglish, Brenda, "A Private Play: Onex Bids $2.3 Billion To Take Over Labatt," MacLean's, May 29, 1995, p. 44.De Santis, Solange, and Martin Du Bois, "Labatt Agrees To White Knight Deal With Belgium's Interbrew, Foiling Onex," The Wall Street Journal, June 7, 1995, p. A3(E)."Holding Company Agrees To Buy Vencap Equities," The Wall Street Journal, October 26, 1995, p. A19(E).McMurdy, Deirdre, "Predators On Parade," MacLean's, May 29, 1995, p. 49.------, "Sacred Pensions In Play," MacLean's, June 12, 1995, p. 36.------, "Southern Accent," MacLean's, August 2 1993, p. 26."Onex Corporation," The Wall Street Journal, May 11, 1995, p. C18.Willis, Andrew, "Eye For The Prize," MacLean's, May 29, 1995, p. 46.------, "The Winning Brew," MacLean's, June 19, 1995, p. 44.

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