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  Air Canada makes investors look back in anger

BENJ GALLANDER and BEN STADELMANN

Monday, December 15, 2003

It's school report card time, and we too take time to reflect at this time of year, reviewing our old columns.

One that should be of particular interest was written almost two years ago. In it we quoted Robert Milton, the big cheese at Air Canada: "This is our opportunity for once and for all to get on with fully developing this franchise and we see massive upsides for our shareholders and overall stakeholders."

Got that one wrong, Bob.

At this point, the only way that shareholders and stakeholders will see any end to the downside is if the highest bid for the airline is accepted.

At the moment, Trinity Time Investments and Cerberus Capital Management are jousting to take over the enterprise. While Cerberus appears to have placed the better offer on the table, Trinity appears to have the inside track. Go figure.

No so long ago, Air Canada was a twenty-dollar stock. When it ventured below a toonie, we suggested that the best play was to sell the stock short — primarily because of our lack of confidence in management.

That deficiency of faith appears to have been justified: the stock currently trades at less than a dollar, and all indicators point toward shareholders receiving bupkis.

At the other end of the spectrum, Milton — the architect of the master plan that ultimately forced the airline into bankruptcy — could receive new shares worth about $21 million if Victor Li of Trinity wins the day.

Even if Cerberus is the victor, it appears Milton will receive a healthy chunk of change. Call us penny pinchers, but we do not understand how a CEO with such a dismal track record deserves such a lofty reward.

The jockeying between Cerberus and Trinity is being done behind closed doors. Why this bidding is not out in the open is beyond us. Over the past five years, we have been involved in more than 15 takeover deals, and not one has been conducted under such a shroud of secrecy. An arrangement like this causes investors to lose confidence in the markets. Rightly so.

If Air Canada abandons the Trinity bid and sides with Cerberus, Li will take home a hefty break-up fee of $19.5 million. Talk about a win-win situation: he either obtains the airline that he covets, or is exceptionally well rewarded for giving chase. Whose idea was it to get on the hook for such a large amount while the game was still in the second period?

In the sprit of justice, this money should come from the package that Milton will receive for his work. Naturally this will not happen, but as Rudolph the Red-Nosed Reindeer's time approaches, one can be forgiven for believing in a world of sugarplums and idealism.


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