BUSINESS

Eye for the prize

ANDREW WILLIS May 29 1995
BUSINESS

Eye for the prize

ANDREW WILLIS May 29 1995

Eye for the prize

In the late 1980s, when Onex Corp. was in the throes of snapping up airline caterers, couriers and packaging companies, the company’s chief executive, Gerald Schwartz, and his wife, Heather Reisman, still found time to cast acquisitive eyes on the house next to their mansion in Toronto’s tony Rosedale neighborhood. The couple offered to buy their elderly neighbor’s home, intending to tear it down and expand their own grounds. Schwartz’s offer was spurned and when the neighbor passed away, her family was still reluctant to sell—until he offered substantially more than the asking price on a street where houses typically sold for several million dollars. Schwartz and Reisman soon had the house razed and began construction of a major addition to their sprawling Georgian-style home. Now, Schwartz is focusing that same determination on the purchase of another asset: Toronto-based brewer and entertainment conglomerate John Labatt Ltd. This time, he is willing to spend more than $2.3 billion to get his way. Says Reisman: “In business, when Gerry sets his sights on something, he generally gets it. The same is true of his private life.”

Although Onex has a relatively low public profile in Canada—in part because of its complex financial structure and its emphasis on transactions in the United States—Schwartz, 53, is no stranger in Canada’s political back-

rooms and financial boardrooms. His red Porsche 911 is a familiar sight on the streets of Toronto, where he and Reisman are well connected in Liberal party circles. They were involved in the election campaigns of John Turner, and Reisman served as an adviser to Ontario’s last Liberal government under premier David Peterson.

Schwartz also has deep roots in Winnipeg.

Takeover pro Gerald Schwartz returns home with a bid for Labatt

He was raised there and obtained commerce and law degrees at the University of Manitoba. He then practised law in the city for two years before tackling Harvard University and a master’s in business administration in 1970. While at Harvard, Schwartz spent a summer working for high-flying financier Bernard Comfeld, whose Investors Overseas Services crashed in 1973 amidst fraud allegations. By that time, however, Schwartz was working in the mergers and acquisitions department of New York City investment bank Bear, Stearns & Co. There, he learned the art of

deal-making as part of a team that also included Henry Kravis, Jerome Kohlberg and George Roberts, the trio who formed the leveraged buyout firm known as KKR and launched the spectacular—and successful— RJR Nabisco takeover bid in 1988.

Schwartz returned to Canada in 1977 and, with partner Israel (Izzy) Asper, formed CanWest Capital Corp. The pair worked on a number of takeovers over seven years and Schwartz met Reisman, then a management consultant, while scouting Melcher’s Distillery near Montreal for CanWest. The deal never flew, but the pair married in 1982. Schwartz and Asper parted in 1983 after falling out over the strategic direction of the firm. After leaving Winnipeg and CanWest Capital, Schwartz founded Onex in 1983 and issued shares to the public in April, 1987.

Onex’s far-flung holdings now employ 23,000 people around North America, but the firm’s Toronto head office is run by a staff of just 18 people. Its 49th floor offices in Toronto’s financial district are decorated with a sophisticated mix of modern art, English antiques and Oriental carpets. That elegant style, however, contrasts sharply with Onex’s blue-collar asset base. Schwartz has carved out a specific market niche, acquiring a range of mid-sized industrial and services companies.

A typical Onex deal was announced earlier this month, when the company formed the world’s largest airline food caterer after buying Maryland-based Caterair International. This $700 million acquisition was financed entirely through Texas-based Sky Chefs, Inc., an airline caterer in which Onex purchased a 59-per-cent stake in 1986. That allowed Onex to keep cash reserves of $200 million intact for the Labatt deal.

Typically, Onex uses debt or other innovative financing techniques to buy undervalued companies. It then restructures the business before selling it at a profit. That skill translated into earnings of $163 million last year on revenues of $3.5 billion. Personally, Schwartz has profited as well: he took home $3.65 million in salary and bonuses in 1994, up from $2.65 million the previous year. He also holds a personal stake in the firm: a total of 8.7 million shares valued at $13 each, a holding worth more than $110 million.

Despite his financial success, associates insist that Schwartz does not actively seek the spotlight. University of Toronto president and Onex director Robert Prichard says: “Gerry would be delighted to work away in low-profile industries. In fact, if there were a reason not to make this offer, Gerry would have found it. He simply doesn’t need to own g these glamorous assets.”

I The Blue Jays may be one exception: Schwartz is a fan and is often seen at % games in the company of Senator Keith S Davey. Schwartz’s own athletic prowess runs more towards tennis; he and Prichard fight intense battles on the court. It is this competitive streak that Prichard sees fuelling Schwartz’s fires long after his family’s financial needs were met. Reisman and Schwartz each have two children from their previous marriages. Three of them are still in university and the fourth, Jill Schwartz, runs her own business in Toronto—a day care centre for dogs, called Tire Biter.

Prichard fight intense battles on the court. It is this competitive streak that Prichard sees fuelling Schwartz’s fires long after his family’s financial needs were met. Reisman and Schwartz each have two children from their previous marriages. Three of them are still in university and the fourth, Jill Schwartz, runs her own business in Toronto—a day care centre for dogs, called Tire Biter.

In the case of Labatt, Schwartz estimates it will take five years to sell off the conglomerate’s entertainment assets such as The Sports Network, The Discovery Channel and 42 per cent of the SkyDome stadium. At the same time, Onex will get help with restructuring Labatfs brewing operations, in addition to $313 million for the Labatt bid, from Luxembourg-based brewer Quilmes Industrial S.A., a company that operates in South America and is 15 per cent owned by beer giant Heineken. Typically, the connection between Schwartz and Quilmes is no coincidence. The matchmaker for the partnership was Robert Greenhill, chief executive of Wall Street investment bank Smith Barney and a longtime friend of Schwartz’s.

For Schwartz, the successful acquisition and restructuring of Labatt would mark a homecoming of sorts. Last year, all of Onex’s revenues came from investments in the United States. Says Schwartz: “I’ve been looking for a chance to have a major stake in Canada. I made an active choice to come back to Canada from New York in 1977, so this bid is very personally satisfying.” And even though Labatt executives have declared that they will resist a takeover by Onex, Schwartz is clearly determine to win—again.

ANDREW WILLIS