BUSINESS

Special delivery

Canada Post buys control of Purolator Canada

BARBARA WICKENS June 14 1993
BUSINESS

Special delivery

Canada Post buys control of Purolator Canada

BARBARA WICKENS June 14 1993

Special delivery

Canada Post buys control of Purolator Canada

After eight years of relentlessly privatizing Crown corporations, the Conservative government in Ottawa took the unusual step last week of expanding one of its own by swallowing a privately owned company. At a hastily assembled news conference in Toronto, Canada Post president Georges Clermont announced that Canada Post Corp. had bought a controlling stake in Canada’s largest courier company, Purolator Courier Ltd. of Toronto, paying $55 million for 75 per cent of the firm. Under the terms of the deal, which must still obtain regulatory approval, Canada Post will pay $35 million to the current owners, including $30 million to majority owner Onex Corp., a holding company in Toronto that is owned by entrepreneur Gerald Schwartz. The remaining $20 million will help reduce Purolator’s nearly $170 million debt, which will remain on the courier company’s books. Said one Toronto stockbroker, who requested anonymity: “It’s a good deal for Onex, because they reduce their stake in a business they are no longer committed to. And it’s a good deal for Purolator, because they get a new partner and a fresh infusion of cash. But I don’t know what the post office gets out of it.”

The deal quickly came under attack by executives at other courier companies, who said that it would lead to unfair competition. “My reaction to this deal is skepticism, concern, alarm,” said Kal Tobias, president of the 94member Canadian Courier Association, as well as chief executive officer of Mississauga, Ont.-based DHL International Express Ltd. If the Competition Tribunal and the National Transportation Agency approve the proposed deal with Purolator, Canada Post, through its Priority Courier subsidiary, will control almost 60 per cent of the $ 1.4-billion domestic courier market. But of even greater concern than Canada Post’s new marketing might is the association’s contention that Canada Post uses the money it earns from delivering the mail, which is a government-protected monopoly, to compete unfairly with private-enterprise competitors in other areas.

Jon Slangerup, vice-president and general manager of Federal Express Canada Ltd., added that the issue of cross-subsidization is particularly serious because there is no regulatory body that oversees the post office’s activities. In Canada, the federal government abolished the postal commission three years ago as a cost-cutting measure. Said Slangerup: “The post office can cover up a lot of ills on the [courier] side by raising rates on the postal side. We need government oversight to ensure that that does not happen.”

Spokesmen for Canada Post have always denied the allegation that there is any crosssubsidization among its regulated and nonregulated divisions. Clermont himself raised the issue at the news conference, saying independent audits by accounting and legal firms have confirmed that cross-subsidization does not occur. Still, he acknowledged in a later telephone interview from Ottawa that Canada Post’s board of directors has never made the audits public. The same day, Harvie Andre, the minister responsible for Canada Post, told the House of Commons that money for the Purolator purchase is coming from Canada Post funds, not from taxpayers. He also pledged not to raise postal rates for the rest of the year.

Clermont and Purolator executives also stressed that the two courier companies will continue to operate separately, with their own management remaining in place. And Clermont said that the deal would ensure lower costs for each company because they can share technology and innovations. He added that the post office also hopes to benefit from any share dividends that Purolator might pay. But compared with last week’s $55-million deal, Schwartz’s Onex paid $234 million for only 68 per cent of Purolator in 1987 and the courier has lost money most years since—including $9.4 million in 1992 alone. As a result, Canada Post will likely have a long wait before a cheque is in the mail. BARBARA WICKENS

BARBARA WICKENS