Air Canada's restructuring became a battlefield in December as rival bidders fought each other in a contest for ownership and control of the airline.
A month earlier, Air Canada's board had approved the C$650 million ($495 million) equity investment offer from Victor Li, a Hong Kong businessman who holds Canadian citizenship. The other shortlisted bidder, New York hedge fund Cerberus Capital Management, then launched three successive unsolicited bids after the supposed end of the equity investment process. Each of these bids raised the ante, picking up supporters from more creditors and union leaders, and putting more pressure on Li and Air Canada.
The battle continued even after the bankruptcy court approved Li's bid. The final Cerberus bid, according to some creditors, offered up to C$1 billion in extra funds for unsecured creditors. They asked the court to appoint an independent auditor to evaluate the bids, but the court left that choice to Air Canada's board. Adding to the tension is Li's threat to walk away if bidding is reopened. Li's lawyers say his approved bid was not offered "as a platform for an auction process".
Cerberus has exploited criticism of Li's bid by offering provisions that meet the loudest objections to it. These relate to the amount of funds available for creditor claims, how much creditors can participate in a rights offering, and controversial retention bonuses offered by Li to the airline's senior management.
If Air Canada's board sticks with Li's bid, it is likely to be for non-financial reasons. These include Li's compliance with Canada's foreign ownership rules, in contrast to uncertainties about Cerberus; a perceived risk that Cerberus might alter its bid terms after the fact; a perception that Li has a longer-term interest in Air Canada; and Li's possible help in developing Asian air routes.
Doubts remain about what the creditors will do if Air Canada sticks with Li's bid. Once the bidding war ends, the airline will move quickly to settle claims and present a final plan. If creditors feel shortchanged they could vote against it and undo the whole process.
DAVID KNIBB SEATTLE
Source: Airline Business
