AIR CANADA COURIER BUY SHARPLY ALTERS INDUSTRY
Air Canada's 54 mln U.S. dlr
acquisition of Gelco Corp's <GEC> Canadian unit has
dramatically altered Canada's fast growing courier industry,
largely dominated by U.S. companies until this year, company
officials and analysts said.
    State-owned Air Canada takes over the country's second
largest overnight courier business just two months after
another Canadian company, <Onex Capital Corp Ltd>, approved the
acquisition of number one ranked Purolator Courier Ltd from New
Jersey-based Purolator Courier Corp <PCC>.
    But analysts said the two acquisitions were prompted by
financial restructuring undertaken by the U.S. parent companies
and likely don't represent an industry trend toward buying out
foreign owned courier operations.
    "It's a case of whether you can buy from the right people at
the right time," McLeod Young Weir Ltd transportation analyst
Tony Hine commented.
    The two acquisitions fit with a larger move by U.S.
companies embroiled in a take-over or restructuring to sell-off
their Canadian units to generate ready cash, said Nesbitt
Thomson Deacon Inc analyst Harold Wolkin.
    "There is a very good correlation between the U.S. parent
selling Canadian subsidiaries and the U.S. parent either being
under siege or taking someone else over," he said.
    Gelco Corp, of Minnesota, decided to sell Gelco Express Ltd
as part of its previously announced program to sell off four
operating units to buy back shares and pay down debt, Gelco
Express marketing vice president James O'Neil told Reuters.
    The sale is the first under Gelco's divestiture program,
and proceeds will be used to help pay down 350 mln U.S. dlrs of
debt by year-end, the company said.
    While company officials declined to disclose earnings and
revenue figures, O'Neil said Gelco Express holds a dominant
position in the industry, handling more than 50,000 packages a
day and generating revenues of more than 100 mln Canadian dlrs
a year.
    The earlier move by Purolator to sell its Canadian unit
formed an important part of a company restructuring program,
adopted after another Canadian Company, <Unicorp Canada Corp>,
acquired a 12.6 pct stake in Purolator and said it would
consider acquiring the whole company.
    Last month, Purolator agreed to be acquired by a company
formed by E.F. Hutton LBO Inc and certain managers of
Purolator's U.S. courier business.
    For Air Canada, its acquisition of Gelco's Canadian courier
business represents an "excellent financial investment" in a
market it sees growing by 25 to 30 pct annually, spokesman
Esther Szynkarsky said.
    The airline also announced it acquired a 65 pct stake in
EMS Corp, of Calgary, an in-city messenger service.
    It did not disclose financial terms, but Szynkarsky said
the two acquisitions totalled about 90 mln Canadian dlrs, and
the two business have combined yearly revenues of 170 mln dlrs.
    She said the acquisition fit with Air Canada's strategy of
seeking attractive investments that compliment its main airline
business.
    Gelco will continue to operate with current management,
independently of Air Canada, although Air Canada already
operates its own air cargo business that includes a small
door-to-door courier operation.
    "They're well run, they're a good investment, they're doing
well in a growing market, and that's the way we want to keep
it," Szynkarsky said.
    Analyst Hine said the Gelco and Purolator Canadian units
will likely retain operating links with their U.S. delivery
network, generating traffic for the former parent companies
without them having to tie up capital in Canada.
    "The nature of the business is that incremental traffic is
incremental revenue," Hine said.
    "It's sort of a sausage maker business where you put in
place the sausage grinder, and the more sausage you can stuff
through, the more money you make," he added.
 Reuter
