Mulroney part of Air Canada bid

Mulroney part of Air Canada bid
Former prime minister stands to be made airline's chairman if plan
succeeds

Paul Vieira, with files from Barry Critchley
National Post
Friday, November 28, 2003

Brian Mulroney, Canada's former prime minister, is helping to
orchestrate an attempt by a Wall Street hedge fund to reopen the
bidding process for Air Canada -- and stands to be made chairman of
the airline if he succeeds, sources have told the National Post.

Mr. Mulroney is senior legal advisor to Cerberus Capital Management,
which lost out earlier this month to Victor Li, the Hong Kong
businessman, to become the insolvent airline's new equity sponsor.
Sources, who did not want to be named for this story, say the former
Tory leader has played a role in helping Cerberus launch a revised,
but unsolicited and controversial, offer for the airline, and is
lobbying Air Canada executives to get them to reconsider.

A copy of Cerberus's initial bid for the airline, obtained by the
Post, indicated the fund had slated Mr. Mulroney to be one of 12
directors on a revamped board. Sources say Mr. Mulroney would, in
fact, be named chairman of the airline he privatized as prime minister
in 1989 -- which saw Ottawa collect roughly $492-million for its
shares.

"If Cerberus wins, Mulroney is the new chairman of Air Canada.
Cerberus has already said that," a source close to the restructuring
said.

"Mulroney has made personal calls to Air Canada board members and Air
Canada management on this issue. He's up to his ears on this," said
another source, who has ties to the Montreal business community.

Mr. Mulroney was not at his Montreal law office yesterday and did not
return a phone call.

Cerberus, named after the monstrous three-headed canine that guarded
the entrance to Hades in Greek mythology, retained Mr. Mulroney's law
firm Ogilvy Renault to act as its legal advisor during the fund's
attempt to become Air Canada's equity sponsor.

The airline began a search for an investor last July in order to find
a party willing to inject at least $700-million to help the insolvent
airline exit bankruptcy protection, which it filed for last April 1.

Air Canada narrowed its list of equity partner finalists to Cerberus
and Mr. Li, who holds Canadian citizenship and is the son of Li
Ka-shing -- the Hong Kong industrialist and one of the world's
wealthiest individuals.

On Nov. 8, the airline's board of directors, in what sources say was a
unanimous vote, opted for Mr. Li's Trinity Time Investments, which
agreed to put up $650-million for a 31% stake.

The board voted in unison even though Mr. Mulroney, sources say, tried
to lobby directors with whom he has close ties.

"He leaned on them -- but despite that leaning, the board still saw
the math and said, 'No, Li is a better candidate,' " the restructuring
source said.

Among the board members Mr. Mulroney targeted, sources indicate, a
Raymond Cyr, former chairman and chief executive of BCE Inc., Bell
Canada's holding company; David Angus, a Montreal lawyer and former
head of the main Progressive Conservative fundraising organization;
and Fernand Lalonde, a one-time political strategist for Robert
Bourassa, the late Quebec Liberal premier.

Air Canada's court-appointed monitor, Ernst & Young, said in a report
filed this week neither Mr. Li nor Cerberus "expressed any concerns"
the investor search was proceeding in a manner that was "unfair to
them or which deprived them of a fair opportunity to make their best
proposal."

But in court documents filed by Air Canada this week, Cerberus
informed the Montreal company it failed to put forth its best offer
and wanted to try again. It submitted two revised offers that appear
to be richer than Mr. Li's. More specifically, some of Air Canada's
creditors, owed between $8-billion and $10-billion, have voiced
support for the revised bid because it gives them a better chance to
recoup more of their money.

Air Canada has refused to consider the Cerberus offer, saying that
doing so would violate the agreement with Mr. Li.

It has applied for court approval of the Trinity agreement, which is
required by Dec. 20 as a condition of the deal.

The Cerberus offer, while welcomed by some Air Canada debtholders, has
earned scorn from some senior financiers on Bay Street, saying it
demonstrates bad faith on the hedge fund's part after it participated
in what was described by the court-appointed monitor as a fair,
transparent process.

"If they reopen the bidding process, the precedent that would be set
for any auction process would be astounding," said a Bay Street
executive, who has no ties in the Air Canada restructuring. "Why would
anyone put their best foot forward in an auction? They would just
throw in a bid after the fact."

Cerberus, whose representatives did not return phone calls, manages
close to US$10-billion in assets and is known as a turnaround artist
that buys distressed assets, oversees their restructuring and sells
them years later at a healthy profit.

But it has done so by rubbing many people the wrong way.

A senior banking executive said: "Look at what Cerberus does at every
process they get into. They hold it hostage so they can squeeze out
some type of payment for themselves -- with no commitment to building
any value at all."

The executive, who requested anonymity, said Cerberus's unsolicited
bid is nothing more than "sour grapes" on the fund's part.