Cerberus Back in the Cockpit at Air Canada, Buyer of Mervyn’s, Too

Date: Thursday, August 5, 2004

By Christopher Faille, Reporter: Thursday, August 05, 2004 10:05:08 AM ET: NEW YORK (HedgeWorld.com)—Event-driven hedge fund Cerberus Capital Management Inc. concluded the month of July eventfully, with the announcement of major deals in both Montreal and Minneapolis. In Montreal, July 23, Cerberus ACE Investment LLC, an affiliate of Cerberus Capital, agreed to make a C$250 million (US$188 million) investment in convertible preferred shares of Air Canada Enterprises, the new parent holding company of a long-troubled airline. This is the latest twist in the long tale of Air Canada’s reorganization. The airline filed for protection from its creditors on April 1, 2003. Cerberus Capital then bid to become its “equity plan sponsor,” a position that would have allowed it to exercise effective control over the restructured corporation. But another hedge fund, Trinity Time Investments Ltd., Hong Kong, offered what the board of directors deemed a sweeter bid and became the equity plan sponsor in December. Fortunately for Cerberus, though, Trinity’s efforts to reorganize Air Canada ran into turbulence: The costs of labor and of fuel both proved higher than it had expected, and the financial performance of the airline in the first quarter of 2004 was disappointing. Trinity pulled out, effective at the end of April Previous HedgeWorld Story and the directors turned back to Cerberus. On another front, Cerberus is part of a consortium that agreed to purchase a department store chain, Mervyn’s, from struggling retailer Target. The consortium also includes the real estate equity fund group Lubert-Adler and Klaff Partners LP, and the Boca Raton, Fla.-based venture capitalist Sun Capital Partners, Inc. Together, the buyers are creating a corporation to be called Mervyn’s Holdings LLC, which is buying the department store equity. The closing has been set for the August 30. Aggregate consideration for Mervyn’s is US$1.65 billion in cash.