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Lesson #3: Create Long-Term Value For Your Shareholders

Article Overview: Before Schwartz ever made a decision to acquire a company or not, he would always ask himself one question: what can this company become? Schwartz was not interested in making short-term profit. Instead, his number one goal centered around creating value for his shareholders. “Every decision Onex makes is made on the basis of creating long-term value,” says Schwartz. “Our philosophy is to operate like a forever owner of an asset.”

Lesson #3: Create Long-Term Value For Your Shareholders

Before Schwartz ever made a decision to acquire a company or not, he would always ask himself one question: what can this company become? Schwartz was not interested in making short-term profit. Instead, his number one goal centered around creating value for his shareholders. “Every decision Onex makes is made on the basis of creating long-term value,” says Schwartz. “Our philosophy is to operate like a forever owner of an asset.”

When Schwartz first made up his mind to take over Canada’s two major airlines, Air Canada and Canadian, and merge them into one, he did so on the basis that it was going to make some economic sense for the shareholders behind him. At the time, he said of his takeover bid, “I am very excited by this transaction because of the opportunity to make a paradigm shift in an unbelievably important industry that has been limping or broken for probably 25 years.”

For Schwartz, social security never comes from things like job guarantees. Instead, he says, it “comes from creating high value things that we can sell.” To that end, Schwartz says, his number one focus had to be on creating a solid company, and adding to its asset base, in order to create true value. And thus far, he is proud of his success.

“In every business we’ve been, employment is higher than when we started,” says Schwartz. When Onex bought Sky Chefs, for instance, it had just 6,800 employees. Today, that number has grown to over 27,000 thanks to Schwartz and his efforts. Along those same lines, Schwartz was confident in his ability to merge Canada’s two airlines without having a significant amount of job loss.

Unlike many of his colleagues who acquire a company simply so they can downsize it and reduce its costs, Schwartz actually believes the opposite. For him, the way to create a company that you can sell down the road is to act as if you will never be selling it. Invest your time and invest your capital into the operating business to make it the best that it possibly can be. In the end, says Schwartz, that will not only create jobs, but will be better for all the parties involved.

“Everybody’s spending all their time talking about whose hand is in whose pocket,” Schwartz said of his airline merge proposal. “That’s not the issue. The issue is, what can this airline become? Combine these two companies, and you’ll have a $9 billion, highly profitable domestic franchise that can go out and conquer the world.”

And, behind Schwartz’s goal to create a strong company, is to create a strong Canadian company. Onex may be a global corporation, but Schwartz wants to make sure he is doing his part to boost the Canadian economy. Of the airline merger, Schwartz said, “I think Canadians are entitled to see the Maple Leaf go around the world and know that it’s Canadian owned.” But, Schwartz’s bid was not just out of pride. He believed that a merged national airline could significantly increase its share of traffic in and out of the country, from 34 percent up to 50. “That is 800 million in new revenue and thousands of Canadian jobs.”

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Article Tags: air canada, asset base, colleagues, economic sense, guarantees, job, major airlines, onex, paradigm shift, philosophy, shareholders, sky chefs, social security, takeover bid, term profit, true value



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