TORONTO -- Canada's postal service announced plans Friday to buy a 75-percent stake in Toronto-based Purolator courier company for $24 million.
Under the proposal, which remains subject to regulatory approval, Canada Post will acquire 75 percent of Purolator from parent firm Onex Corp., which will retain a 20-percent stake in the courier service. Third-party investors will continue to hold Purolator's remaining 5 percent.
Toronto-based Onex called the new 'strategic alliance' necessary given tough industry competition and Canada's sluggish economy.
'The new management team we put in place at Purolator has made tremendous strides over the past couple of years,' Onex President and CEO Gerald Schwartz said. 'However, the economy and the fact that there are seven major overnight couriers competing in Canada made it clear that a strategic alliance is necesary to capitalize on Purolator's strengths.'
Schwartz said Canada Post's involvement will keep a Canadian presence in an industry otherwise dominated by foreign companies.
Canada Post is a 'crown corporation,' meaning the government owns the company but allows a board of directors to run it as a business.
Canada Post currently runs its own overnight courier service called Priority Post, but a spokesman said that business will continue to operate separately from Purolator.
Word of Friday's deal provoked a sharp response from Purolator rivals.
'This acquisition could lead to unfair market practices, including predatory pricing, cross subsidization and monopolistic control,' said Joe Slangerup, vice president of Federal Express Canada. 'Ultimately Canadians would have to pay the price through higher postal rates if this were to occur.'
The Canadian Courier Association alleged the deal will lessen industry competition.
'Canada Post uses revenues from its monopoly mail services to compete unfairly with private couriers,' the group claimed, adding it might contest the proposed merger through Canada's Bureau of Competition Policy.
Purolator, which operates overnight mail services in Canada and has international-shipping arrangements with Airborne Express, currently employs 8,000 people.
The company posted $7.6 million net loss last year on revenues of $440 million. However, Purolator spokesman Ewout Herrsink said the company has performed 'strongly' in 1993.
Parent company Onex employs 24,000 people and has annual revenues of $3.2 billion.
Onex primarily operates in the United States. Its autonomous subsidiaries include Sky Chefs Inc., ProSource Distribution Services, Dayton Superior Corp., Automotive Industries Inc., Dura Mechanical Components Inc., The Delfield Company, Johnstown America Corp., Whitlenge Drink Equipment Ltd., Johnstown Wire Technologies, Inc. and R. J. Tower Corp.
