“She is really a stupendous woman,” Schwartz confirms. “She is all she seems to be, but she’s a huge amount more. She appears to be smart, vivacious, interested, but she’s also cheerful, a great support system, a great partner, a great leader. Most people say she’s the best thing that ever happened to me, and she really is. She and I are alike in so many things; our values are the same. I may not know what she’s going to do, but I always know where she’s coming from, and I think she always knows where I’m coming from.
“There’s also a whole side to Heather that’s very soft and gentle. She says I cry in movies, and I do, but try going to a movie with her. She’s impossible. She talks out loud, and you really can’t go to a movie with her unless there’s nobody within twenty seats of you. I mean we always have somebody turning around and saying, ‘Sshh!’ because Heather’s commenting on the film, like when somebody’s about to get hurt, she’s yelling, ‘Don’t do that! Don’t hit him!’”
All tears and inner goo aside, these are the two that Toronto Life magazine has named the city’s number one Establishment power couple. “The weirdest thing about Gerry,” says his regular tennis partner, Ray Heard, “is that in the middle of winter, when it’s minus thirty degrees on a Sunday morning and I’m picking him up in my Acura, he’ll be waiting on his front steps, wearing shorts and a T-shirt, raring to go.”
AT FIFTY-SIX, GERRY carries his 160 pounds on an athletic frame, plays tennis earnestly, skis recklessly and sails experimentally. His game of choice is tennis, and his partners swear that he plays exactly as he does business. “Schwartz is the most unpredictable tennis player I have ever played against. He never gives up,” claims Heard, a former media executive, now senior adviser to the chairman of the Royal Bank. “He’s terminally tenacious; sometimes I have him, five to three, and he’ll come back from nowhere. He will return anything. I don’t particularly mind if I don’t win, but Gerry likes to win, I tell you.”
In tennis as in business, Schwartz is a paradoxical combination of ruthless energy and inner calm. Probably his favourite literary quotation is from Pascal: “It has struck me that all men’s misfortunes spring from the single cause that they’re unable to stay quietly in one room.” He uses that quote with the guys around the Onex offices when advising them not to jump at companies, lecturing them against the mad notion that “just because we’ve got money to spend, we’ve got to find something to buy.” The maxim he coolly preaches is: You’re usually sorrier for the mistakes you make than you are happy for the great deals you conclude.
His most significant recent purchase was Celestica Inc., the manufacturing and service arm of IBM Canada, which Schwartz acquired for $750 million on October 6, 1996. Of that amount, $150 million came from Onex and the balance from the Bank of Nova Scotia and the Hospitals of Ontario Pension Plan. Through multiple voting shares, Onex retains control in the company, which has revenues of more than $2 billion and unlimited prospects. “There were a dozen bidders, but we got it,” says Schwartz, “because we probably have the best reputation in North America for buying divisions of large companies that are required to go on supplying their former parent company—Sky Chefs continues to supply American Airlines, ProSource continues to supply Burger King, and now Celestica continues to supply IBM. In each case, we’ve done well for ourselves and have very happy customers.” Celestica has since expanded into Europe, and Schwartz’s goal is to at least double Celestica’s revenues by century’s end. In the spring of 1998, he successfully sold a Celestica IPO worth $570 million, the biggest high-tech initial public offering in Canadian history.
The Celestica deal transformed Onex from being regarded as merely a fascinating conglomerate with growth potential into a certified winner that will grow exponentially from now on, with its stock soaring 62 percent in the hundred days after the Celestica purchase. Gerry’s sweetest deal was his original purchase of Sky Chefs Inc., the company that dominates the oxymoronic airline food business. It is now the world’s largest in-flight caterer, serving six hundred thousand passengers on 250 different airlines daily—from 139 kitchens in twenty-eight countries. Onex bought the company from American Airlines for only $19 million and seven months later sold off its airport concession division for $175 million, repaying its purchase price, as well as eliminating its entire debt load.
Other Onex holdings include ProSource, which distributes food to such chains as Wendy’s, Burger King and Red Lobster and turns out revenues of $5 billion; Hidden Creek, which runs half a dozen auto-parts factories; Vencap Equities Alberta Ltd., a venture capital fund; and Scotsman Industries, which makes ice machines.
All of its activities are carried out at the operating level so that Onex itself employs only a dozen executives and their secretaries. All staff members share in Onex’s generous profit sharing, expressed through stock distribution. “As a result,” says Anthony Munk, one of the senior vice-presidents, “there’s more pressure on people to perform. They have their own money at work, and now they’re virtually running their own shows. It’s amazing the impact that has on a management team. I mean, suddenly you have guys working at night, suddenly you have guys cancelling their holidays, suddenly you have guys turning the office lights off at night, suddenly you have guys driving home from work thinking about ways they can make more money for the company.”
“A lot of what I do,” adds Gerry, “is shape the edges of the playing field to allow the team to keep playing on it, and if the ball gets snapped to me, my job is to hand it off and put it in the hands of whoever can best run with it. The world is a very tough place; you really need to trust people.”
HIS STAFF RESPECTS SCHWARTZ , though he can be a demanding boss. What they admire—and copy—most of all is that he does what he damn well pleases. “If you’re so hung up on what people think, you end up chasing your own tail,” says Munk. “The way Gerry lives exemplifies that he’s different. He chooses his own time and place for vacations, his own friends. From a business perspective, he is not afraid to challenge the status quo, and in that way, there’s a degree of contrariness to him.
“You can see that in some of the deals we’ve done. In 1990 we formed a partnership with Tony Johnson to do acquisitions in the automotive industry, though people at the time thought we were crazy because GM, Ford and Chrysler were supposed to be going bankrupt. Yet on that deal, we probably generated the greatest return we’ve ever made.
“There’s a degree of rebelliousness to Gerry,” Munk continues. “He takes pride in doing things differently from the Establishment. And I don’t know whether it’s from his background or because he loves the success he’s attained without having to have gone through all that stuff. He’s not necessarily thumbing his nose because we need the Establishment at Onex. It’s more him saying, ‘I’m going to do it my way, and I want to maintain a strong relationship with all of you, but you have to accept me as I am because I’m not going to conform to your ways.’”
Schwartz himself sums it up in a kind of Zen response to the global titans: “I suppose there is an Establishment, but I am so anti-establishment at heart that I find it hard to believe I would have been tricked by life into being part of it.”
“I remember him as quiet, disciplined and very focused when he was in partnership with Izzy Asper back in Winnipeg,” says Bill Mingo, dean of the Halifax legal corps, whose mutton-chop whiskers may be the last in captivity, outside remakes of Mutiny on the Bounty. Mingo knows Schwartz very well, having served on various boards with him over the past two decades. “He appeared largely uninterested in creating a business presence or empire for himself. He wanted simply to be a merchant banker who created value. I remember him mainly as possessing one of the clearest minds I’ve ever encountered, encompassing complex transactions effortlessly, the flow of his articulation balancing easily the nuances of his thoughts.”
“His main attribute is discipline,” adds Brian King, an Onex director. “If prices climb too high, deals aren’t done; the adrenalin of the chase is never allowed to
dominate.” Schwartz has done many deals with adrenalin-pumping speed. In October 1994, Robert Lantos, the Toronto entertainment czar, called Michael Levine, the country’s busiest entertainment lawyer, and asked him to arrange a meeting with Schwartz because he was intrigued by the Onex operation. “I called Gerry,” Levine recalls, “and he invited us to his home for breakfast. In the middle of the meal, after Robert described his company—where he was going and what he wanted to do—quite unexpectedly, Gerry said, ‘I would be pleased to advance $16.5 million for a convertible debenture. According to my calculations, that will buy me about 8 percent of your company.’ Lantos said yes. And I said, ‘What’s for lunch?’” The stock has since skyrocketed.
SWEET DEAL. Yet Schwartz is the first to admit there have also been several inexplicable fumbles—and one outright choke that tears at him to this day. Among the fumbles, count his unwillingness to bid for Budget Rent A Car, which was dangled before him many years ago. The rental firm was then owned by Transamerica, whose president, Art Van Leuven, entered negotiations with Schwartz. He grew fond of the Winnipeg entrepreneur and mentored him through the process. Schwartz offered $100 million cash, plus a $25 million note. “I remember,” Schwartz recalls with horror in his voice, “Van Leuven telling me in exasperation, ‘Gerry, this is yours on a platter and I promise you it’s a wonderful company, but the price is $150 million cash. You can’t keep on trying to buy it for less. Make up your mind, and if you don’t pay that, we’ll hire an investment banker to do the selling.’ I finally got up to $125 million cash. They opened it up and had all kinds of bidders. We revised our bid to $185 million, and the company sold for $225 million. The guys who bought it resold it for $400 million.”
Another big one that got away was Schwartz’s attempt, in the spring of 1995, to buy Labatt Breweries and its ancillary operations—including the Blue Jays baseball team, which Gerry badly wanted. It was a complex and puzzling heartbreaker.
“The night before we made our offer, I called and asked to see [Labatt CEO] George Taylor that evening. Taylor said no, that he and Sam Pollock [chairman of Labatt] were going to the hockey game, and he couldn’t see me. “‘George,’ I pleaded with him, ‘I have to see you tonight. It can’t be tomorrow morning. It’s got to be tonight!’
“‘Ah, Christ, can’t it wait? I’ll see you in the morning … ‘ “‘I’ve got to see you tonight.’ “‘Oh, okay, come up to the hockey game.’” The two men arranged to meet in a suite at the Four Seasons. But by now they were both in a foul mood. It was then that Schwartz told Taylor that Onex would be making a takeover bid the next morning.
The offer amounted to $940 million, of which Onex was putting in only $106 million cash, with the balance being contributed by strategic partners, including Gordon Capital, TD Securities, the Ontario Teachers’ Pension Plan and Quilmes Industrial S.A., an Argentinian brewery. Schwartz intended to sell off most of the brewery’s non-beer assets, then privatize it and move it inside the Onex stable. His bid amounted to $24 per share, while Taylor insisted that the business was worth a bid of $28 to $32 per share and accused the Onex crowd of trying to steal the company.
During the next few weeks, while Taylor and Labatt management were searching for a better offer, Schwartz found himself operating in a vacuum. Nobody would speak to him. “It was largely a personality thing,” Schwartz maintains. “I tried to get three or four people on the Labatt’s board to get me together with George Taylor to say, ‘Let’s work together.’ And I couldn’t get them to do it because George had taken the view that anybody who talked to us was a traitor, that his board should stay intact and keep up a façade of not wanting to deal with us. So the people I knew pretty well who were on the board actually wouldn’t help me.
“The same thing with Peter Bronfman. I called and spoke to Peter, but George had just shut everybody down. Peter wouldn’t go to bat for me. The interesting thing was that after the Labatt sale, Peter called me two or three times and asked me for favours to do with the prime minister. But he wasn’t there when I needed him.”
On June 6, 1995, Taylor triumphantly announced the sale of Labatt to Interbrew S.A. of Belgium, which bid $28.50 per share, though Holland’s Heineken NV was also in the race. Schwartz was devastated. “It took me a long time to get over it,” he admits. “In Los Angeles, Rolling Rock, the local Labatt brand, is fairly popular, and whenever I’m in a bar or a restaurant and it’s on the menu or I see someone at the next table having it, it’s like a little knife in my heart. I’m not kidding; it feels like that. It’s the one thing I really wish I’d done. I’d love to have spent the next ten years building a beer company— building that particular one—because everything about it was right. “
The smallest of consolations came during Christmas week in 1995 at a Florida dinner party at Lost Tree, hosted by Jack Lawrence, the former chairman of Nesbitt Burns, held in honour of golf pro Mike Harris, who happens also to be premier of Ontario. Schwartz found himself there with Trevor Eyton, who as the head of Labatt’s former parent company, retained considerable clout on its board. Gerry had always considered him a friend, but during the takeover battle, Eyton had refused to take his calls.
Just before dessert, Eyton came up to Schwartz and asked to have a word with him. “I know that you called during the Labatt takeover and wanted me to intercede with George,” Eyton told him, “and I didn’t do that because Taylor was so adamant we mustn’t talk to you. Andy Sarlos called as well, asking me to help get the two of you together. I just want you to know that I consider it to be one of the great mistakes of my business career. Everybody would have been better off if you’d bought Labatt. It was the right thing to do. It was a mistake on my part, and I’ve regretted it ever since.”
SCHWARTZ REMAINS HAUNTED by the possibilities. Could he have had Labatt if he’d started out with a bid of $26 or $26.50? “I don’t think that was the issue,” he argues, although the battle was decided by price. “We made a terrible mistake. About six or eight weeks before we made the bid, George Taylor called me and said, ‘I hear all over the place you’re going to make an offer for the company. That would be terrific. Let’s get together; I’d like to talk to you about it.’
“Our two leading professionals, a world-renowned investment banker and our head lawyer, both said, ‘Absolutely don’t do it. You cannot go and talk to him. He’ll take whatever you say, twist it into what he wants and you’ll read about it in the newspaper the next day. You cannot go and see him until we are ready to launch the bid.’ So against all my instincts, I listened to that advice. And I was stupid. Had I sat down with George when he wanted to … he would have wanted to be part of what we were doing. He knew his company was going to be in play. George wanted to be an ally, but the way it happened, in typical deal style, I saw him the night before the offer to notify him that we would be making a bid the next day. Of course, he was infuriated. And he then worked tirelessly, ceaselessly, to find an alternative. And I don’t think it was just price. The tragedy of it is that we would have been by far a better home for Labatt than where it went. It would have remained Canadian, and the senior management team would have been owners in the company instead of continuing to be employees.”
Why did the famously independent Schwartz suppress his instincts? Why did he step so far out of character by letting an emotion very much like fear paralyze his decision making? Here’s an intuitive guess: what so intimidated him was the silken hand of the Canadian Establishment. Gerry Schwartz wasn’t dealing with a sheik in a far-off land or some first-generation cowboy capitalist from Dallas who wore sunglasses indoors. He was dealing with the Establishment in his own country, and even though he knew it was largely a paper tiger, these were the guys who had kept him out of the Manitoba Club. These were the self-possessed WASPs who hung out at the Royal Lake of the Woods Yacht Club and thought LBO stood for Liquor Control Board of Ontario.
“Nobody is better than anybody else. There are no geniuses out there.” Gerry Schwartz briefly forgot that les
son, learned so long ago in the Rasputin-like presence of Bernie Cornfeld. The price paid: he lost faith in his own judgment and allowed the Labatt guys to intimidate him, not realizing that the only thing they had over him was that they wore red blazers to the annual ball at the London Hunt Club, where most of them belonged, while he didn’t have a red blazer or go to hunt clubs.
If that speculative scenario is true, how ironic a series of events for an operator many see as the walking embodiment of the muscular Canadian Establishment, 1990s version. Schwartz himself disparages the fading old-boys network. “All that Bud McDougald shit is gone,” he says. “It used to be that you couldn’t get a great job in a big company unless Bud said you were okay. That doesn’t exist anymore. I can phone anybody in this country and get my call returned quickly. It’s not that old nonsense that you have to be introduced to somebody in order to get him or her to return your phone call. I don’t believe there is much disposable power floating around anymore. I can get people to call me back, but I sure as hell can’t get them to do anything that’s against their better interests.
“Whatever influence I have is not based on power,” he rightly insists, “it’s based more on notoriety. It’s not because we’ve got forty-two thousand employees and run a $12 billion portfolio that I get a serious hearing. It’s all those newspaper articles, bad as they’ve been sometimes. It’s the notoriety that makes people take you seriously.”
Right, Gerr. Of course, it can’t hurt that Schwartz happened to be Canada’s chief Liberal bagman for most of a decade, taking over that function during John Turner’s time as leader. Prime Minister Jean Chrétien asked him to stay on, but he demurred. Heather was co-chair of Paul Martin’s first leadership bid, and both Schwartzes remain close to him. Heather almost ran for the leadership of the Ontario Liberals and remains one of the party’s wisest policy resources. Whenever Chrétien hits town, the Schwartz parlour is a compulsory stop. The Schwartzes are also close to Liberal strategist Keith Davey, who even in retirement remains the political conscience of his party.
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