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Vector - What's Happening?


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Aviation heavyweights circling Vector

 

East Coast-based CHC Helicopter, IMP Group are jockeying for a takeover position of the Toronto aircraft repair firm, GORDON PITTS writes

 

By GORDON PITTS

Tuesday, February 8, 2005 - Page B8

 

Two of Atlantic Canada's business lions are warily circling each other, as leading players in the pack of predators converging on a mid-size airplane-repair firm called Vector Aerospace Corp. Two weeks ago, an investment firm controlled by Newfoundland helicopter titan Craig Dobbin and his son Mark bought a large block of Vector shares. The Dobbins now own 10.8 per cent of a company that was spun out of the family's aerospace empire seven years ago.

 

While the Dobbins say the move is for investment purposes, it has stoked speculation about the response of other shareholders, led by Halifax aviation tycoon Ken Rowe, who holds 19.5 per cent of Vector, the largest stake.

 

A takeover battle for Vector is bound to break out at some point, says Toronto investment fund manager Bob Tattersall, who would hope to play kingmaker by selling the more than 10-per-cent interest held by a fund he manages.

 

"There are a large number of lumpy shareholders and nobody seems to want to be the first guy to draw," says Mr. Tattersall of Howson Tattersall Investment Counsel Ltd. "But once one person does, bullets will be flying in all directions."

 

Everyone in the industry believes consolidation is inevitable, he says, and "everyone wants to be the consolidator, not the consolidatee." That is focusing attention on Vector, which has no controlling shareholder and whose business is the overhaul and repair of both helicopters and fixed-wing aircraft.

 

"There is clearly an abundance of interest in Vector from several industry players," wrote Cameron Doerksen, an analyst for Montreal-based Dlouhy Merchant Group Inc. in a report last week.

 

But he added that after two years of positioning by big investors, there is no reason to believe a takeover bid is imminent. He thus lowered his Vector rating to "hold" from "buy."

 

Still, a Vector takeover has clearly been on the mind of the markets, with shares closing yesterday at $2.80, up 5 cents from Friday, and substantially higher than the early-November level of around $1.80.

 

But one significant barrier is the number of large shareholders with their own strategic interests -- not only Craig Dobbin and Ken Rowe, but Northstar Aerospace Inc., a Toronto-based supplier of helicopter gears and transmissions.

 

Northstar, which analysts believe would provide a nice fit with Vector, holds just under 10 per cent of Vector shares. Its chairman, Toronto investor Donald Jackson, now doubles as Vector's chief executive officer, and Vector's headquarters has been shifted to Toronto from St. John's.

 

Mr. Jackson, a former CEO of Laidlaw Inc., was not available for comment yesterday.

 

Vector chief financial officer Randy Levine said Northstar is one of a number of companies that would enjoy synergies with Vector.

 

Like an animal being hunted, he said, "we're certainly acutely aware of what is going on around us." But, he added, there have been no formal offers.

 

The Vector story is also a vivid example of the interwoven careers and holdings of the entrepreneurs who inhabit the small world of Canadian aerospace.

 

Vector began life in 1998 as an initial public offering of the aviation repair and overhaul operations of CHC Helicopter Corp., a global helicopter operator controlled by its executive chairman Craig Dobbin, now 69.

 

Craig's son, Mark, became chief executive officer of the standalone Vector. But along with two other senior managers, he was ousted in 2003 when dissident shareholders, led by Mr. Rowe's IMP Group International Inc. and Mr. Jackson's Northstar, took control of the Vector board.

 

Mark Dobbin and the other former managers have sued the company for severance payments, retirement compensation and other claims, and Vector has countersued the former executives.

 

On Jan. 20, Mark Dobbin bought the large Vector block -- 2.6 million shares -- from an unidentified investor, working through Killick Capital Inc. of St. John's, a private equity firm controlled by himself and his father. He reiterated last week that the purchase was for investment and not the prelude to a takeover.

 

Mr. Tattersall speculated that Mark Dobbin, 44, could be acting as a stalking horse for CHC, which is boosting its presence in the helicopter repair business, or may be trying to erect a defence against a takeover by another party.

 

But it is also possible, other observers say, that he is simply seeking to maximize returns by buying into a company and industry he knows so well.

 

Mr. Dobbin insists it is the latter case.

 

"Over the long term, if the board and management execute and unlock value, then the shares will be worth more than I paid for them," he said.

 

He indicated that the investment is unrelated to his current lawsuit against the company. Even so, he said, the fact he is investing in Vector reflects his belief that severance or related payments would be "normal-size obligations and the company can handle them in normal course."

 

Mr. Doerksen said it seems unlikely that Mr. Dobbin would risk his money in Vector if he believed that a successful lawsuit would badly hurt the company.

 

But, he added, "the lawsuit remains a risk."

 

Then there is Mr. Rowe, whose privately held IMP Group owns a number of aerospace operations, including the newly launched CanJet Airlines. Mr. Doerksen said "both of Vector's core fixed-wing and helicopter segments could be of interest to IMP."

 

Mr. Rowe, who did not return calls, is no stranger to such investment brinkmanship, but is known to play his cards very close to his vest.

 

As a major shareholder of Spar Aerospace Ltd., he was part of a dissident investor group that triggered an overhaul of the underperforming company's board in 1999. When Spar was subsequently sold to a U.S. firm, Mr. Rowe was able to exit at a profit.

 

One possible outcome is that Vector will be acquired by a tandem of players, perhaps a combination of IMP and Northstar, with its operations divided among them.

 

Meanwhile, Craig Dobbin's company, CHC Helicopter, which recently moved its head office to Vancouver from St. John's, has indicated its intention to expand in the helicopter repair field where Vector operates.

 

With the Killick investment in Vector, the older Mr. Dobbin now has a personal stake in both rival camps.

 

"CHC would undoubtedly be interested in acquiring Vector's helicopter division," wrote Mr. Doerksen, noting that the two helicopter shops are located across the street from each other in Vancouver.

 

Mark Dobbin says he no longer has an official role with CHC, and cannot comment on that company's plans.

 

What he does know is that Vector would be a hard company to buy, given the presence of large strategic investors.

 

"The takeover of Vector is not an easy play for anybody."

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Very confusing. CHC has just bought repair division of Coulson and another turbine repair company in BC . I had heard they were going to build a component overhaul division in Richmond as well. Some of the ACRO people are already working for CHC. It is funny in Canada we get more and more airlines but fewer and fewer manufacturers and support companies as they all seem to get consolidated.

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Vector Press Release

 

The unusual item recorded in the fourth quarter of 2004 relates to an employee fraud committed at the ACROHELIPRO operation in British Columbia. In mid February 2005 the insurer reversed its earlier, verbally communicated position that the claim would be fully covered under the Company’s insurance policy. The insurer is now completing further investigation to determine if it can deny all or a portion of the claim. The insurer has not yet articulated its final position. Due to the strict accounting standards regarding carrying positive contingencies on the Balance Sheet, the Company has written off the full fraud amount of $4.6 million.

 

 

Unusual items in 2003 were determined as a result of a comprehensive review of the carrying value of assets, following changes in the Company’s Board of Directors and executive management. Unusual items include impairments in the carrying value of working capital and fixed assets, an accrual for potential pension and severance costs related to the termination of the former executives, costs related to a special meeting of shareholders and costs related to the possible divestiture of the Company’s fixed-wing division. In addition, the Company recorded an impairment charge related to the carrying value of goodwill.

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