Frederic Tomesco

Nov. 12 (Bloomberg) — Onex Corp., Canada’s biggest buyout firm, posted its largest loss in almost three years as the Canadian dollar reached parity with its U.S. counterpart and acquisition costs increased.

The loss was C$77 million ($80.5 million), or a 60 cents share, compared with net income of C$31 million, or 24 cents, a year earlier, Onex said today in a statement.

Onex, which said it holds a “significant” portion of its cash in U.S. dollars, suffered a C$39 million foreign-exchange loss on its currency reserves. Amortization and deferred charges more than quadrupled to C$110 million after the company bought Allison Transmission Inc. and Eastman Kodak Co.’s health-care imaging division, since renamed Carestream Health Inc.

The buyout firm has increased investments in the U.S., which accounted for 41 percent of revenue last year, up from 18 percent in 2004. Onex said today it will start a $4.5 billion buyout fund next year that will be its biggest ever.

The Canadian dollar gained about 12 percent against the U.S. currency in the 12 months through Sept. 30. On Sept. 20, it reached parity with its U.S. counterpart for the first time since 1976, and this month rose to a record. Canadian Finance Minister Jim Flaherty said last week he’s concerned about his country’s surging currency, which he attributed to “global imbalances” and a weaker U.S. dollar.

U.S. Dollar Drop

The drop in the U.S. dollar “was certainly felt on our cash balances,” Onex Vice President of Finance Don Lewtas said today on a conference call. The company “typically holds a meaningful amount of cash to fund Onex’s portion of future investments. Our policy has been to split that cash between Canadian and U.S. currencies based upon our expected investments.”

Onex had C$1.1 billion in cash at the end of the quarter, with 42 percent in Canadian dollar-denominated commercial paper and 58 percent in U.S. dollar securities, Lewtas said. The company doesn’t hold any asset-backed commercial paper, he said.

Onex shares rose 31 cents to C$36.50 at 4:10 p.m. in Toronto Stock Exchange trading, halting a three-day slide. The stock has gained 29 percent this year, the fourth-best performance on the 43-member financials index of the S&P/TSX Composite Index.

Onex last had a bigger net loss in the fourth quarter of 2004. The loss amounted to C$214 million.

Assets climbed to C$24.8 billion, including stakes in electronics manufacturer Celestica Inc., insurer Warranty Group Inc., movie-theater chain Cineplex Entertainment LP and jet maker Hawker Beechcraft Corp.

Slower Revenue Growth

Revenue advanced 25 percent to C$6.04 billion, the slowest pace this year. Revenue rose 27 percent in the second quarter and 32 percent in the first.

Onex and Carlyle Group paid General Motors Corp. C$5.9 billion for Allison Transmission. Washington-based Carlyle and Onex split a C$1.6 billion equity investment in Indianapolis- based Allison as part of the transaction. The company, with 3,400 employees, makes transmissions for trucks, buses and military equipment.

Chief Executive Officer Gerald Schwartz said in September the company was planning to start funds that will invest in assets such as real estate. Earlier this month, Onex bought half of U.S. investment manager GK Capital and agreed to invest $50 million in the company, which will purchase debt that private- equity funds use to acquire companies.

New Funds

Managing Director Anthony Munk said today the company plans to establish a new buyout fund, the $4.5 billion Onex Partners III, by mid-2008. Onex will probably provide $1 billion of the amount, he said. The fund would be the biggest in the company’s history, topping a $3.45 billion fund closed last year, spokesman Michael Locke said.

Onex is also planning to raise money for two real estate funds, one of which will have “a few hundred million dollars” of capital and invest in high-yield mortgage credits, said Managing Director Andrew Sheiner.

The other one will be an “opportunity” fund, focused on “acquiring the kinds of things we’ve been doing at Onex Real Estate in the last two and a half years,” Sheiner said. He didn’t elaborate.

Onex earns fees on the funds it manages on behalf of clients such as endowments. The company can also earn performance fees if the funds’ returns exceed certain thresholds.

(Onex held a conference call to discuss the results earlier today. Investors can listen to a replay at http://www.onex.com under the “Investor Information” section.)

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net
Last Updated: November 12, 2007 18:08 EST

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