Katz bids to buy Oilers
Local Pharmacy billionaire steps up with surprise offer of $145 million for team
Gary Lamphier, The Edmonton Journal
Published: Saturday, May 05, 2007
EDMONTON - Drugstore billionaire Daryl Katz, the reclusive owner of the 1,800-store Katz Group pharmacy empire, has launched a surprise $145-million bid to acquire the Edmonton Oilers.
The all-cash offer by Katz, 45, an Edmonton native and University of Alberta law school grad whom Forbes magazine now ranks among the world's richest men, was made to the 37-member Edmonton Oilers ownership group earlier this week.
Under terms of the offer, disclosed to The Journal late Friday by a source familiar with information shared at the meeting, the Oilers would remain in Edmonton.
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Daryl Katz at the 2003 announcement that the arena at Northlands would be renamed Rexall Place.
Bruce Edwards, The Journal, file
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Font: ****"The ownership group wants that, and Daryl Katz wants that," the source said.
Cal Nichols, chairman of the Edmonton Oilers ownership group, couldn't immediately be reached for comment.
The offer has been structured as a purchase of the shares of the company that owns the Oilers, the source said, in order to minimize the tax impact on Oilers owners who sell their stakes, and to enhance the value of the bid.
It's not known what additional conditions may be attached to the Katz bid, including whether it is contingent on securing 100-per-cent ownership of the team, or a simple majority stake. It's also not clear how the Oilers' 37 owners are reacting to the offer.
"Some owners want out and would support the sale, and others are resisting. I don't know (what the precise breakdown is)," the source said.
Under the current Oilers owners' agreement, it's believed that any owner who wants out will have his or her shares bought back, based on a value of less than $100 million for the entire team, or well below the value of the Katz bid.
"It (Katz's offer) was presented to the ownership group several days ago ... and they are sort of soaking on it right now. I don't know the split, but I gather there are some who would very much like to be able to take advantage of the offer," the source said.
It's unknown why Katz made his move now. Edmonton Mayor Stephen Mandel recently struck a committee to explore the idea of building a new downtown arena to replace aging Rexall Place where the team plays, but it has barely begun its work. The Oilers' existing lease at Rexall doesn't expire until 2014.
Cost estimates for a proposed new arena have run as high as $500 million, depending on what additional components it might include. Some observers say it could incorporate a hotel, a casino, retail stores and other amenities.
Mandel has said the odds of such a facility being built are slim unless there's private support. Some have speculated the Oilers might even consider combining the value of the team with a new building to lure pension funds or other long-term investors.
Ontario Teachers' Pension Plan holds a majority stake in Maple Leaf Sports & Entertainment, the company that owns Toronto's Air Canada Place, along with the NHL Maple Leafs hockey club, and the NBA's Toronto Raptors.
An OTPP spokesperson recently interviewed by The Journal said the $106-billion fund wouldn't be interested in investing in an Edmonton arena alone, but it might consider investing in an integrated company akin to Maple Leaf Sports.
As for Katz, the source said he "understands" that a new downtown arena funded strictly by the taxpayer is a non-starter and his participation in fundraising may be necessary. "I think he would be prepared, under the right circumstances, to take his share of funding for something like that," the source said.
According to Forbes' annual survey of pro sports franchises, published last November, the Oilers generated operating earnings of $10.7 million US on revenues of $75 million for fiscal 2006.
The club carried one of the lightest debt loads in the NHL, and its franchise value had jumped 40 per cent over the previous two years, to $146 million, good for 19th spot among 30 NHL clubs.
The franchise value estimated by Forbes -- equivalent to $161.7 million Cdn, or $16.7 million above the Katz bid -- was set following the Oilers' surprise appearance in the Stanley Cup finals a year ago, and prior to the Oilers' disastrous 2006-07 season, when the club failed to make the playoffs.
In the process, the Oilers lost several of their marquee players, including all-star defenceman Chris Pronger, who forced a trade to the Anaheim Ducks at the end of last season, and more recently, team icon Ryan Smyth, who was moved to the New York Islanders at the NHL's regular-season trading deadline.
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KATZ FILE
Daryl Katz, 45
Day job: Chairman of Katz Group, which Katz founded in 1996.
Holdings: Katz Group is the seventh-largest drugstore retailer in North America posting annual sales of roughly $6 billion from 1,800 outlets. Katz Group owns seven chains in Canada and two in the U.S. Holdings include Rexall, Guardian IDA, Medicine Shop and Pharm Plus.
That qualifies the privately held drugstore empire as a larger business enterprise than Toronto-based Canadian Tire and Vancouver's Jim Pattison Group.
Why drugstores? Katz is the son of city pharmacist Barry Katz. The foundation of his current business empire can be traced to 1992 when Daryl and Barry Katz opened their first two stores after buying the Canadian franchise right to the Medicine Shoppe.
How his empire grew, in Katz's words: "I knew the business and I felt comfortable in the business. But I was always kind of deal-driven and attracted to the transaction. And my background is legal and finance so one transaction kind of led to the next."
How rich is he? Katz's personal wealth, estimated at $1.9 billion, qualifies him as Edmonton's richest person. Even though his wealth increased by $300 million last year, his ranking among world billionaires slipped from number 486 to number 538 on Forbes magazine's annual listing of the world's wealthiest people.
Business heroes: Michael Dell, Bill Gates and Larry Ellison
Where does he live? Last year, contractors were busily constructing a massive mansion for Katz on the west bank of the North Saskatchewan River, facing Hawrelak Park. The value of the champagne titanium-clad home with its two swimming pools and 11 bathrooms is estimated at $20 million. It is approximately 25,000 square feet in size. The ice surface of Rexall Place, named after Katz's flagship drugstore chain, measures 17,000 square feet.
Sports interests: A tennis buff, Katz cut a deal with Tennis Canada to put the Rexall name on Toronto's national tennis centre in 2003, the same year he purchased the naming rights for Edmonton's local arena. He has also sponsored competitive curling events.
Education: Graduated University of Alberta law school in the early 1980s.
Giving back: Last year Katz donated $7 million to the University of Alberta's faculty of pharmacy. The grant was matched by the provincial government, making it the biggest one-time gift to any Canadian pharmacy school.
Compiled by Jim Farrell
Journal Staff Writer
OILERS HISTORY
1971: Bill Hunter, owner of the highly successful junior Edmonton Oil Kings, agrees to usher a new team into the one-year-old World Hockey Association and the Oilers are born. The ownership group would include several other local businessmen and enterprises, including Dr. Charles Allard and Canadian Cablesystems.
1972: The WHA holds a player lottery in February for the league's first 12 teams and the WHA gets off the ground later that year. The Oilers attract an average of 4,900 fans per game to the dilapidated 5,200-seat Edmonton Gardens.
1974-75: The team moves into the new Edmonton Coliseum (now Rexall Place) and fans are treated to the resurrection of legendary Montreal Canadiens goaltender Jacques Plante, 45, now wearing an Oilers jersey.
1976-77: Vancouver real-estate wheeler-dealer Nelson Skalbania becomes half-owner of the Oilers. Edmonton entrepreneur and car dealer Peter Pocklington comes in as a half-partner. Skalbania secures the services of ex-Oil King Glen Sather from the NHL's Minnesota North Stars as the Oilers' new captain. Sather becomes playing coach in 1977. Pocklington eventually buys out Skalbania, who now owns the Indianapolis Racers.
1978: Oilers owner Peter Pocklington buys a fresh-faced 17-year-old hockey player named Wayne Gretzky from Skalbania. With Gretzky sparking the team, the Oilers advance to the league finals before falling to Bobby Hull and the defending champion Winnipeg Jets.
1979: The WHA folds and the Oilers become a new member of an expanded National Hockey League. On the day season's tickets go on sale for the Oilers' first NHL season, every season ticket is sold by noon, leaving only 700 game-day seats for "casual sales." In its first NHL entry draft the team picks up Kevin Lowe, Mark Messier and Glenn Anderson and cuts a deal to get back tough guy Dave Semenko. The Oilers finish their first season with a 28-39-13 record and the final playoff position. The Oilers bow out of the playoffs in the first round after three straight losses.
1983-84: The Oilers win their first Stanley Cup.
1984-85: As Alberta's oil economy crumbles and some of Pocklington business enterprises run into trouble, the Oilers owner sets the stage for future Oilers' problems by using his 21-year personal services contract with Gretzky as collateral on a bank loan "for no more than $20 million" with Alberta Treasury Branches. The Oilers win another Stanley Cup, but lose the next year.
1986-87: The Oilers win another cup as Pocklington proposes to the NHL board of directors a public share offering of the club. Fortune magazine pegs the value of the Oilers franchise at $35 million. No public share offering is made.
1987-88: Another Stanley Cup.
Aug. 9, 1988: Pocklington sells Gretzky to the Los Angeles Kings. The Gretzky-led Kings knock the Oilers out of the playoffs in the first round of the 1988-89 season.
1989-90: The Oilers win their fifth and last Stanley Cup.
1990-91: Gainers Inc. files a $7.75-million suit against Oilers owner Pocklington, bringing the company's total claim against its former owner to $12.15 million. Pocklington declares his impending $100-million sale of Palm Dairies has him thinking of building his own arena and vacating Northlands Coliseum. Northlands counters with a $70-million offer to buy the Oilers.
1991-92: The first glory era of the Edmonton Oilers is laid to rest before the season begins with the departures of Mark Messier, Grant Fuhr and Glenn Anderson.
1992-93: The Oilers miss the playoffs.
1993-94: As Pocklington tries to hammer out a more favourable Coliseum leasing agreement, negotiations at various points hint the franchise will be moved to Hamilton or Minneapolis. The team stays, but finishes the season in 23rd place.
1994-95: Pocklington strikes a new deal to take control of the Coliseum in exchange for a $2.8-million annual payment to Edmonton Northlands. The city directs $15 million in federal infrastructure grants to renovate the Coliseum and for Pocklington to build a new baseball park for his Triple-A baseball franchise, the Trappers. Pocklington spends $4 million on Coliseum improvements and another $4 million on the ballpark, while the city forsakes a seven-per-cent surcharge on Coliseum tickets, giving Pocklington $1.5 million a year toward his lease payment. As part of the deal, under the first of three 10-year leases, the Oilers cannot be moved until at least 2004.
Late 1997: Alberta Treasury Branches takes control of the Oilers as payment towards Pocklington's accumulated debts. In the spring of 1998, the team is sold to the Edmonton Oilers Investment Group, a collection of local business people and companies that still owns the team.
Compiled by Jim Farrell, Journal Staff Writer
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© The Edmonton Journal 2007
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