Amazon.com is set to acquire a stake in Cargojet Airways (W8, Hamilton, ON) following the signing of a strategic agreement with Amazon.com NV Investment Holdings LLC, the US-based online retailer's investment arm.
According to the terms of the deal announced last week, the Canadian cargo specialist said in a statement it will issue two tranches of warrants to Amazon to purchase variable voting shares that will vest based on the achievement of certain commercial milestones related to Amazon's business with Cargojet.
The first tranche of warrants allows Amazon to acquire up to 9.9% of Cargojet's variable voting shares at an exercise price of CAD91.78 (USD68.93) per share assessed as the 30-day volume-weighted average trading price (VWAP) immediately prior to the date of the agreement.
The first tranche of warrants will vest over a period of six and a half years, with vesting tied to the delivery by Amazon of up to CAD400 million (USD300.44 million) in business volumes during the same term.
Amazon will also receive additional warrants to acquire up to an additional 5% of Cargojet's variable voting shares with vesting tied to the delivery by Amazon of up to an additional CAD200 million (USD150.22 million) in business volumes after the first tranche of warrants is fully vested.
The vesting period for the second tranche of warrants will continue for an additional year, making the aggregate term of all the warrants equal to 7.5 years from the date of the agreement.
The exercise price of the second tranche of warrants will be set two years after the date of the agreement using the 30-day VWAP price immediately prior to the second anniversary of the agreement or, if earlier, the date on which the first tranche of warrants is vested in full.
Cargojet said it expects the agreement to generate additional revenue growth and be meaningfully accretive to its earnings and cash flows over time.
Under the two parties' existing commercial agreement, Amazon uses Cargojet's overnight air network and charter aircraft services to move packages from Amazon facilities to other Amazon or last-mile carrier locations before final delivery to customers.
"The commercial relationship the Cargojet team continues to build with Amazon has now allowed us to further strengthen and align our long-term strategic commercial interests. Our continuous commitment to provide value-added services enables us to earn all of our customers' trust as the leading overnight air-network operator," Cargojet Chief Executive Officer Ajay Virmani said in a statement.
Cargojet currently operates a fleet of eight B757-200(PCF)s, one B767-200(ERBDSF), and twelve B767-300Fs on scheduled cargo flights connecting 13 cities across Canada's southern regions as well as Cologne/Bonn in Germany and Lima International in Peru.
However, given growth in e-commerce and recent industry announcements for even faster deliveries, as well as 7 days-a-week deliveries, Cargojet will further strengthen its premium domestic network.
To that end, it plans, over time, to add more non-stop flights allowing later departures and earlier arrivals to the 15 major cities that Cargojet already serves and to add new cities on its overnight network.
"These service and frequency enhancements will be available to all Cargojet customers, and will expand Cargojet's reach to approximately 95% of the Canadian population. This optimised network will further improve fleet utilisation, create additional opportunities, and continue to help Cargojet enhance its customer-neutral, cost-effective network for all its customers," it said.
For its part, Amazon has a similar capacity/equity agreement with US-based Air Transport Services Group in which it has the option of taking its shareholding up to 39.9%.
