MONTREAL — Air Canada and Transat A.T. Inc. have announced a deal valued at $520 million that should see Air Canada buy Transat A.T. Inc., however some of Transat’s biggest shareholders have indicated they’re not happy with the $13 per share offer.
Meanwhile Transat President & CEO Jean-Marc Eustache is advising passengers that they can continue booking their flights and packages “with complete confidence, as all bookings will be honoured before and after the closing of the transaction.”
News broke early Thursday morning that the two companies concluded a definitive Arrangement Agreement that provides for Air Canada’s acquisition of all issued and outstanding shares of Transat and its combination with Air Canada.
The binding agreement was unanimously approved by Transat’s Board of Directors.
“We are delighted to have reached this definitive agreement to combine Transat with Air Canada to achieve the best possible outcome for all stakeholders,” said Calin Rovinescu, President and Chief Executive Officer at Air Canada. “For shareholders of Transat and Air Canada, this combination delivers excellent value, while also providing increased job security for both companies’ employees through greater growth prospects.”
Rovinescu also noted that Air Canada intends to preserve the Transat and Air Transat brands and maintain the Transat head office and its key functions in Montreal.
“Travellers will benefit from the merged companies’ enhanced capabilities in the highly competitive, global leisure travel market and from access to new destinations, more connecting traffic and increased frequencies,” he added. “The Quebec economy will derive maximum advantage of having a Montreal-based, growth-oriented global champion in aviation, the world’s most international business.”
Eustache added: “We are very pleased to join forces with such a successful player in our industry. The combination with Air Canada will give Transat new perspectives of growth, with the support of a strong network offering many options for connecting traffic. This fully-funded cash transaction is the ideal platform for Transat’s presence and jobs in Montreal, and therefore represents the best option for all our stakeholders: employees, suppliers, partners and shareholders.”
While the deal got unanimous approval by Transat’s board, some of the company’s major shareholders remain dissatisfied with the price.
Letko, Brosseau and Associates and PenderFund Capital Management, which jointly own a 21.1% stake, have said they would vote against the agreement if the purchase price remained at $13 per share.
The agreement requires approval from two-thirds of Transat shareholders to go through. Quebec’s Fonds de solidarite FTQ, Franklin Templeton Investments, and the Caisse – Quebec’s pension fund manager – are also among the top five investors, collectively holding a 26.18 per cent stake.
Air Canada and Transat’s combined 60% hold on the transatlantic market from Canada will also prompt an assessment from Canada’s Competition Bureau.
On May 15, Air Canada and Transat entered negotiations toward a possible deal, giving them 30 days to finalize the details. In early June, Quebec-based real estate developer Groupe Mach announced that it too had entered a bid for Transat for $14 per share, which was turned down.
The Air Canada deal includes a break fee of $15 million payable by Transat if it accepts a superior proposal. Air Canada must pay a reverse break fee of up to $40 million if the deal is cancelled because regulatory or governmental approvals are not obtained, subject to certain conditions.
If regulatory and shareholder approvals are obtained, the transaction is expected to be completed in early 2020.
With a combined Air Canada – Air Transat, “prices will go up for Caribbean/Mexico and Europe”, says Niche Travel Group owner Faith Sproule in Dartmouth, NS. “If there is a destination city that has direct competition with WestJet, we may see the same prices (e.g. Gatwick, Paris, Dublin, Glasgow, Barcelona). I think that if Air Canada and Transat each have a flight and WestJet doesn’t do that route (Toronto to Lyon, for example), we will go down to one option and prices are going to jump.”
She adds: “It looks like a good idea and good for the consumer on paper, but the prices will go from $1,100 to $1,400. I think we are looking at higher prices with everything if this merger happens.”
Asked if he sees the deal as a positive move for the industry, Nexion Travel Group – Canada President Mike Foster says the answer is neither clear nor simple: “While the combined strengths of each company can lead to synergies and in turn a stronger company, there may indeed be an effect on pricing, route and loads. But I also believe that the natural forces of a free-enterprise economy means that new entrants could come in if the marketplace warrants or needs more competition.”
With file from The Canadian Press