Friday’s announcement caps a tumultuous takeover saga that began in June 2019 when Air Canada agreed to pay $13 a share for all of Transat’s shares. Faced with opposition from some Transat shareholders, Canada’s largest carrier sweetened its bid to $18 a share two months later, before slashing it to $5 a share in October 2020 amid the pandemic-induced plunge in global passenger traffic.
“This transaction, first contemplated more than two years ago, was complicated by the pandemic, and, ultimately, Air Canada reached its limit in terms of concessions it was willing to provide the European Commission to satisfy their competition law concerns,” Transat chief executive Jean-Marc Eustache said in the travel company’s statement.
Additional remedies, “which may still not secure an EC approval, would significantly compromise Air Canada’s ability to compete internationally, negatively impacting customers, other stakeholders and future prospects as it recovers and rebuilds from the impact of the COVID-19 pandemic,” Canada’s biggest airline said in its own statement. “Especially in this challenging environment, it is essential that Air Canada focus on creating the optimal conditions for its full recovery by preserving and leveraging all of its key strengths and assets.”
No longer constrained by the terms of the Air Canada accord, Transat is now “free to take the necessary steps to ensure a successful long-term future,” starting with long-term financing, Eustache said.
The CEO told financial analysts last month that the company had already begun weighing alternatives to Air Canada in case the deal unraveled.
Having recently revamped its fleet with modern, fuel-efficient Airbus A321neoLR jets, Transat must now squarely tackle the challenge of filling its planes without the benefit of a regional network of feeder carriers such as the one that Air Canada boasts, said ATB Capital’s Murray.
“It’s always been Transat’s long-term challenge,” Murray said. “They have a limited ability to expand their catchment area.”
With a rejuvenated fleet that includes dozens of new Airbus A220 and Boeing 737 Max aircraft, “Air Canada is going to be a ferocious competitor coming out of this deal,” said Murray.
Negotiations are underway to help Transat secure long-term capital, including under the Large Employer Emergency Financing Facility and via prospective support from the Canadian government for travel and tourism companies.
“Discussions on both topics are at an advanced stage and Transat’s management is confident that a satisfactory financing will be secured in the coming weeks,” the Montreal-based company said.
Transat is also free to hold discussions with potential strategic and financial acquirers. Possible suitors include Québecor Inc. CEO Pierre Karl Péladeau, whose investment company, Gestion MTRHP Inc., previously offered to buy all of Transat’s shares for $5 per share.
The $5-a-share proposal “is still valid and includes certain conditions that Mr. Péladeau wishes to lift quickly in order to remove the company from the state of uncertainty in which it has been mired for several months,” a spokesperson for the Québecor CEO said Friday. The offer “includes a rigorous business plan focusing on areas of the company with high growth potential, on expertise and job creation in Quebec, and on the development of the head office in Montreal.”
Canada Transport Minister Omar Alghabra said on Twitter that he had spoken with Transat and that the two sides were “examining next steps.”
“The most important thing for our government is to protect jobs in Quebec and across Canada, as well as preserving the long-term viability of Transat,” Alghabra said.
Quebec’s government is also following the situation very closely.
“We won’t leave Transat without support,” Mathieu St-Amand, a spokesperson for Economy Minister Pierre Fitzgibbon, told the Montreal Gazette.
Air Canada shares closed at $26.45 on Thursday, while Transat closed at $5.49. Markets were closed for Good Friday.