Air Canada still wants to take Transat A.T. under its wing despite the COVID-19 pandemic, which continues to rock the commercial aviation industry, but the largest airline will pay almost four times less than originally expected.
The two companies announced on Saturday a review of the transaction providing that Air Canada will pay $ 5 – compared to $ 18 – for each share of Air Transat’s parent company in a takeover now estimated at 190 million. $, compared to $ 720 million previously.
“This is the worst crisis that Transat has faced since its founding 33 years ago, and with a second wave (of infections), it is impossible to predict the moment of a possible recovery,” said in a press release its president and chief executive officer, Jean-Marc Eustache, stressing that a merger would allow the company to “withstand the current turbulence of the sector”.
The arrangement is unanimously supported by the board of directors of Transat A.T and offers shareholders of the Montreal-based company the option of receiving cash or Air Canada securities.
These will have to vote again at an extraordinary meeting to be called at the beginning of December. The transaction must obtain the approval of at least two-thirds of the security holders. On Saturday, Transat A.T. and Air Canada did not say whether the arrangement was supported by major shareholders of the tour operator.
The main shareholders of Air Transat’s parent company are Letko Brosseau (14.88%), the Fonds de solidarité FTQ (11.55%) and the Caisse de dépôt et placement du Québec (5.83%), according to data compiled by financial data firm Refinitiv. The Quebeckers’ socks did not comment on the new arrangement.
“We will take the time to analyze the offer before making a public statement,” Fund spokesperson Patrick McQuilken said. We found out with the press release. “
Air Canada argued that the health crisis had had an “unprecedented” impact on the industry.
Federal authorities still place restrictions on international travel, and a mandatory quarantine is also required for those arriving in the country. The context is therefore very different compared to August 2019, when the shareholders of the Quebec tour operator voted in favor of the arrangement.
“This merger will ensure the stability of the (activities) of Transat and its stakeholders and will strengthen Air Canada and, without a doubt, the Canadian aviation industry when we enter a post-COVID-19 world. ”Said the president and CEO of the airline, Calin Rovinescu.
The new version of the transaction, which will have to obtain the approval of the holders of Transat A.T. securities, pushes back to February 15, compared to December 27, the deadline for the sale. This weighed in the balance, as the Competition Bureau and the European Commission, which have expressed concerns about the proposed consolidation, have yet to comment.
Before the pandemic, the transaction would have enabled the group to hold a 60% share of the transatlantic market from Canada. Air Canada and Transat A.T. would overlap on certain sun destinations in addition to having a grip on air travel to Montreal.
The new agreement will allow Transat A.T. to obtain a $ 250 million credit facility, which will help it weather the current turbulence. The original arrangement agreement meant that the tour operator needed Air Canada’s approval to obtain financing.
In recent months, several analysts have raised the possibility that the purchase price will be revised downwards due to the health crisis.
On the Toronto Stock Exchange on Friday, Transat A.T. stock closed at $ 3.83 – a far cry from the original deal price. The tour operator nevertheless argued that the offer of $ 5 per ticket represented a premium of 31.6% on the average price of its ticket during the 20-day period ending October 8.
“It seems a reasonable price ($ 5 per share) for both parties,” Karl Moore of McGill University’s management department said in a telephone interview. At $ 18 a share, the deal just wasn’t going to close. We can no longer refer to the conditions that prevailed before the health crisis. The airline industry is in the darkest period of its history. “
If the merger fails, Air Canada would have to pay Transat A.T. a termination fee of $ 30 million. If a bid above a firm price of at least $ 6 per share is not matched by the airline, the tour operator will have to pay $ 10 million.
If all approvals are obtained, the transaction is expected to close in late January or early February.