Despite the global health crisis, Canada’s largest carrier, Air Canada is continuing the process of acquiring issued and outstanding shares of Canadian leisure carrier Air Transat. Announced via an October 10th press release, Air Canada will be getting a sharp discount on its planned purchase of Air Transat shares – a 72% discount to be precise.
*All monetary figures listed in the article below are Canadian dollars.
Details of the deal
The announcement today marks the conclusion of an “amended transaction with Transat A.T. Inc. that provides for Air Canada to acquire all issued and outstanding shares of Transat and for its combination with Air Canada.”
Air Canada will acquire all shares of Transat for $5.00 per share. As many have noted, this is far below the $18 per share initially offered with the original acquisition plan of August 2019. The estimated takeover value sits at $190 million, significantly down from the previous $720 million.
The amended transaction was put forward due to the severe impact of COVID-19 on the global air transport industry, as reiterated by Air Canada’s CEO.
“COVID-19 has had a devastating effect on the global airline industry, with a material impact on the value of airlines and aviation assets. Nonetheless, Air Canada intends to complete its acquisition of Transat, at a reduced price and on modified terms…This combination will provide stability for Transat’s operations and its stakeholders and will position Air Canada, and indeed the Canadian aviation industry, to emerge more strongly as we enter the post-COVID-19 world.” -Calin Rovinescu, President and Chief Executive Officer of Air Canada
Subject to various levels of approval
It should be noted that this transaction remains subject to various levels of approval, including the following:
- Shareholder approval,
- Court approval,
- Approval of the Toronto Stock Exchange,
- Certain customary and other conditions,
- And regulatory approvals, including from Transport Canada and the European Union.
“If such approvals are obtained, and conditions are met, the transaction is expected to be completed in late January or early February 2021,” the carrier notes.
Approved by Transat’s Directors
The Transat Board of Directors has unanimously determined that this amended transaction is in the best interests of the airline and its stakeholders. Thus, they are recommending that Transat shareholders vote in favor of the transaction.
In the absence of any last-minute surprises, each of Transat’s board of directors is expected to vote in favor of the deal – having committed to voting in affirmation of the acquisition.
Much needed consolidation
While this further solidifies the notion of a loose duopoly in the Canadian market (Air Canada and WestJet), consolidation of airlines is much needed during this downturn in travel. After the events of 2001, many major US carriers chose consolidation over bankruptcy and liquidation.
The events of 2020 may allow the deal to go through easier – especially with the European Commission and Canadian regulatory authorities.
Do you think the consolidation of major airlines in light of COVID-19 and its impact on aviation is necessary and inevitable? Should this deal between Air Canada and Air Transat go through? Let us know your thoughts in the comments.