Air Canada Increases Air Transat Purchase Price Almost 40%

Air Canada has increased their purchase price for Air Transat by almost 40%. The new agreement increases Air Canada’s per share price from $13 to $18CAD per share. In total, this will result in a purchase price of CAD$720 million– equivalent to just under USD$544 million. Previously, the purchase price was USD$520 million

Air Transat
Air Canada has increased their purchase price for Air Transat. Photo: Air Transat

The agreement

A joint Air Canada and Air Transat news release details the updated terms of this agreement. In a bright spot for Air Canada amidst crunches from the 737 MAX grounding, Letko Brosseau is behind the deal. Letko Brosseau is Transat A.T. Inc’s largest shareholder. With 19.3% of the company in Letko Brosseau’s hand, their lock-up and support agreement adds plenty of credibility to Air Canada’s purchase.

Air Canada
Air Canada now has the backing of Air Transat’s largest shareholder. Photo: Air Canada

In addition, there was an increase in the break free payable by Transat A.T. Inc. The new break fee, paid if the Montreal-based company backs out of the deal under certain circumstances, increased from CAD$15 million to CAD$40 million. One of those circumstances includes if there is another competing bid that beats out Air Canada and Transat A.T. accepts the other bid. In this case, that would mean a new company coming to purchase the company for CAD$19 or higher. As of writing, no other major parties have submitted competing bids for Air Transat.

Why is Air Canada doing this?

In the statement, the President and CEO of Air Canada, Calin Rovinescu, said that new, higher agreed upon price came after “extensive consultations with Letko Brosseau and several other large shareholders of Transat”. He went further to say that this increase is meant to “ensure the transaction receives the necessary level of support at the Special Meeting of Shareholders of Transat.”

Basically, it seems that there may have been some influential shareholders who believed the price was not adequate. So, they worked an agreement out that both the parties could agree to.

Air Canada
Air Canada upped its offer after consulting with some of Air Transat’s shareholders. Photo: Air Canada

The future

Air Canada has made it clear that they intend to preserve Air Transat as a separate brand from Air Canada. That being said, Air Canada will offer connections, may modify frequencies to reduce overcapacity and, hopefully, add new routes. Air Transat’s more leisure-oriented aircraft could help expand Air Canada’s brand to some lesser-connected leisure destinations.

AIr Transat
Air Transat’s aircraft have a leisure-oriented configuration. Photo: Air Transat

Barring any major developments (like a completely new and higher offer), it appears that Air Canada is the most likely candidate to own Air Transat. Now, major shareholders appear to be satisfied with the new agreement.

Air Canada Increases Air Transat Purchase Price Almost 40%
Air Canada seems to be the most likely winner for Air Transat. Photo: Airbus

Overall

On August 23rd, 2019, the vote of shareholders will be finalized. However, regulatory approvals are still outstanding and there are some conditions of the contract that are still not complete. According to the joint news release between Air Canada and Air Transat, supposing all is well, they expect the transaction to be completed in the early part of 2020.

As of now, it seems that Air Canada has beaten the competition and will acquire Air Transat.

What do you make of this development? Do you want Air Canada to acquire Air Transat? Let us know in the comments!

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