Air Canada sweetens the offer for Transat for $ 18 under shareholder pressure

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Air Canada has increased its offer for the purchase of Transat A.T. Inc. of 38%, at $ 720 million, in contrast to the pressures of some investors and an aspiring competitor who had threatened to conclude the deal.

Air Canada's move to increase its price for the airline and the Montreal travel company came after weeks of phone calls and meetings with investors who said they would reject the acquisition attempt unless they got more for their actions. The Montreal real estate developer, the Mach Group, had also offered a higher price for part of the company hoping to block the deal.

Air Canada and Transat have stated that the new offer is worth $ 18 per share, compared to $ 13 or $ 520 million, has the support of Transat's largest shareholder, Letko Brosseau and Associates Inc., the Montreal money manager that controls almost 20% of the shares and opposed the first offer.

The story continues under the announcement

The agreement would give Air Canada the control of a competitor on transatlantic flights and Air Transat's fleet of Airbus planes at a time when Air Canada is facing capacity and revenue limits. Compression comes from its Boeing 737 Max passenger jets that are grounded in a global shutdown that came after two fatal crashes.

"After extensive consultations with Letko Brosseau and several other major shareholders of Transat, we decided to materially increase our price to ensure that the transaction received the necessary level of support," said Calin Rovinescu, CEO of Air Canada.

Peter Letko, a Letko Brosseau partner, had told The Globe and Mail that Transat should not have sold itself until it had re-established margins and profitability to get a better price.

In a Monday interview, after the announcement of the new offer, Letko said: "We are satisfied with the price.

"We thought that Air Canada was very considerate and sensitive to the fact that we were not satisfied with the original price," he said of the meetings he held with the company.

Air Canada's acquisition of the third largest Canadian airline requires the support of two-thirds of Transat shareholders by August 23rd. The agreement is expected to be completed next year and requires approval by legal, regulatory and antitrust authorities in Canada and Europe. The combined companies would control at least 60% of the domestic Atlantic flights and most of the Montreal travel market and should face a rigorous review by the Competition Commissioner.

Transat has lost money in two of the last four years and is expected to register a loss in 2019 as it attempts to expand its operations on sun-destination hotels. The share price of the company over the past five years has rarely been above $ 9 and has fallen to less than $ 5 in March.

The story continues under the announcement

In April, Transat declared that it was in talks with "more than one" possible suitor, and soon began exclusive talks with Air Canada. The two sides announced on June 27 that they had an agreement on an acquisition for $ 13 per share.

Christophe Hennebelle, spokesman for Transat, said that the offer of $ 13 that the two sides negotiated for the first time was considered fair by the external consultants of Transat, National Bank and Bank of Montreal. "It was a good price and obviously now we have an even better price," said Hennebelle.

Montreal's real estate developer group, Mach, had offered – and later abandoned – a conditional offer worth $ 14 per share. Mach recently took a new turn, offering $ 14 for a maximum of 19.5% of Transat and trying to collect voting proxies to block the Air Canada deal.

The Administrative Court of Quebec's financial markets, in a ruling issued on Monday, sided with a Transat complaint and blocked Mach's offer.

However, Alfred Buggé, Mach's vice president, did not rule out another attempt to purchase Transat and took the credit for spurring Air Canada to increase its bid by $ 200 million. "The shareholders of Transat owe a great debt of gratitude," said Buggé. "If it were not for Mach, the shareholders would not have this offer."

Transat shares closed Monday at $ 16.75 on the Toronto Stock Exchange, a discount of $ 1.25 on the revised offer that Buggé attributed to the uncertainty of the transaction.

The story continues under the announcement

PenderFund Capital Management of Vancouver, the fifth investor of Transat, opposed the initial price agreed by the Transat board of directors.

Amar Pandya, PenderFund's analyst and portfolio manager, said that other shareholders he spoke to also opposed the price initially agreed by Transat's board of directors, but that the highest offer and Letko's support make it "almost a done deal".

"There was not much support for the $ 13 offer," he said. "Even with the instigation of Mach, this created greater disagreement within the shareholder base," Pandya said in a telephone interview.

Patrick McQuilken, spokesman for the FTQ solidarity fund, which owns 12% of Transat, said there were at least three meetings and phone calls between the labor-sponsored investment fund and Air Canada. He stated, as is typical of the fund in any investment decision, the Fund focused on the offer price, as well as on the employment and economic effects of the acquisition.

He said it's too early to tell if Fonds supports the new offer.

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