Air Canada‘s C$13/share offer for competitor Transat faced a tough challenge. The Board of Directors was keen on the deal but Groupe Mach kept pushing its C$14/share offer, going so far as to pursue private transactions to acquire just under 20% of the shares and force the carrier to negotiate. Moreover, the largest Transat shareholder, Letko, Brosseau and Associates, was set to vote its ~20% stake against the deal. That would significantly hamper securing the 2/3 majority necessary.
Acknowledging that challenge, Air Canada upped its offer significantly over the weekend to C$18/share. The new offer values the transaction at C$720 million, up from C$520 million.
We have agreed to significantly increase our price to ensure that the transaction gets the necessary support at Transat’s special meeting of shareholders.– Air Canada Chief Executive Officer Calin Rovinescu
The Mach Group offer came in at C$14, with a guarantee of keeping the headquarters and jobs in Quebec. The original offer also depended on funding from the government, something that was not guaranteed. The revised sub-20% offer is fully funded, but that is less significant now that the Air Canada deal is significantly higher.
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Beyond the low-ball price offer, Mach raised several other objections to the Air Canada deal:
- Transat is a strong company with a significant value proposition, which includes new Airbus fleets in contrast to the indefinitely grounded Boeing 737 Max 8 fleet in Air Canada’s portfolio.
- The closing of the Plan of Arrangement will significantly reduce competition in Canada’s airline industry which has historically been dominated by the two largest domestic airlines, including Air Canada
- No binding guarantees have been provided by either Air Canada or Transat that the closing of the Plan of Arrangement will not result in job losses for either company or any of its subsidiaries
- No binding guarantees have been provided by Air Canada that Transat’s banner and head office shall permanently be preserved.
While none of these change with the higher priced offer it seems less likely that these concerns will sway shareholders. The Letko stake is now committed to the deal, thanks to the higher price point.