Transat holders approve Air Canada’s lower bid; Shares gain

Shareholders of Transat AT Inc. approved a reduced takeover bid from Air Canada, despite the last-minute revelation of a competing offer.

Transat investors voted 91% in favor of the revised C$5-per-share bid, which includes the option to take Air Canada shares instead of cash. The outcome was announced less than two hours after Transat said it received an approach from another potential buyer that its board rejected.

“In late November 2020 Transat received an unsolicited proposal from a private investor, who is not actively involved in the airline and tourism industries,” the Montreal-based company said in a release Tuesday. The board considered it, but unanimously determined it didn’t represent a “superior proposal.” It didn’t name the investor.

Transat shares were up about 12% to C$5.94 as of 2:29 p.m. in Toronto. Air Canada rose 0.5% to C$26.22.

The shareholder meeting was one of the final stages of a long, strange flight that began in April 2019, when the vacation tour operator disclosed it was in preliminary talks on a sale.

Air Canada’s initial offer was for C$13 a share, but Transat’s largest shareholder, Letko Brosseau & Associates Inc., balked. Air Canada raised it to C$18 to seal a friendly deal in August of last year, which the two sides sent to regulators for approval.

Then the pandemic hit. Transat agreed to a 72% price cut in October—with Air Canada offering the option of 0.2862 of its own shares for every Transat share. Proxy advisory firms Institutional Shareholder Services and Glass Lewis recommended its holders vote for the revised acquisition.

When global airline stocks took off on news of successful trials of Covid-19 vaccines, so did Transat’s, trading as high as C$6.35 in early December.

A Transat investor who elects to take equity instead of cash stands to receive about C$7.47 worth of Air Canada shares, based on the latter’s Monday closing price.

Transat said on Friday that revenue in the quarter ended Oct. 31 was just C$28.4 million ($22.3 million), down 96% from the year before. In a conference call with analysts Monday, Chief Executive Officer Jean-Marc Eustache said the company would need C$500 million in the event the takeover fails.

The pact is the best path forward for Transat, “and that is even more true in the context of the pandemic,” Eustache said. “Joining ourselves as a leisure company to Air Canada’s might and network can only make both companies emerge stronger from the crisis.”

Canada’s regulators still must approve the deal, while the European Union’s antitrust commission has until Feb. 9 to conclude its review.

Another offer would provide support to Transat’s share price under a scenario where the deal is blocked by regulators, according to Desjardins Securities analyst Benoit Poirier. He cited WestJet Airlines Ltd., controlled by Onex Corp., as a potential buyer.

“Under this scenario, we believe Onex could be interested in TRZ’s assets considering the complementarity of TRZ’s operations with WestJet’s and the potential operational synergies,” Poirier said in a note to clients Tuesday.