Transat shareholders approve revised Air Canada takeover offer

Transat AT (TRZ) shareholders approved Air Canada’s deeply discounted takeover offer of $5 per share on Tuesday, a move the company’s chief executive called “the right decision” as the pandemic continues to cut travel demand.

Transat shareholders voted 91.05 per cent in favour of the deal, which will see Air Canada take over the travel and tour company for $190 million, far below the original offer of $18 per share, which valued the deal at $720 million.

“You have made the right decision,” Transat chief executive Jean-Marc Eustache told shareholders after the vote on Tuesday.

“We will now work to secure the regulatory approvals needed to finalize this transaction as soon as possible.”

Tuesday’s approval marks the second time shareholders approved the deal, and is one of the last remaining hurdles of a deal process that began in 2019.

Air Canada first disclosed it was in talks to purchase the travel and tour operator in May 2019 for $13 per share, but it had to increase that offer to secure support of Transat’s largest shareholder, Letko Brosseau & Associates.

Then the coronavirus pandemic hit, devastating the airline industry and bringing travel demand to a standstill. The two companies agreed to revised terms in October.

Under the terms of the modified agreement, Transat shareholders have the option of either selling shares to Air Canada at a price of $5 per share, or exchanging each Transat share for 0.2862 of one Air Canada share. Based on Monday’s closing price of Air Canada’s stock, the value of Transat shares would be worth $7.47 in Air Canada’s stock.

Transat’s stock was trading at $5.88 as of 11:14 a.m., an increase of more than 11 per cent.

Before Tuesday’s vote, Transat released a statement disclosing that it had received an unsolicited takeover offer from a private investor outside of the airline and tourism industries. The company’s board examined the terms of the new offer, which was higher than Air Canada’s bid, but ultimately decided it was not a “superior proposal.” The company did not disclose the investor.

Eustache told reporters on a call Tuesday that price was one factor among many that the company considered when evaluating the competing proposal. Jean-Yves Leblanc, Transat’s lead independent director, said the fact that the investor was outside the travel industry, as well as the degree of certainty that the deal would close, contributed to the devaluation of the alternative offer.

Despite the shareholder approval, there is still some uncertainty as to whether the deal will be finalized as it is dependant on approval by both the European Union and Canadian government.

The European Union, which is looking at concerns that the acquisition will reduce competition on routes to and from Europe, is expected to make a decision by Feb. 9.

Transat executives warned shareholders on Monday that its future may be in doubt if Air Canada’s proposed takeover of the airline is not approved by shareholders and regulators.

“We are signalling that there might be a question mark on our ability to continue as a going concern, considering that additional financing will be necessary if there is no transaction,” Denis Petrin, Transat’s chief financial officer, said on a conference call with analysts Monday.

But on Tuesday, Eustache reiterated that Transat “would continue alone.”

“We will need some cash, like any airline in the world,” he said.

“But we will (get through it) there’s no problem.”

With files from the Canadian Press

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

Source: Yahoo Finance