Air Canada has is in exclusive negotiations to buy the company that owns Air Transat, the two companies say.
The proposed deal would value Transat at $13 per share, a 22 per cent premium from the $10.58 a share the company was valued at on Wednesday. At $13, Transat is being valued at roughly $520 million.
Earlier this month, Montreal-based Transat announced it had been approached by more than one party about a possible sale of the company. Speculation at the time was that another Canadian airline, likely either Air Canada or WestJet, would make the most sense as a suitor.
“A combination with Transat represents a great opportunity for stakeholders of both companies,” said Calin Rovinescu, Air Canada’s CEO, in a release.
“This includes the shareholders of both Transat and Air Canada, employees of both companies, who will benefit from increased job security and growth prospects, and Canadian travellers, who will benefit from the merged company’s enhanced ability to participate as a leader in the highly competitive leisure travel market globally.
“Transat CEO Jean-Marc Eustache was also touting the benefits.
“This announcement is good news for Transat,” he said in a release. “This is an opportunity to team up with a great company that knows and understands our industry, and has had undisputable success in the travel business. This represents the best prospect for not only maintaining, but growing over the long term the business and jobs that Transat has been developing in Quebec and elsewhere for more than 30 years.”
While both sides seem to be in favour, the deal is far from done.
Transat said earlier this month that more than one interested party had approached it about a takeover, and technically all Thursday’s news means is it has agreed to exclusively negotiate with Air Canada for the next 30 days. If a deal doesn’t come together by then or the airline doesn’t like the terms on the table, talks with other suitors could begin.
The exclusivity agreement also states that if Transat walks away from the deal for a better offer, it would pay Air Canada a $15-million break fee. In the event the agreement is terminated because regulatory or governmental approvals are not obtained, Air Canada would pay Transat a $40-million break fee.
Those regulatory approvals are no sure thing.
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According to company filings, Air Transat makes up about 20 per cent of the market for flights between Canada and Europe, and about 22 per cent of travel between Canada and sun destinations such as Mexico, Jamaica, the Caribbean and Central America.
Letting the biggest player, Air Canada, gobble up an even bigger chunk of those markets would certainly draw attention from Canada’s Competition Bureau — its mandate is to ensure takeovers don’t stifle the market for consumers.
Shareholders of both companies must also OK any deal.
The exclusive dealings move also comes on the heels of news this week that Air Canada’s biggest rival, WestJet, has agreed to be bought by private equity firm Onex, in a tentative deal that values the Calgary-based airline at $5 billion.