Air Canada announced over the weekend that it concluded an amended transaction with Transat A.T. Inc. that provides for Air Canada to acquire all the issued and outstanding shares of Transat and for its combination with Air Canada. Under the binding agreement, unanimously approved by the Board of Directors of Transat, Air Canada will acquire all shares of Transat for C$5.00 per share, payable at the option of Transat shareholders in cash or shares of Air Canada at a fixed exchange ratio of 0.2862 Air Canada share for each Transat share (representing a price for the Air Canada shares of C$17.47). The value of the transaction is approximately C$190 million.
The amended transaction reflects the unprecedented impact of COVID-19 upon the global air transport industry, which has endured a severe decline in air travel since the initial Arrangement Agreement between Air Canada and Transat was concluded and approved by Transat shareholders in August 2019. The transaction remains subject to shareholder approval, court approval, the approval of the Toronto Stock Exchange, certain customary and other conditions, and regulatory approvals including the ongoing approval process of regulatory authorities in Canada and the European Union. If such approvals are obtained and conditions are met, the transaction is expected to be completed in late January or early February 2021.
“COVID-19 has had a devastating effect on the global airline industry, with a material impact on the value of airlines and aviation assets. Nonetheless, Air Canada intends to complete its acquisition of Transat, at a reduced price and on modified terms,” said Calin Rovinescu, President and Chief Executive Officer of Air Canada. “This combination will provide stability for Transat’s operations and its stakeholders and will position Air Canada, and indeed the Canadian aviation industry, to emerge more strongly as we enter the post-COVID-19 world.”
The Transat Board of Directors unanimously determined that the amended transaction is in the best interests of Transat and its stakeholders, and is recommending that Transat shareholders vote in favor of the transaction. In addition, each of the directors of Transat entered into a voting support agreement pursuant to which each of them has committed to vote in favor of the transaction.
The transaction will be implemented pursuant to a court-approved plan of arrangement under the Canada Business Corporations Act. The new price of C$5.00 per share represents a premium of 31.6% over the 20-day volume-weighted average price of Transat shares on October 8, 2020.
In our view, the Transat shareholders are fortunate Air Canada went through with this deal because COVID certainly curtailed leisure travel outside Canada. Were Transat to remain a stand-alone company there is every chance it might have to shut down like so many other airlines. Moreover, Air Canada still offered a premium of over 30%.Â
On the other hand, if one takes a longer-term view, beyond COVID, Air Canada scored a great deal. Sure there are carrying costs for now and potentially through 2025. But Air Canada gets its hands on A321neos now that can be put to use. Which airline doesn’t want an A321neo? Very few. The A321neo reduces the negative impact of the ongoing MAX grounding. Having an Airbus single-aisle fleet helps reduce risk. Moreover, as markets open, the range of the A321s to cross the Atlantic become even more attractive. Air Canada has been using A319s to the UK, so it has an eye for deploying in niche markets across the Atlantic.Â
