It's been just over a month since Transat A.T. Inc. made an announcement that shook the travel industry.
Now, after a series of intense negotiations, the fate of Transat A.T. Inc. has been revealed by its shareholders.
Air Canada and Transat A.T. Inc. announced today that they have concluded a definitive Arrangement Agreement that provides for Air Canada's acquisition of all issued and outstanding shares of Transat and its combination with Air Canada. Under the terms of the binding agreement, unanimously approved by the Board of Directors of Transat, Air Canada will acquire all outstanding shares of Transat for $13 per share. The value of the all-cash transaction is approximately $520 million.
"We are delighted to have reached this definitive agreement to combine Transat with Air Canada to achieve the best possible outcome for all stakeholders. For shareholders of Transat and Air Canada, this combination delivers excellent value, while also providing increased job security for both companies' employees through greater growth prospects. Air Canada intends to preserve the Transat and Air Transat brands and maintain the Transat head office and its key functions in Montreal. Both companies have demonstrated excellence as evidenced by the 2019 Skytrax Awards. Travelers will benefit from the merged companies' enhanced capabilities in the highly competitive, global leisure travel market and from access to new destinations, more connecting traffic and increased frequencies. The Quebec economy will derive maximum advantage of having a Montreal-based, growth-oriented global champion in aviation, the world's most international business," said Calin Rovinescu, president and CEO at Air Canada.
"We are very pleased to join forces with such a successful player in our industry. The combination with Air Canada will give Transat new perspectives of growth, with the support of a strong network offering many options for connecting traffic. This fully-funded cash transaction is the ideal platform for Transat's presence and jobs in Montreal, and therefore represents the best option for all our stakeholders: employees, suppliers, partners and shareholders," said Jean-Marc Eustache, president and CEO of Transat. "For our clients, it will offer even more choices and possibilities. For now, they can continue booking their flights and packages with complete confidence, as all bookings will be honoured before and after the closing of the transaction."
The transaction remains subject to regulatory and shareholder approvals and other closing conditions usual in this type of transaction. If such approvals are obtained and conditions are met, the transaction is expected to be completed in early 2020.
Here's what we know
On June 5, one day after Groupe Mach put forth its one billion dollar bid, Air Canada and Transat confirmed they'd still try and negotiate a purchase deal.
Groupe Mach, on the other hand, originally indicated that it would bid $14 per share for ownership of Transat, a billion-dollar offer and nearly twice the $520 million valuation of Air Canada’s offer.
The offer by Groupe Mach included a proposal to involve Spain-based hotel developer TM Grupo Inmobiliario, the largest residential and leisure real estate developer in Spain and preferred hotel supplier of Transat in Mexico, in exchange for a minority equity stake in Transat, approximately $15,000,000 in cash and roll-over of its three operating hotels in Mexico with approximately 1,000 rooms under the well-established banner of The Fives Hotels and Residences into Transat's platform.
What about Groupe Mach?
Groupe Mach, which also submitted an offer to the tour operator in parallel with that of Air Canada, changed the conditions of its offer on June 25 in order to be more attractive. The company led by Vincent Chiara has dropped the conditions for obtaining financial assistance from the Government of Quebec in the order of $120 million, as well as those relating to the signing of a support and development agreement.
On June 26, 2019, after an extensive review, the Special Committee of Transat's Board of Directors concluded unanimously that combining with Air Canada and entering into the Arrangement Agreement are in the best interests of Transat and its stakeholders, including its employees, clients, shareholders, partners and suppliers, and has provided its unanimous recommendation to the Transat Board of Directors to that effect.
On June 27, 2019, the Transat Board of Directors, having among other considerations, received and considered the recommendation of the Special Committee, unanimously determined that the transaction is in the best interests of Transat and its stakeholders, approved the Arrangement Agreement and recommended that Transat shareholders vote in favour of the transaction. In addition, each of the directors and executive officers of Transat has entered into a voting support agreement pursuant to which each of them has committed to vote in favour of the transaction.
Each of National Bank Financial and BMO Capital Markets has provided the Transat Board of Directors with an opinion to the effect that, as of the date thereof, the consideration to be received by holders of Transat shares with respect to the transaction was fair, from a financial point of view, to such holders, in each case subject to the respective limitations, qualifications, assumptions and other matters set forth in such opinions.
The terms of the Arrangement Agreement provide for a break fee of $15 million payable by Transat in case of termination of the agreement in certain circumstances, including upon acceptance of a Superior Proposal that is not matched by Air Canada. Under the Arrangement Agreement, a Superior Proposal is defined, in part, as an unsolicited bona fide written acquisition proposal, that is made at a firm price per share equal to or exceeding $14 in cash, that has fully committed financing from a financial institution or similar organization (or is made by a person with adequate cash on hand), and that the Board of Directors of Transat determines in its good faith judgment, after receiving legal and financial advice, would result in a transaction that would be in the best interests of Transat and its stakeholders and be more favourable, from a financial point of view, to Transat shareholders. The terms and conditions for the making of a Superior Proposal and its complete definition are contained in the Arrangement Agreement.
The Arrangement Agreement also provides for the payment by Air Canada of a reverse break fee of a maximum of $40 million in the event that the agreement is terminated because regulatory or governmental approvals are not obtained, subject to certain conditions.
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