Air Canada has boosted its offer for Air Transat to $18 per share from $13, and won the approval of Transat’s largest shareholder in the process. It will pay $720 million in an all-cash deal for all of Transat’s shares.

With the boost in share price, Air Canada has won over Letko Brosseau, which owns 19.3% of Transat shares and had expressed doubts about the Air Canada arrangement.

The move comes in response to a play by Groupe Mach, which offered to buy 19.5% of Transat shares in order to block the merger. It offered $14 per share, but only if it could buy more than six million shares, enough to potentially block the merger, but not enough to trigger take-over provisions in securities laws.

Even before Sunday’s increased offer, the Transat board urged shareholders to reject the Mach offer.

“After extensive consultations with Letko Brosseau and several other large shareholders of Transat, we agreed to materially increase our price to ensure the transaction receives the necessary level of support at the Special Meeting of Shareholders of Transat,” said Calin Rovinescu, President and Chief Executive Officer of Air Canada in a statement.

Air Canada, which is sitting on a small mountain of disposable cash, has said it intends to maintain Air Transat’s brand and head office functions in Montreal. Transat is Canada’s largest integrated tour company.

“Travellers 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,” said Rovinescu.

“We are very pleased by the added stability brought about by Air Canada’s increased bid as supported by Transat’s largest shareholder, Letko Brosseau,” said Jean-Marc Eustache, Transat’s President and CEO.

The two companies also agreed to other changes in the Air Canada offer, such as increasing the amount Transat must pay to $40 million if the deal doesn’t go through.

Transat has called a special shareholder meeting August 23 in Montreal to vote on the merger. It still must also pass regulatory and court approvals to become final.

The combined company, along with its alliance partner Lufthansa, would control about two-thirds of the trans-Atlantic market, according to figures compiled by Air Transat.

Air Canada has already submitted the merger to Canada’s Transport Minister, who has until the end of August to decide whether to launch a public interest review. If a review is launched, which seems likely given the stakes, the minister would study the merits of the deal with the input of the Competition Bureau.