Transat executives confirm they received a competing offer for at least $6 per share, but judged it insufficient on other grounds

Revelation comes just hours before shareholders vote 91% in favour of a merger with Air Canada

As shareholders at Transat approved a merger with Air Canada, executives confirmed Tuesday they received a competing offer to buy all of the company’s shares, but judged it insufficient. The revelation came just before shareholders voted 91% in favour of merging with Canada’s largest carrier.

The competing offer came from outside the aviation industry, confirmed Jean-Marc Eustache, Transat’s President and Chief Executive Officer.

“We’ve been transparent with everyone,” said Eustache. “We got a proposal a few weeks ago. We studied it left right and centre, as we say. We engaged special advisors to analyze the proposal. We gave the bidder access to all our documents – Transat’s data room.

“We did it openly, seriously, and wholeheartedly,” he said. “It’s in our self-interest. Someone comes to see me and says Jean-Marc, I’ll give you more money, I’ll keep more people working, I want to operate the company, welcome, my friend.”

Talks came down to the wire Monday evening, he said.

“We gave it until the final minute,” said Eustache. “We had a three-hour special committee meeting followed by a three-hour board meeting that finished at 8 p.m. And the board decided that the proposal was not a superior one that we could accept.”

Under the terms of the approved merger with Air Canada, Transat could only entertain “superior” proposals worth at least $6 per share.

While the competing offer met the price criteria, the Transat board judged it fell short in other areas, such as timing, financing, and related conditions.

Merger is the best option

In the end, the competing offer for Transat is for naught. Shareholders will get $5 per share or Air Canada shares in exchange.

Eustache welcomed the vote at a news conference, saying Transat needed a partner.

“Transat can’t go it alone, that’s over,” he said. “Aviation is global now.”

Without a partner, said Eustache, there was every chance that Transat would “get smaller and smaller and eventually become obsolete.”

“The two companies together,” the Transat leader said of the approved merger, “will create a champion. A champion in Canada; a champion in Quebec.”

The airlines serve different markets, he said. Air Canada with a large hub and spoke system. Transat serving the niche leisure market. And that will be key as they emerge from the pandemic.

“Air Canada is putting 20,000 in the streets,” said Eustache. “I’m putting 2,000 out of work. Are we happy to do that? Are we happy to lay off our employees? No. Am I proud of myself? No. But I think that together, we can accomplish something.”

The deal must still be approved by regulators in Canada and Europe. Canada’s Transport Minister has launched what’s called a public interest review to review its effects on competition, particularly across the Atlantic.

He said both airlines have been diligently answering questions from regulatory agencies. Transat had around 40 questions to address this morning, for example.

Eustache said he believed Ottawa was waiting for this vote before weighing in. Though he’s not sure if approval will come before the end of the year. European regulators have set a February 9 deadline.

Refunds are a condition of aid

If regulators say no, Eustache said he intends to keep Transat going. He rejected shareholder questions that bankruptcy was on the table. But, he said, the company would need between $350 and $600 million to survive the next two years.

That could come from private lenders or government aid.

The Transport Minister has made it clear passenger refunds will be part of any rescue package. When the pandemic struck, most airlines, including Transat, cancelled thousands of flights. They offered passengers travel vouchers instead of refunding their money. The issue has continued to fester, sapping airlines of some of the goodwill they built up over the years.

“I am very unhappy to not reimburse our clients,” said Eustache, his voice rising.

“Why have airlines elsewhere in the world refunded?” he asked. “Because governments have given them money to continue operations, keep their employees on, and reimburse their clients. What we’ve said to governments since the beginning, ‘we’re ready to offer refunds. Help us, we’re dying.’ Pardon the expression, but it’s true.”

Eustache said 30% of passengers on board Transat planes right now are paying with travel vouchers.

“I don’t want to rob my clients,” he said. “But after a while, there’s only so much you can do.”