Ignoring concerns about the long-term effects it might have on the Quebec economy, Transat shareholders have voted overwhelmingly to sell their shares to Air Canada in a $720 million deal.
Almost 95% of shareholders approved the sale at a special meeting Friday in Montreal.
“We are delighted by the shareholder support for the arrangement that will create a Montreal-based travel leader, able to compete on a global scale” said Jean-Marc Eustache, President and Chief Executive Officer of Transat in a statement. “This transformative transaction will create long-term benefits for our employees, travellers and communities, all the while providing significant value for our shareholders.”
“We are pleased with the outcome of Transat’s special meeting and grateful to Transat shareholders for this overwhelming show of support,” said Calin Rovinescu, President and Chief Executive Officer of Air Canada. “We will build a combined company greater than the sum of its parts that we can all be proud of. We now look forward to engaging with Transport Canada and the Competition Bureau to secure the required approvals to complete the transaction and welcome the opportunity to demonstrate the many benefits it will bring.”
The sale has merged business with Quebec’s unique cultural, economic and social concerns. It has also raised concerns in nationalistic quarters about the loss of control of a home-grown company.
“While imperfect, this transaction could allow Transat to be included in a larger group, thus allowing it to better deal with growing international competition,” said the Fonds de solidarité FTQ, a Transat shareholder, in a statement. “It is now up to Air Canada to seize the opportunity to increase jobs and economic spinoffs in Québec.”
Air Canada says it will maintain Transat’s brand alongside Air Canada’s own Rouge discount brand. Transat’s head office functions will also stay in Montreal.
Air Canada initially offered $13 a share, but sweetened the pot to $18 to win over Transat’s largest shareholder, Letko, Brosseau & Associates. Air Canada will pay for the shares in cash. That agreement with Letko made it highly unlikely the merger would fail.
Air Canada first approached Transat about a sale in October. The Transat board agreed after an independent assessment delivered a bleak outlook on the company’s future, saying its strategic plan carried “significant risk in the medium- and long-term.”
Transat has lost almost $100 million in its last two quarters, typically a slower time in the aviation industry.
Despite the approval, the Transat-Air Canada marriage is far from a done deal.
Canada’s Transport Minister must decide this month whether to launch a public interest review of the merger. Such a review is likely, with input from Canada’s Competition Bureau, especially since a combined company, along with its Star Alliance partners, would hold about two-thirds of the trans-Atlantic market. Marc Garneau used a similar process in approving the merger of Canadian North and First Air in June.
Air Transat is acquiring 15 A321neoLR aircraft as it retires older A310s and drops Boeing 737s from the fleet.