Air Canada, Transat revise takeover agreement, Transat adds $250m in cash

[dagger]

1 hour ago, rudder said:

Interesting analyst call this morning.

Lots of talk about Plan B (no AC transaction).

Restart flying operations mid June 2021.

Fleet getting smaller. Will be 330/321NEO only.

 

Aren't all the 330s out by the end of 2022?

[rudder]

16 minutes ago, dagger said:

Aren't all the 330s out by the end of 2022?

Remaining 330 leases expire by the end of 2022. Was probably going to be an AC decision on extending the leases.

Not sure what TS has planned in standalone plan. Made a big deal on call about efficiency of CCQ fleet (common crew qualification).

[Rich Pulman]

7 hours ago, rudder said:

Not sure what TS has planned in standalone plan. Made a big deal on call about efficiency of CCQ fleet (common crew qualification).

Small correction... CCQ = Cross Crew Qualification is the training course(s) designed to transition from one aircraft type to another without having to undergo a complete initial course. Basically, a “differences” course.

Airlines which permit their pilots to fly multiple types (320/330, 330/340, 757,767, etc) are engaged in Mixed Fleet Flying or MFF.

Yes, I agree it’s semantics, but CCQ and MFF are completely different things.

FWIW.....

[Specs]

Air Canada and Transat A.T. Inc. Agree to Terminate Arrangement

 

https://aircanada.mediaroom.com/2021-04-02-Air-Canada-and-Transat-A-T-Inc-Agree-to-Terminate-Arrangement-Agreement

 

 

MONTREAL, April 2, 2021 /CNW Telbec/ - Air Canada and Transat A.T. Inc. ("Transat") announced today that they have mutually agreed to terminate the Arrangement Agreement for the proposed acquisition of Transat by Air Canada.

Air Canada and Transat had originally agreed in June 2019 on the acquisition, the terms of which were subsequently amended in August 2019 and then revised in October 2020 as a result of the severe economic impact of the COVID-19 pandemic.

As previously disclosed, the acquisition was conditional on the approval of various regulatory authorities, including the European Commission ("EC"). In order to meet that key condition, Air Canada offered and enhanced a significant package of remedies, which went beyond the commercially reasonable efforts required of Air Canada under the Arrangement Agreement and what has been traditionally accepted by the EC in previous airline merger cases. Following recent discussions with the EC, it has become evident, however, that the EC will not approve the acquisition based on the currently offered remedy package.

After careful consideration, Air Canada has concluded that providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise Air Canada's ability to compete internationally, negatively impacting customers, other stakeholders and future prospects as it recovers and rebuilds from the impact of the COVID-19 pandemic. Especially in this challenging environment, it is essential that Air Canada focus on creating the optimal conditions for its full recovery by preserving and leveraging all of its key strengths and assets including its strong employee culture.

Both Air Canada and Transat have agreed to terminate the Arrangement Agreement with Air Canada paying Transat a termination fee of $12.5 million, and with Transat no longer under any obligation to pay Air Canada any fee should Transat be involved in another acquisition or similar transaction in the future.

CAUTION REGARDING FORWARD-LOOKING INFORMATION 

This news release includes forward-looking statements within the meaning of applicable securities laws. Forward-looking statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may involve, but are not limited to, comments relating to guidance, strategies, expectations, planned operations or future actions. Forward-looking statements are identified using terms and phrases such as "preliminary", "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would", and similar terms and phrases, including references to assumptions. Forward-looking statements, by their nature, are based on assumptions, including those described herein and are subject to important risks and uncertainties. Forward-looking statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business. Actual results may differ materially from results indicated in forward-looking statements due to a number of factors, including the factors identified herein and in Air Canada's public disclosure file available at www.sedar.com including those factors identified in section 17 "Risk Factors" of Air Canada's 2020 MD&A. The forward-looking statements contained or incorporated by reference in this news release represent Air Canada's expectations as of the date of this news release (or as of the date they are otherwise stated to be made) and are subject to change after such date. However, Air Canada disclaims any intention or obligation to update or revise any forward-looking statements whether because of new information, future events or otherwise, except as required under applicable securities regulations.

[Guest1]

Quote

Note the Discussions with 3rd parties paragraph.   The following article was posted by Transat. The parties having concluded that European Commission approval would not be obtained - The Arrangement Agreement between Transat and Air Canada is Terminated by Mutual Consent (newswire.ca)

 

 

---

NEWS PROVIDED BY

Transat A.T. Inc. 

Apr 02, 2021, 12:00 ET

---

Transat actively pursuing negotiations to secure long-term financing as it plans for relaunch

Transat to consider other available strategic alternatives

MONTRÉAL, April 2, 2021 /CNW Telbec/ - Transat A.T. Inc. ("Transat" or the "Corporation") today announced that the contemplated arrangement with Air Canada (the "Arrangement") under the revised arrangement agreement between Transat and Air Canada dated October 9, 2020 (the "Arrangement Agreement") has been terminated by mutual agreement of Transat and Air Canada, effective immediately. The parties have reached this agreement after having been advised by the European Commission that it would not approve the transaction.

In connection with the termination of the Arrangement Agreement, Air Canada has agreed to pay a $12.5 million termination payment to the Corporation and to waive its entitlement to a $10 million termination fee in the event of an acquisition of Transat by a third party in the twelve months following termination of the Arrangement Agreement.

"This transaction, first contemplated more than two years ago, was complicated by the pandemic, and, ultimately, Air Canada reached its limit in terms of concessions it was willing to provide the European Commission to satisfy their competition law concerns," said Jean-Marc Eustache, President and Chief Executive Officer of Transat. "While both companies expected the proposed transaction to result in compelling benefits to shareholders, customers and other stakeholders, and even though we had received approval from the Canadian authorities, it has now become evident that we would not obtain the approval of the European Commission. Under these circumstances, Transat and Air Canada therefore mutually agreed that terminating the Arrangement Agreement was in our respective best interests. Now that Transat is no longer constrained by the limitations under the Arrangement Agreement, we are free to take the necessary steps to ensure a successful, long-term future, beginning by securing long-term financing to provide Transat with the flexibility to deliver on its strategic plan."

"I would like to thank our employees for their unwavering dedication and commitment throughout this process," added Mr. Eustache. "Although we are disappointed with this outcome, we are confident in the future of Transat and look forward to building back stronger as we exit the throes of the pandemic."

Details of the Termination Agreement

The termination agreement signed today between Air Canada and the Corporation provides for, among other things, the immediate termination of the Arrangement Agreement and contains a mutual release pursuant to which the parties have agreed to release one another from claims arising from, or related to, the Arrangement Agreement. A copy of the termination agreement will be filed on SEDAR at www.sedar.com.

As stated above, Air Canada has agreed to pay a one-time $12.5 million termination payment to the Corporation and to waive its entitlement to a termination fee that would have been payable in the event of an acquisition of Transat in the twelve months following termination of the Arrangement Agreement by one of the parties. This agreement between the parties regarding the treatment of the termination fees entitlements contained in the Arrangement Agreement was reached after carefully considering all relevant facts and circumstances, and in the interests of moving forward from the termination of the parties' relationship with no outstanding issues. Elements considered included the following, based on the terms of the Arrangement Agreement:

• a $10 million reverse termination fee payable by Air Canada to Transat upon termination if the European Commission's approval could not be obtained under any condition, meaning a full block of the Arrangement; or
• a $30 million reverse termination fee payable by Air Canada to Transat if Air Canada or Transat would have unilaterally terminated the Arrangement Agreement prior to a decision by the European Commission not involving a full block of the Arrangement; and
• a $10 million termination fee payable by Transat to Air Canada if, in the 12 months following the date of termination of the Arrangement Agreement, (A) an acquisition of Transat were to be consummated or effected, or (B) if Transat were to enter into an agreement for its acquisition and such acquisition were later consummated.

Finances

As previously stated, the Corporation requires new financing totalling at least of $500 million in 2021. The Corporation has been taking and will continue to take all measures available to it to preserve cash and, as previously announced, it has put in place a $250 million short-term subordinated credit facility, which matures on June 30 and will need to be replaced or extended before that date.

The Corporation is actively pursuing negotiations to secure long-term financing, including under the Large Employer Emergency Financing Facility ("LEEFF") and via prospective support from the Canadian government for businesses in the travel and tourism sector. Discussions on both topics are at an advanced stage and Transat's management is confident that a satisfactory financing will be secured in the coming weeks.

Strategic Plan

Now that Transat is no longer constrained by the limitations under the Arrangement Agreement, it is free to focus on relaunching operations under its strategic plan, including by leveraging its many competitive advantages.

As a smaller operator, Transat can be nimble and quickly adapt to ever-shifting market conditions. There is significant pent-up demand among customers in the Corporation's primary segments of leisure travel and visiting friends and relatives (VFR), which are expected to recover sooner than business travel.

Transat's smaller aircraft fleet provides greater flexibility and efficiency, and the Corporation benefits from a well-respected brand that customers love, as well as committed staff members and a strong distribution network.

Discussions with third parties

In addition, now that the Arrangement Agreement has been terminated, Transat is free to hold discussions with potential strategic and financial acquirers, including Mr. Pierre Karl Péladeau, whose investment company, Gestion MTRHP Inc., previously made (and since reiterated) a proposal to acquire all of the issued and outstanding shares of Transat for 5$ a share. The Board intends to examine available strategic alternatives, including the pursuit of the Corporation's stand-alone business plan.

"The global air transportation and tourism industry has been among those most affected by the COVID-19 crisis. However, the arrival of vaccines brings us a light at the end of the tunnel, and Transat is well positioned to bounce back. In close to 40 years of existence, we have traversed numerous crises and each time, we emerged stronger than before, demonstrating our resilience as an organization. We look forward to a safe and healthy future, as we hopefully put this pandemic behind us," concluded Mr. Eustache.

[Guest1]

Quote

Timeline: The ups and downs of Air Canada’s abandoned deal for Transat
2 April 2021Canadian Aviation News
From the Toronto Star – link to source story

By The Canadian Press | Fri., April 2, 2021

MONTREAL – Air Canada and Transat AT have mutually agreed to terminate the $190-million purchase of Transat after the European Commission indicated its unwillingness to approve the transaction.

Here are some key events:

—

April 30, 2019: Transat shares gain more than 40 per cent after the tour and travel operator announces it is in preliminary talks to sell the company.

May 10, 2019: As airline industry observers speculate about Air Canada and other possible buyers for Transat, a number of Quebec-based players express interest in the company. Dominik Pigeon, head of financial services company FNC Capital, says he has a group of interested investors after Montreal real estate developer Group Mach says it has submitted an offer. Pierre Karl Peladeau, president and CEO of Quebecor, says he has requested a financial analysis of the company for a personal investment.

May 16, 2019: Transat announces it is in exclusive talks with Air Canada, which offered to buy the company $13 per share or roughly $488 million. The two companies enter a 30-day negotiation period. Air Canada’s stock climbs to a record high.

June 4, 2019: Quebec real estate developer Group Mach Inc. says it will make a takeover offer for Transat worth $14 per share or $527.6 million in cash. The real estate developer was hoping the Quebec government would contribute $120 million in financing.

June 14, 2019: Group Mach formally submits its $14-per-share offer for Transat.

June 25, 2019: One day before the Transat-Air Canada exclusivity talks are set to expire, Groupe Mach announces it has reached an agreement with the Quebec government to support its rival bid, having dropped a key financing condition.

June 27, 2019: Transat’s board of directors approves Air Canada’s $520-million takeover offer. Despite the agreement, it’s unclear whether Transat shareholders will follow suit: Letko, Brosseau and Associates and PenderFund Capital Management, which jointly own a 21.1 per cent stake, had previously said they would not support a $13-per-share purchase price.

July 3, 2019: Group Mach withdraws its bid saying the tour operator chose to ignore its proposal even though it featured a higher price than Air Canada’s offer.

July 17, 2019: Unifor president Jerry Dias, head of Canada’s largest private-sector union, says in an open letter that Air Canada is employees’ best option among Transat’s suitors, citing stability.

Aug. 2, 2019: In a bid to block the Air Canada deal, Group Mach offers Transat shareholders $14 per share in an effort to scoop up a large enough stake in the company to vote the bid down.

Aug. 6, 2019: Transat fires back, warning shareholders against what it calls Group Mach’s “abusive’’ and “misleading’’ move to block the sale and says it has filed a complaint with Quebec’s securities tribunal.

Aug. 11, 2019: Air Canada increases its offer for Transat by $200 million, bringing the total to $720 million of $18 per share. The new offer comes with the backing of Transat’s largest shareholder, Letko Brosseau and Associates Inc.

Aug. 12, 2019: Quebec’s securities tribunal blocks Group Mach’s offer to buy up Transat shares.

Aug. 13, 2019: Peladeau says he plans to vote against the sweetened $18-per-share offer and hints at an alternate proposal.

Aug. 23, 2019: Transat shareholders approve Air Canada’s $720-million acquisition offer.

Aug. 26, 2019: The shareholder-approved deal will undergo a 250-day public interest assessment, then-transport minister Marc Garneau announces. Garneau added 100 days to the typical review period for the Transportation Ministry and Competition Commissioner due to the size and scope of the proposed merger.

March 14, 2020: Against a backdrop of steadily climbing cases of COVID-19 worldwide, the federal government advises travellers to avoid all non-essential travel outside of Canada. Airlines, including Air Canada and Air Transat, see a massive decline in the number of passengers.

March 18, 2020: Transat begins a gradual suspension of flights until April 30, while Air Canada suspends the majority of its international flights. Like other airlines in Canada and abroad, temporary route suspensions will continue through the end of the year and beyond due to the COVID-19 pandemic.

March 27, 2020: The Competition Bureau says in a report to the transportation ministry that the proposed deal likely will hinder competition and result in less choice for Canadian travellers. It identifies 83 overlapping routes, more than half of which are between Canada and Europe. Transat’s stock ended the day trading for $8.98 _ half Air Canada’s purchase price.

March-April 2020: Air Canada and Transat temporarily lay off thousands of employees as flights slow to a near-halt.

May 25, 2020: European regulators launch an investigation into the acquisition after a preliminary review noted the deal could significantly reduce competition on 33 routes between Europe and Canada. Transat delays the deal’s completion date by a month. Its shares end the day at $7.

June 19, 2020: European Union regulators suspend their investigation pending the arrival of more data from the two companies. The investigation resumes in September.

Sept. 10, 2020: Transat reports dire quarterly results, with revenues down 99 per cent. Executives admit the Air Canada deal is no longer certain. Its share price falls below $5, more than 70 per cent below the deal price of $18.

Oct. 10, 2020: The two travel companies announce they have reached terms for a revised deal that will see Air Canada buy Transat for $5 a share or $190 million, a significant discount to the original agreement.

Dec. 15, 2020: Transat shareholders vote to accept the revised takeover offer, with 91 per cent of votes in favour of the deal.

Dec. 22, 2020: Peladeau’s investment company Gestion MTRHP Inc. submits an unsolicited proposal to Transat.

Jan. 12, 2020: Transat issues a statement reconfirming its support for the Air Canada takeover, saying the Gestion proposal is not supported by binding, fully committed financing.

Feb. 11, 2021: Government of Canada approves Air Canada’s proposed purchase of Transat. The deal is set to expire Feb. 15 unless extended.

Feb. 15, 2021: The deal expires without an extension; both parties say they are continuing discussions while awaiting a decision from European regulators.

April 2, 2021: The takeover attempt dies after Air Canada and Transat AT terminate the deal after the European Commission advised the airlines it wouldn’t approve the transaction.

This report by The Canadian Press was first published April 2, 2021.

Companies in this story: (TSX:AC, TSX:TRZ)

 

[runaway]

Opens the door for the Quebec Gov't to act on an "assistance package" or maybe even partial stake in the airline! 

Forget about the Feds helping at this time! Obviously the Feds have no appetite for any airline assistance at this time!

[Maverick]

15 hours ago, runaway said:

Opens the door for the Quebec Gov't to act on an "assistance package" or maybe even partial stake in the airline! 

Forget about the Feds helping at this time! Obviously the Feds have no appetite for any airline assistance at this time!

Not sure what you mean by that? An AC/TS linkup would have had a stranglehold on TATL routes. The EU didn't like it because it was horribly anti-competitive. Why should the taxpayer be expected to backstop that deal?

If TS is viable then they'll make it but I don't think they are or will.

[Specs]

What's to prevent Transat selling a few of those slots to AC to clear up their $500 million financing needs?  I don't know the value of slots in the UK but they must be worth a few million. 

[FA@AC]

34 minutes ago, Specs said:

What's to prevent Transat selling a few of those slots to AC to clear up their $500 million financing needs?  I don't know the value of slots in the UK but they must be worth a few million. 

I don't think AC sees any need to buy UK slots from TS.  It has has managed to operate to EDI, GLA, MAN and LGW with Rouge despite TS serving those airports.

[Seeker]

I'm not completely convinced it's actually over.  Maybe, but I wouldn't be the least surprised to see the EU regulator suddenly and inexplicably decide to approve after all.

Seems suspicious to me - a joint news release from AC and AT "cancelling" the deal before hearing from the regulator.  Why take a fall when you can let the regulator wear it.  Furthermore, AT is now on the ropes and desperate for a deal - any deal - to stay alive.  Why would they voluntarily give up on the AC deal if there was any hope at all and, not having heard from the regulator means there still is some hope.

 

 

[Kip Powick]

Pretty much spells it out.....why wait and have to add more concessions on AC's part...

 

, Air Canada offered and enhanced a significant package of remedies, which went beyond the commercially reasonable efforts required of Air Canada under the Arrangement Agreement and what has been traditionally accepted by the EC in previous airline merger cases. Following recent discussions with the EC, it has become evident, however, that the EC will not approve the acquisition based on the currently offered remedy package.

[j.k.]

2 hours ago, seeker said:

I'm not completely convinced it's actually over.  Maybe, but I wouldn't be the least surprised to see the EU regulator suddenly and inexplicably decide to approve after all.

Seems suspicious to me - a joint news release from AC and AT "cancelling" the deal before hearing from the regulator.  Why take a fall when you can let the regulator wear it.  Furthermore, AT is now on the ropes and desperate for a deal - any deal - to stay alive.  Why would they voluntarily give up on the AC deal if there was any hope at all and, not having heard from the regulator means there still is some hope.

 

 

I think the EU anti-trust regulator was quoted in reports that they wouldn't approve the transaction based on the concessions Air Canada offered. 

AT didn't have a choice regarding volunteering to give it up, the arrangement expired allowing either party to terminate the deal unilaterally, but by phrasing it that way it at least allows AT to not look as desperate, even though 3 weeks ago the Transat CEO stated they may not survive without the deal.

You may be right, once the government gets its thumbs in the pie we may see more to this, but I doubt it. I think this signals a break down between AC and the Feds and they are putting it behind them and moving to a new strategy forward.

I think Quebecor backed with financing from the government of Quebec and special support conditions from the Feds is the likely next move here.

[runaway]

7 hours ago, Maverick said:

Not sure what you mean by that? An AC/TS linkup would have had a stranglehold on TATL routes. The EU didn't like it because it was horribly anti-competitive. Why should the taxpayer be expected to backstop that deal?

If TS is viable then they'll make it but I don't think they are or will.

I never stated that taxpayers should backstop the "deal". 

[Guest1]

Quote

Airlines have been in talks with Ottawa since last year about a possible aid package. Transat’s aborted deal adds fresh urgency to the talks, given the jobs at risk if the carrier fails and the political importance of Quebec ahead of an expected federal election this year.

After failed takeover, Air Transat seeks help as debt crunch looms (msn.com)