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Transat shareholders getting restless


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This shows you that even in good times, the natives can get restless. Here is Transat, spinning off cash, facing a shareholder revolt. Is this what we can expect at AC with Cerberus?

Jana Partners LLC Requests Transat A.T. Inc. Undertake a Dutch Auction Tender Offer



NEW YORK, Nov. 11 /PRNewswire/ -- On November 10th, the following letter

was sent by Jana Partners LLC to Transat A.T. Inc.:

Board of Directors of Transat A.T. Inc

C/O Mr. Jean-Marc Eustache

Transat A.T. Inc.

Place du Parc

300 Leo-Pariseau Street, Suite 600

Montreal, QC H2X 4C2

Dear Mr. Eustache:

As you are aware, JANA Partners LLC ("JANA") owns 2,660,000 shares of

Transat A.T. Inc. ("Transat" or the "Company") representing approximately 8%

of the outstanding stock. We would like to be supportive of management as we

believe that you have done an admirable job in restructuring the business;

however, we are obliged to publicly articulate our divergent views regarding

the Company's capitalization plans and management's perception of shareholder

sentiment. Specifically, we believe that it is in the Company's best interest

to undertake a Dutch auction tender offer for at least $200 million of its

outstanding stock immediately. This would allow the company to take advantage

of the current under-valuation (in our view) of its stock. While we

acknowledge that a process currently is underway to assess strategic options,

we believe that your January deadline is simply too late; in addition, the

indicated buyback range of $100-150 million, which you mentioned to us, if you

were to execute a Dutch auction tender offer, is simply too low.

First, we do not understand why it takes so long to study the buyback

issue. We first raised the topic of a Dutch auction tender offer with you in

June 2004 -- we also know that other shareholders have been pushing you on the

subject over the subsequent months. In fact, you have had excess cash

building on the balance sheet long before that date. Since June 2004, the

stock price has climbed from $18 to $24. Your hesitance has made a buyback 33%

more expensive. We are concerned that you have little appreciation for the

time value of money. Are you aware that by sitting on $370 million of cash for

eight months as opposed to buying back your own stock at a 20% free cash flow

yield, you have lost close to $50 million? This begs the question: Why are

you engaging an investment banking firm to assess your alternatives now? Why

was this not done a year ago?

With respect to shareholder sentiment, we have undertaken an informal poll

of several of your shareholders. While we are confident that a formal

referendum on the topic would yield a vastly greater amount, you will be

interested to know that, including our own shares, approximately 13 million

shares (40 % of outstanding shares) support our views. This total includes a

significant percentage of both Canadian and U.S. shareholders.(1) While we

are well aware that there are some shareholders who would disagree with us, we

are more confident that with a little more effort, we could total

substantially greater than 50% support for our views.

As we have discussed with you, the economics of a Dutch auction tender

offer are compelling. To review, the math and logic: the Company has a cash

balance of approximately $370 million. Assuming that you retain $75 million

as a cushion for unforeseen circumstances (which you have advised us and

others is a sufficient reserve and is consistent with the cash drawdown

following 9/11), the Company will still have roughly $295 million left for

other activities. Our buyback analysis shows that a repurchase of

$200 million of stock at $25, will be immediately accretive by $0.33 per

share, or 20%, over the latest twelve months earnings and will permanently

reduce the Company's float by roughly 8.0 million shares. An investment in

the Company's stock involves less risk than any other acquisition since you

obviously know your own company intimately. It involves no execution risk, no

integration risk, and significantly lower transaction fees. It is unlikely

for the Company to generate as attractive a return on investment through any

acquisition as is achievable via a share repurchase. Transat currently trades

at 4.7x EBITDAR and at approximately a 16% free cash flow yield. We believe

it would be difficult to find a competitor willing to sell at a similarly

attractive valuation. As you have acknowledged, acquisitions should be

benchmarked against the return on investment generated by the repurchase of

shares. This notwithstanding, a Dutch auction of this magnitude would leave

the Company with a cash position of approximately $95 million (in addition to

the $75 million cushion mentioned above) as well as annual free cash flow in

excess of $100 million. This provides ample liquidity to pursue accretive

acquisitions, which, in general, we would support. Frankly, we do not even

see the logic of maintaining $95 million of cash on the balance sheet (over

the $75 million cash cushion) given the company's annual free cash flow. If

you have an attractive acquisition to make, you would certainly be able to

finance it. The fact is: the company is inefficiently capitalized.

We believe that there is a great urgency regarding the Company's cash

plan. We formally request that you undertake a Dutch auction tender offer for

at least $200 million as soon as possible. In addition, since even following

such a tender offer the Company will still have $170 million of cash on its

balance sheet and will be generating roughly $100 million of annual free cash

flow, we request that the Company implement a normal course issuer bid for an

additional 10% of the public float over the year following the Dutch auction


Finally, we believe that, as one of your largest shareholders, we, along

with other shareholders, should have the right to appoint a representative to

the Company's Board of Directors to ensure that our collective views are


We are happy to discuss these matters at your convenience. We await your

response. Thank you for your consideration.


Barry Rosenstein

Managing Partner

JANA Partners LLC

Contact: 415-989-7770

(1) We will not identify the institutions who favor this plan in this

public letter, but we invite the company to discuss them privately

with us.

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