Air Canada in talks to purchase Transat
Holiday travel company Transat AT Inc. decided the best way to keep its operations alive in a turbulent time is to sell its business to Air Canada, which has offered to buy its Montreal-based rival for $520 million.
Air Canada’s stock soared to a record high Thursday after the companies announced they had entered a 30-day period of exclusive talks to finalize a deal that would combine Transat with the country’s largest airline.
If approved, the merger will reduce the number of competitors in Canada’s airline industry, particularly on summertime routes to Europe. Air Canada pitched the deal as a “made-in-Quebec solution” to Transat’s troubles. But a sale wasn’t Transat’s first choice.
Transat tried to save its business with a turnaround strategy after reporting a net loss of $24.5 million in 2018 amid increased competition from Air Canada Rouge, WestJet Vacations and Sunwing.
But it continued to lose money in the winter, and its plan to invest $750 million to build hotels in destinations such as Mexico was deemed risky by analysts who noted it would take years to materialize.
This spring, it started getting approached by potential suitors.
As financial difficulties prevailed, its board decided to seriously consider offers. Quebec businessmen including Quebecor’s Pierre Karl Péladeau and FNC Capital’s Dominik Pigeon expressed interest in the travel company. Analysts speculated that Onex Corp., which announced this week plans to buy WestJet Airlines Ltd. for $5 billion, was also in line to buy Transat.
Teaming up with Air Canada “represents the best prospect for not only maintaining, but growing over the long term the business and jobs that Transat has been developing in Quebec and elsewhere for more than 30 years,” Transat chief executive Jean-Marc Eustache said in a statement Thursday.
While the merger requires regulatory approval, including from the Competition Bureau, investors and analysts alike praised the deal. Air Canada’s stock price rose four per cent to $40.40 and Transat’s shares jumped 13 per cent to $12.00.
Quebec Premier François Legault, a co-founder of Transat, said the deal could be good for the province since both companies are based in Montreal. “It’s a lot of emotion for me because of course I was there for the first flight of Air Transat with all the employees crying with joy,” Legault said.