Both sides free to walk in Air Canada-Transat deal

Péladeau, Onex could bid: analyst

Air Canada's proposed takeover of Transat AT Inc. has been thrown into doubt after European regulators failed to approve the deal by a Feb. 15 deadline.

The companies are still talking about “potential amendments” that can keep the deal alive, Montreal-based

Transat said in a statement. However, Air Canada won't agree to extend the deadline, meaning either company now has the legal right to walk away from the deal, Transat said.

Transat dropped more than 9 per cent before closing at $4.85, down 7.8 per cent on the day in Toronto, below the takeover price of $5. Air Canada closed up 4.88 per cent to $23.42.

If the deal falls apart, it may open the door to Quebecor Inc. Chief Executive Officer Pierre Karl Péladeau, who'd previously made an offer for Transat through his investment company.

Péladeau has made approaches to Transat of $5 and $6 a share, according to Transat’s earlier disclosures. The board turned away those offers, saying they weren’t financed and lacked provisions for helping the company with its 2021 working capital needs.

Péladeau, a Quebec nationalist who once dabbled in provincial politics, isn’t giving up. He urged board members to work with him to save Transat in a lengthy Facebook post on Saturday.

Transat board members “will regain their freedom, allowing them to ensure the company’s sustainability, its outreach in the community and the considerable economic benefits for Quebeckers,” Péladeau wrote. “I invite them to find the reasonable terms of an agreement with my group so that we can save Transat, together.”

While Air Canada has yet to clarify its position, Desjardins Securities analyst Benoit Poirier said he expects Onex, which controls Air Canada rival WestJet Airlines Ltd., could also step up.

“While WestJet’s CEO recently expressed his disappointment following the

I INVITE THEM TO FIND THE REASONABLE TERMS OF AN AGREEMENT WITH MY GROUP SO WE CAN SAVE TRANSAT.

federal government’s approval of the deal, we believe the company could also be a potential contender,” Poirier wrote Tuesday. “Such a deal would take time to finalize, although there would be fewer antitrust issues.”

WestJet CEO Ed Sims criticized the Canadian government’s decision last week to allow the deal, saying it would lead to higher prices and reduced service. Onex didn’t immediately reply to a message seeking comment.

Air Canada agreed to buy Transat, one of Canada’s largest travel tour operators, in June 2019 and later raised its bid to $18 a share to win over some recalcitrant shareholders and seal a friendly deal.

Because the COVID-19 pandemic struck before the deal closed, both sides agreed last year to a dramatically lower price. Air Canada offered Transat investors the option of taking $5 per share in cash or 0.2862 Air Canada shares, to give them the ability to participate if the airline industry recovers. The deal now has an equity value of about $200 million.

Canadian regulators approved the deal last week with conditions, including a requirement that Air Canada keep 1,500 employees in its leisure travel business, start new routes within five years and keep the Transat head office in Quebec. But the European Commission hasn’t approved the deal yet and has requested additional information from the companies. Its decision is now expected in the first half of 2021.