April 21, 2021

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Air Canada cancels takeover of Transat after Europe balks at the deal

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Ottawa and Quebec pledge support for struggling Transat

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Air Canada scrapped its proposed acquisition of Transat AT Inc on Friday after being advised by the European Commission that it would still face high regulatory hurdles, clearing the way for other domestic suitors for the tour operator.

Canada’s largest airline said that after recent discussions with the European Commission (EC), it had become evident the EC will not approve the acquisition based on the offered remedy package the carrier made earlier this year.

The Montreal-based carrier said it had offered “a significant package of remedies” to satisfy anti-trust concerns around competition.

“Air Canada has concluded that providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise” its ability to compete internationally and recover from the effects of the pandemic on air travel, the airline said in a statement.

Air Canada in February refused to extend the deadline for its $188.7 million deal for Transat, after European regulators did not give the go-ahead for the buyout.

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The two companies had 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.

EU antitrust chief Margrethe Vestager said Air Canada offered insufficient concessions to address competition concerns about its planned acquisition of Transat.

Vestager said she had strong concerns about the impact of the deal which Air Canada had failed to allay.

“While the coronavirus outbreak has strongly impacted the airline sector, the preservation of competitive market structures is essential to ensure that the recovery can be swift and strong,” she said in a statement.

“The proposed transaction would raise competition concerns on a large number of transatlantic routes. Based on the results of the market test, the remedies offered appeared insufficient.”

The Canadian government said protecting jobs at Transat and preserving the long-term viability of the airline, also based in Montreal, is the most important thing for the government.

Transport Minister Omar Alghabra said in a statement that he had spoken with Transat and the two sides were “examining next steps.”

Airlines have been in talks with the federal government since November about a possible aid package, so far to no avail.

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Quebec Economy Minister Pierre Fitzgibbon also said the provincial government “will not leave Transat without support.”

Transat said it will now examine alternatives, including staying independent. It’s also free to hold discussions with other suitors, including Pierre Karl Peladeau’s Gestion MTRHP Inc., which had made an offer of $5 a share. Peladeau is a media and cable executive who controls Quebecor Inc. and is a former separatist politician in the majority-French-speaking province.

Péladeau said in February that he wanted to start talks to acquire Transat after Air Canada declined to extend a deadline for the deal amid the EU opposition.

Quebec Premier Francois Legault, who co-founded Transat in 1986, said at the time that the province was looking at different scenarios for Transat, with or without Air Canada.

Péladeau was not immediately available for comment.

Transat needs money. Its business model is focused on selling vacation packages to Canadians to visit sun spot destinations in winter and European cities in summer. But in January, Canada shut down all direct flights to Mexico and Caribbean countries on concerns about new variants of COVID-19. Transat has a $250-million credit facility that expires June 30.

The company said last month it would need at least $500 million in long-term financing if the Air Canada deal falls through and is exploring an emergency government loan. Discussions for financing “are in an advanced stage and Transat’s management is confident that a satisfactory financing will be secured in the coming weeks,” Transat said in a statement Friday.

Air Canada has agreed to pay a $12.5 million termination payment to Transat.

Additional reporting by Bloomberg

© Thomson Reuters 2021

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Reuters

2021-04-02 16:02:31

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