Air Canada ups purchase price in Transat bid, securing largest shareholder's support

An Air Transat plane is seen as an Air Canada plane lands at Pierre Elliott Trudeau International Airport in Montreal on Thursday

An Air Transat plane is seen as an Air Canada plane lands at Pierre Elliott Trudeau International Airport in Montreal on Thursday

Quebec's securities tribunal has barred a developer's offer to buy up Transat shares, halting Group Mach's bid to block the tour operator's sale to Air Canada - and leaving the country's largest airline as the only player publicly vying for the company.

"After extensive consultations with Letko Brosseau and several other large shareholders of Transat, we agreed to materially increase our price to ensure the transaction receives the necessary level of support", Air Canada chief executive Calin Rovinescu said in a statement.

Air Canada, Canada's largest airline, raised its offer for Transat by 38.5% to C$18.00 per share on Sunday, winning support from its largest shareholder Letko Brosseau, which holds about 19.3% of shares.

Letko, Brosseau and Associates and PenderFund Capital Management, which jointly own a 21.1% stake, had both said they would vote against the agreement if the purchase price remained at $13 per share.

Air Transat pilots, represented by the Air Line Pilots Association, said Friday - before the new offer emerged - that they support the Air Canada acquisition, citing "greater labour protections and job security".

Transat shares were up $4.91 at $16.70 in early trading on the Toronto Stock Exchange on Monday. Air Canada needs the support of two-thirds of Transat shareholders during a meeting to be held on August 23 in Montreal.

"They still need to be accountable to shareholders on why they pushed that $13-per-share offer like they pushed it", Chiara told The Canadian Press.

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"If it weren't for us, there would never have been a higher offer", Alfred Buggé, Mach's head of mergers and acquisitions, said in a telephone interview.

Earlier on Monday, Transat said a Canadian financial markets administrative tribunal had blocked Montreal real estate developer Groupe Mach's offer to buy 19.5% class B voting shares of the tour operator. "So Air Canada was going to walk away paying $200 million less to this company than they should have or could have".

Air Canada said it plans to preserve the Transat and Air Transat brands and maintain the Transat head office. "The Quebec economy will derive maximum advantage of having a Montreal-based, growth-oriented global champion in aviation, the world's most worldwide business, spurring more employment and securing Montréal's position as a leader among world aviation centres", added Mr. Rovinescu. But Mach is not counting out the idea of another bid.

Buggé called the ruling "absurd and erroneous" while acknowledging Mach's options are limited.

Transat is required to pay $40 million if it backs out of the agreement, an increase from the earlier breakup fee of $15 million, the statement added.

"Regulatory hurdles for this transaction should not be considered a foregone conclusion", Doug Taylor, an analyst with Canaccord Genuity in Toronto, said Monday in a note to clients. We are therefore very pleased to have received Letko Brosseau's strong endorsement for our transaction.

Shareholders are slated to vote on the Air Canada offer August 23, which is expected to face intense scrutiny from the Competition Bureau and other regulatory authorities.

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