Transat bid takes twist as Quebec developer tops Air Canada offer – Financial Post

Transat bid takes twist as Quebec developer tops Air Canada offer - Financial Post
Quebec firm makes rival offer for Transat
MONTREAL — A Quebec real estate developer has made a takeover offer for Transat AT Inc. worth $14 per share in cash, which is above what Air Canada has proposed.

The offer from Group Mach Inc. comes after Transat announced last month it was in exclusive talks to be acquired by Air Canada, which was proposing to pay $13 per share.

“The public markets are not the proper setting for Transats 2018-2022 strategic plan, particularly its hotel development strategy which shall require several years for any meaningful returns to be realized in face of pressures of immediate results from the public markets,” Mach said in a release.

Trading in Transat shares has halted ahead of the announcement. The shares closed at $11.84 on the Toronto Stock Exchange on Monday.

Spanish real estate developer TM Grupo Inmobiliario would contribute about $15 million in cash in exchange for a minority equity stake in Transat after the proposed agreement closed, Mach said. TM would also roll over its three hotels in Mexico to Transat, according to Mach.

Mach says the offer is the culmination of a process that began when it approached Transat in January.

Under its offer, the company committed to keep Transats head office, executive team and centre of decision-making in Montreal.

They also said consumers would likely see little change in their travel choices or ticket prices if Canadas biggest airline buys Transat, whose airline unit was co-founded in 1986 by current Premier Francois Legault.

Transat offers vacation packages, hotel stays and air travel under the Transat and Air Transat brands.

Quebec real estate developer Group Mach Inc. has gone public with its offer for Transat AT Inc., the airline and travel company in exclusive talks with Air Canada for a friendly merger.

Under its offer, Mach committed to keep Transats head office, executive team and centre of decision-making in Montreal — all essential if it hopes to get the $120 million in financing it seeks from Quebec.

Group Mach said on Tuesday it wants to buy Transat for $14 a share, subject to conditions that include $120-million in financing from government of Quebec, with a 25-per-cent investment from Spanish real estate developer TM Grupo Inmobiliario.

Transat offers vacation packages, hotel stays and air travel under the Transat and Air Transat brands, launching a $750-million plan in 2017 to develop a hotel chain in Mexico and the Caribbean.

Transat and Air Canada on May 16 entered a 30-day period of negotiations for a $520-million takeover by Canadas biggest airline. The per-share offer the sides agreed to is worth $13.

The offer comes after Transat announced last month it was in exclusive 30-day negotiations to be acquired by Air Canada for $13 per share or about $520 million.

Since then, two big investors in Transat have come out against the deal, saying the Air Canada offer is too low.

Trading in Transat shares has halted ahead of the announcement. The shares closed at $11.84 on the Toronto Stock Exchange on Monday.

Montreal money manager Letko Brosseau and Associates has said Transat should wait until it restores profitability before selling while Penderfund Capital Management of Vancouver said last week the company is worth at least $15 a share.

The Montreal developer said in a release that no layoffs at Transat or its subsidiaries would result from the would-be deal.

In a statement on Tuesday morning, Group Mach called on Transat to end talks with Air Canada. The would-be buyer said it would preserve Transats Montreal head office, all 5,000 jobs, and its divisions: the airline, travel agency and hotel being developed in Mexico.

Mach said the offer is the culmination of a process that began when it approached Transat in January.

Were analyzing the information in Machs press release this morning and for the moment we have nothing to add, said Patrick McQuilken, a spokesman for the Fonds de solidarite FTQ, a Montreal-based investment fund with $14.8-billion in assets and a 12-per-cent stake in Transat, according to the latest filing.

A call to the Caisse de dépôt et placement du Québec, which is Transats fourth-biggest owner at 6 per cent, was not immediately returned.

Transat operates Canadas third-biggest airline, with 40 jets, and sells vacation packages to about 60 destinations. Transat is building a beach-front resort in Puerto Morelos, Mexico, its first step toward owing or managing 5,000 hotel rooms by 2024.

Transat agreed to halt spending on the project during the talks with Air Canada, a sign the buyer is not interested in the resort business.

Group Mach, an office developer, said it plans to make the hotel development a bigger part of Transat. It said its Spanish partner, TM, would move its three Mexican hotels with a total 1,000 rooms into Transats platform. Group Mach said the partnership would own 8,000 hotel rooms and manage another 4,000 by 2022.

The extensive construction, ownership and operational real estate expertise of Mach with the support of local equivalent expertise such as TM in Mexico and other sun destinations will significantly contribute to mitigating any construction and operational risks associated with Transats hotel development strategy, Group Mach said.

Transat has agreed to pay Air Canada a $15-million fee if it ends the agreement or accepts another bid. Air Canada will pay Transat $40-million if the deal is rejected by government or regulators.