Airline battle heats up as Montreal real estate investor submits rival bid for Transat

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submits rival bid for Transat

Eric Atkins, Transportation Reporter, 13 June 2019

The battle for Transat A.T. Inc. is set to heat up as Montreal real estate investor Group Mach Inc. submits a formal offer for the airline and vacation company that is in friendly takeover talks with Air Canada.

Vincent Chiara, chief executive officer of Mach, said he would file the takeover proposal with Transat by Thursday evening for a deal worth $14 a share – trumping Air Canada’s $13 offer.

Transat CEO Jean-Marc Eustache said on Thursday that the Air Canada talks that began in late May will continue until June 26. On a second-quarter earnings conference call with analysts on Thursday morning, Mr. Eustache said Mach had to yet to make its offer formal, and he did not consider Mach’s June 4 press release of its intentions an actual bid. “Therefore we do not have any comment to make on it. Should any other proposal be communicated to the company before or after the end of the exclusivity period, it will be addressed by our board of directors,” Mr. Eustache said.

Two big investors in Transat have said the all-cash $520-million Air Canada takeover price is too low or poorly timed, raising doubts it will receive the required two-thirds approval from shareholders. FNC Capital of Montreal has also told The Globe and Mail it is interested in submitting an offer for Transat.

Mach said in the June 4 press release that its offer is conditional on $120-million in Quebec government financing, and its minority partner will be TM Grupo Inmobiliario, a Spanish vacation property developer and hotel operator that does business in Mexico and the Mediterranean.

Mr. Chiara said Mach has submitted a business plan to the province of Quebec’s finance wing, Investissement Québec, and expects to know within a week if the government will provide the loan.

“We were under the impression that the press [release] offer was an offer but now that we understand that [Transat] didn’t consider it to be a formal offer, we’ll formalize it and send it to them by 5 o’clock today,” Mr. Chiara said from Montreal on Thursday.

He said he is optimistic his bid is superior to that of Air Canada given the higher price, in addition to the lack of overlapping airline operations that would be expected to draw the scrutiny of the Competition Bureau.

Transat employs 5,000 people and has a fleet of about 40 planes, depending on the season. It sells tour and hotel packages in Europe and the Caribbean. In 2018, it spent $76-million on beachfront land in Puerto Morelos, Mexico, to build a resort, but has agreed to limit spending on that project while in talks with Air Canada.

Transat on Thursday posted a smaller profit in the second quarter as fuel costs rose and the Canadian dollar slipped against the U.S. currency.

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Transat’s net income fell to $2.3-million or 6 cents a share from $7.9-million or 21 cents in the same period a year earlier. Updating the company’s plane fleet also added costs.

Excluding a court settlement and other items, Transat’s adjusted net loss was $6.3-million or 17 cents a share, compared with a loss of $500,000 or 1 cent in the second quarter of 2018. Revenue rose by 3.5 per cent to $897-million.

Expenses rose by 5.4 per cent, driven by a 13.5-per-cent jump in fuel costs and a 9-per-cent rise in salaries and benefits, outpacing the increase in revenue.

Annick Guerard, chief operating officer of WestJet, said that the company is facing “fierce competition” on its transatlantic routes this summer as WestJet and other carriers add new service and slash ticket prices.

“We are seeing pressure … from WestJet in Europe this summer. They have added additional flights from Calgary to Paris and Dublin, and out of Toronto to Gatwick and Barcelona … They are increasing their presence, not only WestJet but others as well,” Ms. Guerard said.

For this summer travel season, Mr. Eustache said bookings are up by almost 2 per cent and 64 per cent of seats are sold. Ticket prices are little changed from a year ago, and Transat said the third-quarter results will be “slightly higher” than those of the same period in 2018.