The proposed arrangement for Air Canada’s acquisition of Transat has been terminated by mutual agreement. The original acquisition agreement was signed in June 2019, amended in August 2019, and revised in October 2020 due to the global COVID-19 pandemic.
On Friday (April 2, 2021), Air Canada announced that the proposed acquisition of Transat A.T., Inc. (Air Transat) has been terminated by mutual agreement. The airlines originally agreed to the merger in June 2019 and the agreement was amended in August 2019, and again in October 2020, due to the economic impact of the global COVID-19 pandemic. The acquisition of Air Transat by Air Canada was always conditional on the approval of all appropriate regulatory authorities, including the European Commission (EC).
Although Air Canada offered a substantial package of remedies to satisfy any potential anti-competitive claims, it has become clear that the EC will not approve the acquisition without additional concessions. Since Air Canada believes that additional onerous measures may still not secure EC approval, and would significantly compromise the carrier’s ability to compete internationally, they have mutually agreed with Transat to terminate the agreement. Air Canada will pay Transat a $12.5 million termination fee and Transat has no further obligations to Air Canada.
In a separate announcement, Transat’s Chief Executive Officer, Jean-Marc Eustache, said,
“This transaction, first contemplated more than two years ago, was complicated by the pandemic, and, ultimately, Air Canada reached its limit in terms of concessions it was willing to provide the European Commission to satisfy their competition law concerns. While both companies expected the proposed transaction to result in compelling benefits to shareholders, customers and other stakeholders, and even though we had received approval from the Canadian authorities, it has now become evident that we would not obtain the approval of the European Commission. Under these circumstances, Transat and Air Canada therefore mutually agreed that terminating the Arrangement Agreement was in our respective best interests. Now that Transat is no longer constrained by the limitations under the Arrangement Agreement, we are free to take the necessary steps to ensure a successful, long-term future, beginning by securing long-term financing to provide Transat with the flexibility to deliver on its strategic plan.
“I would like to thank our employees for their unwavering dedication and commitment throughout this process. Although we are disappointed with this outcome, we are confident in the future of Transat and look forward to building back stronger as we exit the throes of the pandemic.”
As previously reported, Transat will require financing of at least $500 million in 2021. The company continues cash preservation measures and has put in place a $250 million short-term subordinated credit facility. The facility matures in June 2021, so Transat must extend or replace it before expiration. The company continues negotiations to secure long-term financing, including possible support from the Canadian Government’s Large Employer Emergency Financial Facility (LEEFF). With the termination of the acquisition agreement, Transat is also now free to hold discussions with potential strategic and acquisition partners.
Source(s): Air Canada, Transat A.T., Inc.