by Jim Byers
Last updated: 12:05 AM ET, Sat April 3, 2021
Air Canada and Transat A.T. Inc. announced today that they have mutually agreed to terminate the Arrangement Agreement for the proposed acquisition of Transat by Air Canada.
Air Canada and Transat had originally 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.
As previously disclosed, the acquisition was conditional on the approval of various regulatory authorities, including the European Commission ("EC"). In order to meet that key condition, Air Canada offered and enhanced a significant package of remedies, which went beyond the commercially reasonable efforts required of Air Canada under the Arrangement Agreement and what has been traditionally accepted by the EC in previous airline merger cases. Following recent discussions with the EC, it has become evident, however, that the EC will not approve the acquisition based on the currently offered remedy package.
After careful consideration, Air Canada has concluded that providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise Air Canada's ability to compete internationally, negatively impacting customers, other stakeholders and future prospects as it recovers and rebuilds from the impact of the COVID-19 pandemic. Especially in this challenging environment, it is essential that Air Canada focus on creating the optimal conditions for its full recovery by preserving and leveraging all of its key strengths and assets including its strong employee culture.
Both Air Canada and Transat have agreed to terminate the Arrangement Agreement with Air Canada paying Transat a termination fee of $12.5 million, and with Transat no longer under any obligation to pay Air Canada any fee should Transat be involved in another acquisition or similar transaction in the future.
This opens the door for another purchaser to perhaps buy Transat. Pierre Karl Peladeau of Quebecor Inc. made a bid for the company in December and said on the weekend that his offer is still valid. Peladeau said his offer would help keep Transat both competitive and independent.
Air Canada said it simply couldn't continue with its Transat offer.
"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," said Jean-Marc Eustache, President and Chief Executive Officer of Transat. "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," added Eustache. "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."
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