Air Canada Significantly Boosts Air Transat Offer

Air Canada has all but guaranteed its purchase of Air Transat.

Airr Canada and Transat A.T. Inc. ("Transat") announced late Sunday night that Air Canada has agreed to increase the purchase price for the acquisition of all issued and outstanding shares of Transat, from $13 to $18 per share and have amended the Arrangement Agreement dated June 27, 2019 accordingly. Based on the increased consideration, the value of the all-cash transaction is approximately $720 million.

Air Canada has also entered into a lock-up and support agreement with Transat's largest shareholder, Letko Brosseau & Associates Inc., who beneficially owns or has control or direction over approximately 19.3% of all issued and outstanding shares of Transat. Under the terms of its Lock-up and Support Agreement, Letko Brosseau has agreed to support and vote all of the Class B voting shares of Transat it controls at the Special Meeting of Shareholders of Transat on August 23, 2019 or at any adjournment or postponement thereof, in favour of Air Canada's acquisition of Transat.

Air Canada initially had offered $13 a share, a figure some in the industry thought was too low. Quebec-based Groupe Mach had moved to purchase Transat for $14 a share, which prompted an outcry from Transat officials. One Transat official called the Groupe Mach effort "abusive, misleading and coercive."

The new $18 a share offer from Air Canada is significantly higher than Groupe Mach's suggested price and will no doubt be extremely attractive to Transat. In addition to purchasing Transat, Air Canada has promised to keep Transat's head office in Montreal.

Air Canada and Transat would together command roughly 60 per cent of the transatlantic market from Canada if the deal goes through.

While the deal seems all but certain to be approved by Transat, Canadian regulators could still seek changes to the deal to guarantee competitiveness for consumers.

Amendments to the Arrangement Agreement between Air Canada and Transat were unanimously approved by the Board of Directors of Transat and its Special Committee, and are included in an Amending Agreement that provides for the following:

an increase in the price payable by Air Canada from $13 to $18 per share, for 100% of all issued and outstanding Class A and Class B shares of Transat

an increase in the break fee payable by Transat from $15 million to $40 million in case of termination of the agreement in certain circumstances, including upon acceptance of a Superior Proposal that is not matched by Air Canada

a change to the definition of Superior Proposal under the Arrangement Agreement, from a third-party unsolicited bona fide written acquisition proposal, made at a firm price per share equal to or exceeding $14 to one that must be equal to or exceed $19 in cash

The terms and conditions of the Arrangement Agreement otherwise remain unchanged.

"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 at the Special Meeting of Shareholders of Transat, said Calin Rovinescu, President and Chief Executive Officer of Air Canada. We are therefore very pleased to have received Letko Brosseau's strong endorsement for our transaction. We know this achieves the best possible outcome for all stakeholders. For shareholders of Transat and Air Canada, the combination delivers excellent value, while also providing increased job security for both companies' employees through greater growth prospects. Air Canada intends to preserve the Transat and Air Transat brands and maintain the Transat head office and its key functions in Montreal. Travellers will benefit from the merged companies' enhanced capabilities in the highly competitive, global leisure travel market and from access to new destinations, more connecting traffic and increased frequencies. The Quebec economy will derive maximum advantage of having a Montreal-based, growth-oriented global champion in aviation, the world's most international business, spurring more employment and securing Montréal's position as a leader among world aviation centres", added Mr. Rovinescu.

"We are very pleased by the added stability brought about by Air Canada's increased bid as supported by Transat's largest shareholder, Letko Brosseau. We appreciate the time and energy that Air Canada has spent in extensive consultations with our shareholders, in addition to our own efforts, with a view to ensuring the best outcome for all stakeholders. This fully funded cash transaction is the ideal platform for Transat's continued presence and growth in Montreal. We look forward to joining forces with a proven and successful player in our highly competitive and complex industry" said Jean-Marc Eustache, President and Chief Executive Officer of Transat.

Transat has obtained fairness opinions from each of National Bank Financial and BMO Capital Markets that, as of August 11, 2019, subject to the assumptions, limitations and qualifications contained therein, the consideration to be received by the Transat shareholders pursuant to the Amending Agreement is fair to such shareholders from a financial point of view.

The Board of Directors of Transat and its Special Committee, supported by their financial and legal advisors, unanimously reiterate that the Arrangement with Air Canada is in the best interest of Transat and its stakeholders and is fair to Transat shareholders, and unanimously recommend that shareholders:

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