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May 16, 2019

Transat shares surge on potential $520-million Air Canada deal

Transat shares soar but fall short of Air Canada takeover price


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Air Canada (AC.TO) is in exclusive talks to buy Transat AT Inc. (TRZ.TO) in a deal that would value the travel company at about $520 million. 

Canada’s largest air carrier is proposing to acquire Montreal-based Transat for $13 per share, a premium of nearly 23 per cent to Wednesday’s close of $10.58 on the Toronto Stock Exchange.

"This announcement is good news for Transat," said Transat President and CEO Jean-Marc Eustache, in a release. "This represents the best prospect for not only maintaining, but growing over the long term the business and jobs that Transat has been developing in Quebec and elsewhere for more than 30 years."

Air Canada President and Chief Executive Officer Calin Rovinescu said the possible combination is a “great opportunity” for stakeholders in both companies, including employees, travellers, and shareholders.

“The acquisition presents a unique opportunity to compete with the very best in the world when it comes to leisure travel,” he said in statement.

The two companies have agreed to a 30-day period of exclusive negotiations. The letter of intent states Transat would be required to pay a $15 million fee, while Air Canada would be subject to a $40 million reverse break fee, if either party backs out.

Transat said its operations will continue as normal, and that there will be no change for travellers.

Any definitive deal reached between the two companies would be subject to regulatory and shareholder approvals.

The news comes two weeks after Transat said it was in talks with multiple unnamed parties about a possible takeover, and in the same week Air Canada rival WestJet Airlines Ltd. said it would be acquired by private equity firm Onex Corp. and taken private.

Karl Moore, professor of business strategy at McGill University, said a potential Air Canada-Transat deal makes more sense than the WestJet-Onex combination when it comes to the airlines’ growth plans.  

“But they’re both opportunities that really look attractive, I think, for both sides when you look at the particular synergies they bring to it,” he said in an interview with BNN Bloomberg’s Jon Erlichman.

Moore added that Air Canada buying Transat signals a possible long-term strategy for the airline to get into the hotel business.   

Transat, which employs 5,000 people, offers vacation packages, hotel stays and air travel under the Transat and Air Transat brands in more than 25 countries.

Shares of Transat were trading almost 14 per cent higher at $12.05 as of 1:51 p.m. ET Thursday. Air Canada shares, meanwhile, rose more than four per cent.