(Bloomberg) -- For weeks, shares of Transat AT Inc. have been trading above Air Canada’s takeover bid of C$5 per share. They’ve been sinking closer to that price as the deal edges closer to the finish line.
Transat shareholders will vote Tuesday morning on the bid from its larger Montreal-based competitor. The meeting is one of the final stages of a long, strange flight that began in April 2019, when the vacation tour operator disclosed it was in preliminary talks on a potential sale.
Air Canada’s initial offer was for C$13 a share, but Transat’s largest shareholder, Letko Brosseau & Associates Inc., balked. Air Canada raised it to C$18 to seal a friendly deal in August of last year, which the two sides sent to regulators for approval.
Then the pandemic hit. Transat agreed to a 72% price cut in October -- with Air Canada offering the option of taking shares or cash. Proxy advisory firms Institutional Shareholder Services and Glass Lewis recommended its holders vote for the revised acquisition.
When global airline stocks took off on news of successful trials of Covid-19 vaccines, so did Transat’s, trading as high as C$6.35 in early December.
Shares of Transat have been “trading above the offer price in hopes that a higher bid materializes,” Mona Nazir, an analyst at Laurentian Bank, said in a note to investors Monday.
Reality may be setting in on that front. Transat shares dropped almost 9% Monday to close at C$5.29. An investor who elects to take equity instead of cash, on the other hand, stands to receive about C$7.47 worth of Air Canada shares.
Transat said revenue in the quarter ended Oct. 31 was just C$28.4 million ($22.3 million), down 96% from the year before. In a conference call with analysts, Chief Executive Officer Jean-Marc Eustache said the company would need C$500 million in the event the takeover fails.
The pact is the best path forward for Transat, “and that is even more true in the context of the pandemic,” Eustache said. “Joining ourselves as a leisure company to Air Canada’s might and network can only make both companies emerge stronger from the crisis.”
Canada’s regulators still must approve the deal, while the European Union’s antitrust commission has until Feb. 9 to conclude its review.
Transat’s “challenges as a standalone company could encourage regulators to approve the transaction if the appropriate commitments are implemented,” Desjardins Securities Inc. analyst Benoit Poirier said in a note to clients.
©2020 Bloomberg L.P.
Advertisement