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Air Transat revises acquisition transaction details with Air Canada; secures new term loan

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Air Transat revises acquisition transaction details with Air Canada; secures new term loan

Air Transat has revised its arrangement agreement with Air Canada to reflect current market and economic conditions and the devastating impact of COVID-19. Under the terms of the binding agreement they have entered into, Air Canada will acquire all issued and outstanding shares of Transat for $5.00 per share, payable at the holder's option either in cash or shares of Air Canada, or a combination thereof, to form a global Montreal-based combined company. The purchase price represents a premium of 31.6% over the 20-day volume weighted average price (VWAP) of Transat shares on October 8, 2020.

Transat has also announced the implementation of a new $250 million short-term loan facility with National Bank of Canada as lead arranger.  The new loan facility can be drawn in tranches at any time before February 28, 2021, subject to meeting relevant conditions precedent and borrowing conditions. Conditions include certain requirements regarding freely available cash before and after drawing on the facility. The new loan facility will terminate on the earlier of March 31, 2021 and the closing of the arrangement with Air Canada.

"With the volume now forecasted to be down 66% worldwide at the end of 2020, it is clear that the world has changed since the signing of the original agreement in June 2019," said Jean-Marc Eustache, President and Chief Executive Officer of Transat. "This is the worst crisis since the founding of Transat 33 years ago and with a second wave of the pandemic underway, the timing of an eventual recovery remains uncertain. More than ever, having a national airline with the scale to weather current industry turbulence, which is expected to continue for several years, is in the best interests of our shareholders, customers, employees and other stakeholders."

Given the uncertainty related to the COVID-19 pandemic, continuing restrictions on non-essential travel, and the impact to date of the pandemic-related interruption of operations on its cash position, Transat needed to put in place additional sources of financing. The terms of the original transaction restricted Transat's ability to do so without Air Canada's consent. As part of the negotiation leading to this announcement, Transat has been able to implement a new $250 million short-term loan facility, as well as certain critical amendments to its existing senior loan facility providing Transat with additional flexibility in the context of the current business and economic environment.

"Securing Air Canada's consent to put in place the new loan facility was critical in the decision to revisit the terms of the original agreement with Air Canada" said Jean-Yves Leblanc, Chair of the Special Committee of the Board of Directors of Transat overseeing the process leading to today's announcement. "Another key factor in Transat's decision was the likelihood of obtaining the necessary regulatory approvals before the fast arriving deadline of December 27, 2020, taking into account the significant and adverse impact of the pandemic on Air Canada's original motivations for completing the transaction at the price set initially. Consummating the initial deal at $18.00 was not an option that was viable given the full set of circumstances the Corporation is facing," continued Leblanc.

The process of obtaining the required regulatory approvals for the transaction under the original arrangement agreement has been significantly and adversely affected by the pandemic and its impact on the industry as a whole. With the passage of time, the concerns raised by regulatory agencies and the challenges posed by the post COVID-19 environment, the Board of Directors of the Corporation came to the conclusion that the transaction proposed under the original arrangement agreement was unlikely to obtain the required regulatory approvals prior to the ultimate outside date of December 27, 2020 and was therefore unlikely to be consummated.  "We believe that revised terms will provide the parties with greater incentives to address the concerns raised by regulatory agencies in order to obtain the regulatory approvals, including with respect to the offer of remedies which should provide a greater chance of obtaining the required approvals from regulatory authorities prior to the newly extended date of February 15, 2021," said Leblanc.

Based on the foregoing, Transat's Board of Directors determined that the revised transaction, with the implementation of the new financing, is the best prospect currently available for Transat's continued viability and the preservation of shareholder value relative to the alternatives available to it in the context of the original arrangement agreement.

The transaction will be subject to shareholder approval, including approval by at least two thirds of the votes cast by shareholders at the special meeting that will be called to approve the transaction in early December.

The transaction also remains subject to regulatory approvals, particularly those of authorities in Canada and the European Union.

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