Air Canada stock hit new high on news of exclusive talks to buy Transat AT.
Air Canada’s interest in buying rival Transat AT Inc. for about $520 million got positive feedback from industry watchers and stock traders last week after the two companies announced they’re in exclusive talks to finalize a deal.
Transat shares rose 13.4% to close at $12, while Air Canada stock gained nearly 4% to reach $40.39 per share, which is above the previous all-time high set last Wednesday at $39.16.
The two companies say Air Canada – the country’s largest airline – would pay $13 per share for Transat, the Montreal-based owner of Air Transat, and numerous vacation travel businesses.
That’s more than double what Transat shares were worth prior to its announcement that it was in talks with a number of potential buyers – the identity of the other contenders has yet to be revealed.
McGill University professor Karl Moore said a fusion of the two companies would help grow Air Canada Vacations, which competes with Transat, WestJet, and other rivals in the leisure travel market.
A deal that keeps Transat’s head office in Montreal would also be greeted favorably by politicians in Quebec, just as Alberta politicians said they want to see WestJet headquarters remain in Calgary if it’s bought by Onex, Moore said.
Toronto-based Onex Corp. announced last Monday that it has a friendly deal to buy WestJet Airlines Ltd. – Canada’s second-largest scheduled airline company – for about $3.5 billion, subject to approvals.
Moore believes Air Canada will face stiffer competition from WestJet as a private company with backing from Onex.
Gabor Forgacs, an associate professor who teaches tourism and hospitality management at Ryerson University, said he doesn’t think consumers will see a reduction of choice or competition from an Air Canada-Transat combination.
Other analysts noted that Transat would have to pay a $15 million break fee and Air Canada $40 million if the agreement is terminated because of regulatory or governmental obstacles.
Transat chief executive Jean-Marc Eustache, who is one of the company’s founders, said last Thursday that an Air Canada deal represents the best prospect for maintaining or growing the number of jobs Transat already has in Quebec and elsewhere.
Transat offers vacation packages, hotel stays, and air travel under the Transat and Air Transat brands, with a primary focus on the transatlantic market during the summer and sun destinations during winter.
