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Air Canada has called off its long-delayed $180-million takeover of smaller rival Transat AT Inc., citing antitrust hurdles posed by the regulator in Europe and the pandemic.
The deal, announced in June, 2019, was slashed in price from $720-million in October, 2020, due to the collapse in demand for air travel in the COVID-19 health crisis.
The deal received Canadian approval but was being examined by the European Commission, due to the large presences of both airlines there. In a statement on Friday, Air Canada said it became apparent the EC would not approve the deal even after Air Canada offered concessions.
“After careful consideration, Air Canada has concluded that providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise Air Canada’s ability to compete internationally, negatively impacting customers, other stakeholders and future prospects as it recovers and rebuilds from the impact of the COVID-19 pandemic,” Air Canada said. “Especially in this challenging environment, it is essential that Air Canada focus on creating the optimal conditions for its full recovery by preserving and leveraging all of its key strengths and assets including its strong employee culture.”
John Gradek, who teaches aviation leadership at McGill University, said Air Canada walked away from the deal rather than suffering the embarrassment of being told what to do by a foreign regulator.
“The European Union was playing chicken with Air Canada,” Mr. Gradek said, by demanding concessions and being patient. “It was a messy type of transaction,” Mr. Gradek said by phone.
Margrethe Vestager, executive vice-president of the EC, said Air Canada and Transat did offer not enough concessions to allay anti-trust concerns.
“The Commission’s preliminary findings were that the proposed transaction would raise competition concerns on a large number of transatlantic routes,” Ms. Vestager said in a statement. “Based on the results of the market test, the remedies offered appeared insufficient.”
Air Canada said the decision to cancel the takeover was mutually agreed, and it will pay Transat a $12.5-million termination fee.
The end of the deal means Transat is free to seek another buyer, or attempt to operate alone. The travel and tour operator has halted operations since March 11. In 2020, it also suspended service for several weeks due to the pandemic, which has closed borders and forced government to impose travel restrictions.
An investment company headed by Quebec entrepreneur Pierre Karl Peladeau had made an offer to pay $5 a share for Transat if the Air Canada deal fell apart. A spokeswoman for Mr. Peladeau said on Friday the offer is valid for 24 hours after the cancellation of the Air Canada takeover, but that it is not clear when the clock starts. Mr. Peladeau was not immediately available to comment.
Transat did not immediately respond to a request for comment.
Christophe Hennebelle, a Transat spokesman, said the airline will pursue three priorities: secure government financing; finalize a restart plan; and “explore all strategic options, standalone or not, including examining Mr Péladeau’s offer.”
In March, Transat chief executive officer Jean-Marc Eustache said the airline was in talks to borrow $500-million after getting $250-million months earlier.
“Our discussions with the government are at an advanced stage and we are confident we can do that in the next few weeks,” Mr. Hennebelle said in an e-mail.
Air Canada did not say what concessions it offered the EC, nor what the EC demanded. The regulator’s investigation had been suspended on at least two occasions while it sought more information from the companies. An Air Canada spokesman did not immediately respond to a request for comment.
Air Canada’s deal, approved by the Canadian government in February with conditions, was worth $5 a share in cash, or a ratio of 0.2862 Air Canada share to a Transat share.
The conditions included that Air Canada retain 1,500 of Transat’s 5,000 employees, keep the Quebec headquarters and somehow protect Canadian consumers from higher prices and poorer service.
The government’s okay came despite a report from Canada’s Competition Bureau in March, 2020. The antitrust watchdog criticized the proposal as bad for travellers, noting it would reduce choice and lead to higher airfares. Based on the airline market pre-pandemic, the combined companies would have controlled about 60-per-cent of transatlantic flights, more when taking into account Air Canada’s partner carriers, the Canadian watchdog said. The merged airlines would have controlled the majority of slots at airports in Toronto, Montreal and eastern Canada.
Air Canada has laid off more than 20,000 of its 38,000 employees and grounded much of its fleet. The airline has been in talks with the federal government for financial aid.
Canadian stock markets are closed on Friday for Good Friday. Transat shares closed at $5.49 on Thursday on the Toronto Stock Exchange. Air Canada shares closed at $26.45.
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2021-04-02 16:47:20Z
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