By Skies Magazine | June 4, 2019 Estimated reading time 5 minutes, 31 seconds.
Groupe Mach Inc. (Mach), the largest independent real estate developer and owner in Quebec, has stepped into the ring with an offer to buy Montreal-based tour operator Transat A.T. Inc.
Transat is currently in exclusive talks with Air Canada, which has offered to buy all of the company’s outstanding shares at $13 per share, for a total transaction value of about $520 million.
Transat, which includes airline division Air Transat, would be merged into Air Canada and control of the organization would remain in Quebec.
Air Canada and Transat announced they were entering into exclusive talks on May 16. Despite entertaining other offers, a statement from Transat issued on that day said, “The board of directors has determined that it is now in the interests of Transat and its stakeholders to finalize negotiations on an exclusive basis with Air Canada.”
At the time, Jean-Marc Eustache, Transat president and CEO, said the Air Canada deal was good news. “This is an opportunity to team up with a great company that knows and understands our industry and has had indisputable success in the travel business,” he said. “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 was given 30 days to complete its due diligence and finalize the deal.
But on June 4, Mach issued a counter-offer of $14 cash per share for Transat. Mach’s proposal is based on a deal value of more than $1 billion, including the assumption of debt.
A Mach press release said the company had first approached Transat with a letter of intent on Feb. 7, 2019. It said the share price being offered represents a premium of 24 per cent over the 20-day weighted average trading price for the period ended June 3, 2019.
Mach said it would encourage Transat to pursue its 2018-2022 strategic plan as a private enterprise, “backed by the financial strength and extensive real estate development and ownership experience of Mach.”
Vincent Chiara, president and CEO of Mach, stated: “We are excited about the potential synergies between our companies in which the leading integrated international tourism model of Transat could be combined with Mach’s vast experience in overseeing the construction, ownership and management of complex real estate development projects in a cost-effective manner and its ongoing initiatives at modernizing the leisure travel experience.”
Although Mach said it sees particular synergies in developing Transat’s hotel portfolio, the developer also committed to preserving other operating units of Transat, including its airline, tour operator, and travel agency.
“The [proposed] hotel development will generate overall significant and sustainable profit margins for Transat in which its other operating divisions, including the airline and tourism operator, will exceed the current average of over 1.2 million passengers of Air Transat travelling to sun destinations by way of travel packages,” reads a Mach statement.
Mach said its offer is in the best long-term interests of Transat. It aims to build a “global leading vertically integrated leisure travel brand” that “shall truly be based in Montreal.”
The Mach proposal says that upon closing of the transaction, TM Grupo Inmobiliario (TM), the largest residential and leisure real estate developer in Spain and preferred hotel supplier of Transat in Mexico, will assume a minority stake in Transat by contributing approximately $15 million in cash and three Mexican hotels that will operate under the Transat name.
This is expected to increase Transat’s projection of 5,000 owned and managed hotel rooms within six years to approximately 12,000 rooms in the same period.
Mach said it intends to largely maintain Transat’s existing business plan as well as its management team.
“Our intention is to leave management in place and for day-to-day operating control to remain with them where it belongs,” said a statement.
As a condition of the Mach transaction, Transat must terminate its current negotiations with Air Canada. Mach would then enter a 30-day period to complete its necessary due diligence.
The deal is also conditional upon the usual regulatory approvals, as well as the Quebec government providing acquisition financing of approximately $120 million, subject to terms and conditions to be negotiated between Mach and the government.
Mach would also be required to satisfy the Quebec government that Transat’s head office, executive team and centre of decision-making will remain in Montreal; there will be no layoffs of current employees in Transat or its subsidiaries; and unless government financing has been reimbursed, the sale of any material assets or operational units of Transat must be subject to the prior consent of the Quebec government.
