Canadian developer Groupe Mach Inc Bids CA$527.6m to Acquire Tour Operator Transat AT.

Main Photo: The Hotel Le St James Montreal, owned by Group Mach

Date: May 2019

Location: Canada

Name: Air Transat

No. of Keys: 12,000

Seller: Air Transat, a wholly owned subsidiary of Transat A.T. Inc. Air Transat is now one of Canada’s largest airlines, after Air Canada and WestJet. Air Transat has 5,000 employees. On February 13, 2011, Air Transat Flight TS163 operated with their first all female flight crew from Cancun to Vancouver.

Buyer: The battle for Canada’s Transat A.T. Inc. has begun.

Quebec property developer Groupe Mach Inc. said on Tuesday it’s ready to conditionally offer $14 a share in cash for the owner of Air Transat, topping Air Canada’s proposed $13-a-share bid. Groupe Mach’s proposal values Transat at more than $1 billion, according to a press release issued Tuesday.

Groupe Mach’s offer for Air Transat conditional on financing from Quebec Transat’s head office, executive team and decision-making centre would remain based in Montreal, Mach said.

Air Canada and Transat said May 16 they agreed to hold exclusive talks over a potential deal for the Montreal-based tour and airline operator. The companies have until the end of June to negotiate a definitive accord.

Mach’s offer is subject to a number of conditions — not the least of which is the company’s ability to obtain $120 million in financing from the Quebec government. Mach said Tuesday it plans to file a business plan with Investissement Québec by June 10.

Quebec Premier François Legault, who was one of Air Transat’s founders in the 1980s before making the jump into politics, said he’s heartened by the fact Mach and Air Canada are both based in the province. Still, he cautioned his government won’t automatically back Mach’s proposal because the need to protect a head office no longer exists.

Investissement Québec will analyze Mach’s financing request “on merit,” spokesperson Isabelle Fontaine said Tuesday in an email. She wouldn’t comment on whether talks with potential bidders have already taken place.

Air Canada said late Tuesday it’s in the process of finalising a binding agreement to acquire all of Transat’s shares. The carrier has all the financing required to complete the deal, it added.

Mach has already had discussions with various Transat shareholders, and the feedback so far has been positive, according to Alfred Buggé, the company’s executive vice-president of mergers and acquisitions.

“We want this to be a friendly process, and there is support among shareholders for a friendly negotiated transaction,” Buggé told the Montreal Gazette in a telephone interview.

Louis Hébert, a management professor at the HEC Montréal business school, said he wouldn’t be surprised to see Air Canada up the ante in the coming weeks. Air Canada had a record $6.88 billion of unrestricted liquidity as of March 31, according to the company’s most recent quarterly filing.

“Air Canada has the means to sweeten its bid, and I’m not sure Mach would be able to match that,” Hebert said in a telephone interview.

Buggé disagreed, saying that Mach is on “solid financial footing” and that the property developer is “prepared for a bidding war. We wouldn’t have issued a press release without knowing that this possibility exists.”

Mach has lined up Spanish property company TM Grupo Inmobiliario as a partner to help run Transat. Under a proposed deal, TM would invest $15 million in Transat and contribute three Mexican hotels in exchange for a minority stake in the company. TM is the largest residential and leisure real-estate developer in Spain, as well as a preferred hotel supplier of Transat in Mexico.

Transat’s goal of expanding into hotel development and ownership is at the heart of Mach’s interest for the company.

Within six years of the deal closing, a Mach-owned Transat would operate about 12,000 hotel rooms — more than double the 5,000 envisaged under Transat’s current strategic plan. As recently as March, Transat had estimated the hotel strategy would require investments of US$750 million by 2024.

We think we can improve it with our scale and our expertise, and in TM we have the right player to do that.” “We believe in the hotel plan,” Buggé said. “We think we can improve it with our scale and our expertise, and in TM we have the right player to do that.”

Transat agreed last month to limit “the undertakings and expenses” related to its hotel strategy as long as the negotiations with Air Canada continue.

Mach said Tuesday it first approached Transat about a potential negotiated transaction in January and followed up with a letter of intent to the company’s board of directors on Feb. 7.

Mach’s real-estate assets include such properties as Montreal’s Sun Life Building, CIBC Tower and Le St-James Hotel. The company is also developing the Quartier des lumières on the site of the old Radio-Canada tower near the Jacques-Cartier Bridge.

Price: To be decided…

THPT Comment: Interesting when a tour operator is acquired for it’s hotel interests.

First Seen: Montreal Gazette

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