Business & Investment

Why Air Canada (TSX: AC)’s biggest deal was cancelled

It’s official.

Air Canada (TSX: AC) The largest transaction has been cancelled. After agreeing to close a $ 190 million deal Transat (TSX: TRZ), both companies have officially terminated their contract. The deal was a huge success for Air Canada, which succeeded in negotiating a much lower purchase price than originally proposed. But this month, the deal wasn’t closed because it didn’t get regulatory approval. In this article, we’ll take a closer look at AC-Transat trading and find out why it collapsed.

Major obstacles in the EU

The main reason for the collapse of Air Canada’s Transat contract was that the parties were unable to obtain the required permits from the EU.

The newly merged Air Canada-Transat company would have operated several transatlantic routes.The company needed permission from European Commission (EC) To move forward to fly these routes. Unfortunately, the EC was too concerned about competition and couldn’t move on. As a result, the transaction could not be completed.

Major player

Quebec businessman Pierre Karl Péladeau may have something to do with the failure to sign an AC-Transat contract. A long-time opponent of the deal, he believes his offer to Transat is superior to that offered by Air Canada.

In January I wrote it Perado was in talks with EU regulators, Expressed concern that AC-Transat’s transactions are anti-competitive. Perado clearly shared their feelings. Today he says his offer to buy Transat is still valid.

Can someone else buy Transat?

At this point, Air Canada’s acquisition of Transat does not seem to be proceeding. After paying Transat a $ 12.5 million cancellation fee, AC seems to be out forever. However, the question remains as to whether another buyer can revive the acquisition.

Indeed, Perado is a competitor. With a net worth of $ 1.8 billion, he could easily afford the $ 190 million that Air Canada provided to Transat. As he has said many times in the past, he wants to buy a company. The fact that he spoke to the EU on the matter shows that he is serious.

It could also be a private equity fund. 2019, Onex It made a wave with the acquisition of Canada’s second largest airline, WestJet. At that time, airlines were much more expensive than they are today. For example, in 2019, Air Canada’s share price reached a high of $ 45.5. Today it trades for less than $ 30. If ONEX was interested in WestJet at the 2019 price, you’re probably interested in Transat today. After all, Transat has accepted an offer of $ 190 million, up from $ 720 million just a year ago. Perhaps private equity funds like ONEX would consider airlines a bargain. However, because Onex’s portfolio already includes major airlines, it can experience the same competitive issues as Air Canada.

Stupid takeaway

Ultimately, the fate of Transat has not yet been determined. The Quebec government has promised to support the company, and Peradoau’s offer is still ongoing. Perhaps the company will find a buyer. However, there is one thing that is certain. That means Air Canada never gets part of the pie.

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Stupid contributor Andrew Button There are no positions in any of the listed stocks.

Why Air Canada (TSX: AC)’s biggest deal was cancelled

https://www.fool.ca/2021/04/06/why-air-canadas-tsxac-biggest-deal-got-cancelled/ Why Air Canada (TSX: AC)’s biggest deal was cancelled

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