Air Canada (TSX:AC) has withdrawn its takeover bid of vacation carrier Transat AT (TSX:TRZ) after it ran into resistance from European regulators.
Air Canada said it offered a “significant package of remedies” to satisfy the European Commission’s concerns that its merger with Transat would reduce competition on flights between the European Union and Canada.
The Montreal-based airline said in a written statement: “Providing additional, onerous remedies, which may still not secure a European approval, would significantly compromise Air Canada’s ability to compete internationally.”
Air Canada agreed to buy Transat, one of Canada’s biggest sellers of vacation flights and packages, in June 2019 and later raised its bid to $18 a share to win over recalcitrant shareholders and seal a friendly deal.
After the coronavirus pandemic struck, the companies agree to revise the deal to $5 a share in cash or Air Canada stock, valuing Transat at about $200 million.
The European Commission said the airline combination would have resulted in higher prices and reduced choice for travelers, adding that it wouldn’t relax merger conditions because of the global pandemic.
Transat said it will now examine alternatives, including staying independent. It’s also free to hold discussions with other suitors, including Pierre Karl Peladeau’s Gestion MTRHP Inc., which had made an offer of $5 a share.
Transat needs money. Its business model is focused on selling vacation packages to Canadians to visit sunspot destinations in winter and European cities in summer. But in January, Canada shut down all direct flights to Mexico and Caribbean countries on concerns about new variants of COVID-19. Transat has a $250-million credit facility that expires on June 30 of this year.
The company said last month it would need at least $500 million in long-term financing if the Air Canada deal falls through and is exploring an emergency government loan. Air Canada must pay a $12.5-million termination fee for canceling its bid to buy Transat.