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Summary
- Air Canada (TSX:AC) has revised its purchase deal with holiday travel operator Transat AT Inc (TSX:TRZ).
- Air Canada will now offer C$ 5 per share from the previous C$ 18 under the amended deal.
- Transat’s shares are down 76.34 per cent year-to-date (YTD) while Air Canada stocks slumped approximately 67 per cent YTD.
Debt-ridden Air Canada (TSX:AC) has slashed the purchase offer price for holiday travel operator Transat AT Inc (TSX:TRZ). The revised deal was announced over the Thanksgiving weekend. The airline will now offer C$ 5 per share from the previous C$ 18 under the amended terms. The development comes more than a year after the initial deal announcement in June 2019.
The tour operator’s shareholders can opt between receiving a cash payment or 0.2862 Air Canada shares for each Transat stock, according to a joint statement from the tour operator and the national carrier. Previously, the offer was an all-cash deal.
Both Transat and Air Canada’s stocks have tumbled due to the pandemic and the reduced demand for air travel. Transat’s shares are down 76.34 per cent year-to-date (YTD) while Air Canada stocks slumped approximately 67 per cent YTD.
Air Canada (TSX:AC)
Current AC Stock Price: C$ 16.09
The much-awaited Air Canada-Transat deal is expected to close in the first quarter of the next fiscal year 2021. The national air carrier has also raised nearly C$500 million after selling and leasing nine Boeing 737 Max 8s aircraft.
Despite the depreciation in Air Canada’s stock price value this year, the carrier has continued to trend among investors throughout the pandemic. Its current 10-day average trading volume is more than 4 million.
The top Canadian airline saw a massive decline of 96 per cent year-over-year (YoY) in the total number of passengers carried in its second quarter ending 30 June 2020. The revenue slid by 89 per cent YoY to C$ 527 million in Q2 2020. Air Canada also reported an operating loss of C$ 1.5 billion in the latest quarter, as compared to an operating income of C$ 422 million in Q2 2019.
Air Canada’s stock price plunged to a low of C$ 12.15 (March 20) during the COVID-led market crash in March. It plunged nearly 67 per cent YTD. The airline stock fell about 17 per cent in the last six months and down about two per cent in the last three months.
Since the announcement of its deal with Transat AT on 27 June 2019, Air Canada shares have dropped almost 60 per cent.
The carrier will announce its third quarter 2020 results on November 9.
Air Canada-Transat Amended Deal Terms
Under the terms of the amended deal, Air Canada’s share price has been calculated at C$ 17.47 apiece under the exchange ratio of one month weighted average price (VWAP). Transat’s shareholders can either in-cash their holdings at C$5 per share or opt for AC stocks at a fixed exchange ratio of 0.2862. The revised deal values the tour operator at C$ 190 million. The new price (C$5) for Transat also includes a 31.6 per cent premium i.e. C$ 1.6 per share.
The amended transaction will be subject to shareholders’ and regulatory approvals.
Air Canada has also approved Transat’s new C$ 250 million short-term loan facility. The deadline for withdrawing this loan in tranches is February 28, 2021. In case of termination of agreement, Air Canada will pay break fees of C$ 30 million while Transat will pay C$ 10 million.
Transat A.T. Inc (TSX:TRZ)
Current Stock Price: C$ 3.83
Stocks of Transat A.T. Inc, Montreal-based company holiday tour operator, has plummeted 76.34 per cent YTD. Since the outbreak of the COVID-19 pandemic, Transat halted all its flights and operations, causing a massive fall in revenues. The company reported C$ 9.5 million revenue during its third quarter ended July 31, 2020, down 98.6 per cent from C$ 689.4 million in Q3 2019. The net loss stood at C$1.20 per share, as compared to C$0.04 per share in Q3 2019. The company has partially resumed its flights and tour operations since July 23, 2020.
Since the deal announcement with Air Canada in 2019, Transat’s share price has tumbled almost 72 per cent. Since the COVID-led market collapse in March, Transat stock price declined by 44.57 per cent. The airline stock fell nearly 57 per cent in the last six months and about 24.60 per cent in the last three months.
Transat YTD Stock Performance; Source: EODHD/Others, Thomson Reuters
Why Air Canada Slashed Its Offer Price
Air Canada, which posted major slump in revenue and passenger traffic in its second quarter, was forced to modify its Transat deal price. The carrier cited the impact of pandemic as the reason for the reduced offer in an official statement.
The pandemic’s “devastating effect” on the airline industry also had a material impact on the value of airlines and aviation assets, said airline CEO Calin Rovinescu.
Struck by the pandemic and corresponding fall in demand, global airline companies have pleaded governments to relax COVID-related restrictions. However, these rules are likely to remain in place until a vaccine is released in the markets. In these uncertain times, airline companies have been forced to lay-off employees and cut down on operational costs.
