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Air Canada offer to buy Transat for $520 million

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Air Canada offer to buy Transat

Holiday travel company Transat AT Inc. decided the best way to keep its operations alive in a turbulent time is to sell its business to Air Canada, which has offered to buy its Montreal-based rival for $520 million.

Air Canada’s stock soared to a record high Thursday after the companies announced they had entered a 30-day period of exclusive talks to finalize a deal that would combine Transat with the country’s largest airline. If approved, the merger will reduce the number of competitors in Canada’s airline industry, particularly on summertime routes to Europe.

Air Canada pitched the deal as a “made-in-Quebec solution” to Transat’s troubles. But a sale wasn’t Transat’s first choice.

Transat tried to save its business with a turnaround strategy after reporting a net loss of $24.5 million in 2018 amid increased competition from Air Canada Rouge, WestJet Vacations and Sunwing. But it continued to lose money in the winter, and its plan to invest $750 million to build hotels in destinations such as Mexico was deemed risky by analysts who noted it would take years to materialize.

This spring, it started getting approached by potential suitors. As financial difficulties prevailed, its board decided to seriously consider offers. Quebec businessmen including Quebecor’s Pierre Karl Peladeau and FNC Capital’s Dominik Pigeon expressed interest in the travel company. Analysts speculated that Onex Corp., which announced this week plans to buy WestJet Airlines Ltd. for $5 billion, was also in line to buy Transat.

Teaming up with Air Canada “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,” Transat chief executive Jean-Marc Eustache said in a statement Thursday.

While the merger requires regulatory approval, including from the Competition Bureau, investors and analysts alike praised the deal. Air Canada’s stock price rose 4 per cent to $40.40 and Transat’s shares jumped 13 per cent to $12.00, adding to the 46 per cent spike when Transat first announced it was evaluating offers at the end of April.

Quebec Premier François Legault, a co-founder of Transat, said the deal could be good for the province since both companies are based in Montreal.

“It’s a lot of emotion for me because of course I was there for the first flight of Air Transat with all the employees crying with joy,” Legault said.

“Of course, being bought by our competitor of the time is not easy to accept, but the good news is that Air Canada has a headquarters in Montreal, so I’m happy to see the headquarters will stay in Montreal if the transaction is closed between Air Canada and Air Transat.”

Any deal will be subject to the Canadian Transportation Act and the Competition Act, and potentially a public interest review, Transport Minister Marc Garneau said in a statement.

“Our government will continue to support greater choice, better service, lower costs, and new rights for Canadian travelers,” Garneau said.

The pairing did not come as a surprise, although the price was on the higher end reflecting the takeover premium, RBC Capital Markets analyst Walter Spracklin noted to clients.

The merger would give Air Canada increased scale in the highly competitive leisure travel market, particularly out of Montreal, Spracklin wrote. Given uncertainty around the duration of the Boeing 737 Max groundings, it could also give Air Canada access to more aircraft.

If approved, the combined company would have about 65 per cent of all the seats on all trans-Atlantic routes in the summer, according to an estimate from National Bank analyst Cameron Doerksen.

But AltaCorp Capital analyst Chris Murray doesn’t think they’ll face too much pushback from regulators given remaining competition from Sunwing and WestJet, which is in the middle of an international expansion, particularly to Europe.

Murray views the deal as positive for Transat given its business model was disrupted by both the internet – more people are booking online and forgoing travel operators – and increased competition. WestJet used to operate flights for Transat before deciding to launch its own tour service in the mid 2000s, he said.

AirTrav Inc. analyst Robert Kokonis agreed that Transat’s vertically-integrated business model came under threat when people started booking air travel separately from packaged tours. Air Canada Rouge, in particular, started to operate on the same routes.

“It isn’t as much what Transat did wrong, it’s just dynamics in the marketplace,” Kokonis said. “Transat realized it had to evolve, and Air Canada come along with the offer.”

— With files from Postmedia News

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Telus email still down heading to the fifth day

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For the fifth day in a row, customers with Telus.net emails are still facing disruptions as the company works to fix ongoing issues.

“Telus technicians continue to work to restore access. This is a fluid situation, and we are doing everything we can to stabilize all servers to bring our final clients online,” said a spokesperson in a statement. “This is taking longer than we would like as remaining issues are very complex. We are incredibly sorry.”

Customers began noticing an issue with their emails on Aug. 15, and while the majority of users had service restored by the next day, plenty have still been left without the service.

The issues are said to affect customers in the Lower Mainland, Kelowna, Vernon, Edmonton, Calgary and more. The majority of customers that have reported an issue with Downdetector say only their email has been affected, but some say there is also a problem with internet usage.

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Ontario Cannabis Store returns $2.9M in CannTrust products

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CannTrust

VAUGHAN, Ont. – CannTrust Holdings Inc. says the Ontario government‘s cannabis retailer is returning all of the company’s products it has because they do not conform with the terms of its master cannabis supply agreement.

The company says the total value of the products is about $2.9 million.

The move by the provincial retailer comes as CannTrust faces problems with Health Canada.

The federal regulator found problems at the company’s greenhouse in Pelham, Ont., earlier this year and later raised issues regarding a manufacturing facility in Vaughan, Ont.

Health Canada has placed a hold on CannTrust’s inventory including approximately 5,200 kg of dried cannabis and the company has also instituted a voluntary hold of approximately 7,500 kg of dried cannabis equivalent.

CannTrust noted that the Ontario retailer operates independently of Health Canada, which has not ordered a recall on any of the company’s products.

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OPEC downgrad its forecast for global oil

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In its latest report, OPEC only slightly downgraded its forecast for global oil demand, lowering it to 1.10 million barrels per day (mb/d) for 2019, down only a minor 0.04 mb/d from a month earlier. That estimate could end up being too optimistic, and OPEC itself said the forecast is “subject to downside risks stemming from uncertainties with regard to global economic development.”

Notably, OPEC said that global supply could grow by 1.97 mb/d this year, significantly outpacing demand growth. Still, that figure is down by 72,000 bpd from a previous estimate, due to lower-than-expected production growth in the U.S., Brazil, Thailand and Norway.

In another worrying sign of a brewing supply surplus, OPEC said that oil inventories in OECD countries rose by 31.8 million barrels in June from a month earlier, rising to 67 million barrels above the five-year average. In other words, just as OPEC+ was meeting to extend the production cuts for another 9 months, inventories were rising, an indication of an oversupplied market.

On a slightly positive note (for OPEC), the group revised up demand for its crude by 0.1 mb/d for both 2019 and for 2020. Still, it said that demand for its oil, often referred to as the “call on OPEC,” would drop to 29.4 mb/d in 2020, down from 30.7 mb/d this year.

Based on those numbers, OPEC+ is staring down a serious supply glut next year absent further action. The group can either stick with current production levels and risk another market downturn, or it can swallow further production cuts.

What happens next is largely outside of OPEC’s hands. Recent price movements are almost entirely the result of shifting sentiments regarding the global economy. “The yo-yoing on the oil market continues and the oil price remains highly prone to fluctuations. After sliding massively on Wednesday, Brent was hit hard once again [Thursday], shedding over 3% in a matter of hours,” Commerzbank said in a note on Friday. “The oil price currently remains at the mercy of expectations for the global economy, and is thus caught between economic concerns and hopes that the trade dispute might end soon.”

U.S. retail sales eased some concerns on Friday, but the global backdrop remains worrying, and a steady release of data from around the world continues to point in a negative direction. Just in the last week, there was the inverted yield curve for U.S. treasuries, a stock market and currency meltdown in Argentina, volatile oil prices, and widespread fears of a global economic recession.

Even the U.S. is not immune, despite mostly healthy data up until recently. For instance, Wall Street analysts have slashed their outlooks for corporate earnings for the third quarter in recent weeks. “Everyone in April and through the beginning of May thought that the economy was going to get better in the back half of the year, trade war was going to sort of settle, certainly not escalate,” Eastman Chemical Chief Executive Mark Costa said on an earnings call last month, as the WSJ reported. “And now we’re just in a very different world where I don’t think that’s true…There’s not a lot of signs of economic recovery coming in the second half.”

Ultimately, the U.S. will struggle to outrun a global slowdown. The World Trade Organization (WTO)  painted a bleak picture for the third quarter, saying that trade volumes are “likely to remain weak.” The global auto sector has been hit hard this year, with a sharp contraction in China, India and Germany. The U.S. auto industry is starting to show some signs of strain as well.

The problem for oil prices is that the outlook for 2020 is already pretty bearish, with supply growth outpacing demand. That’s the base case right now. But the odds of economic recession continue to grow, which threatens to make the supply overhang that much worse.

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