Coming as a shock to many, Friday saw Air Canada and Air Transat simultaneously announce the termination of a deal that would have seen Canada’s largest carrier acquire the smaller leisure airline. Now that the deal is off the table, what comes next for Air Transat at a time where its existence is threatened by ongoing travel restrictions?
“Now that Transat is no longer constrained by the limitations under the Arrangement Agreement, it is free to focus on relaunching operations under its strategic plan, including by leveraging its many competitive advantages.” – Air Transat statement
The collapse of the acquisition
Despite successfully gaining approval from Canadian authorities amid concerns raised by Canada’s Competition Bureau, Air Canada cited conditions it faced from the European Commission as the reason for the deal’s termination.
“…ultimately, Air Canada reached its limit in terms of concessions it was willing to provide the European Commission to satisfy their competition law concerns,” –Jean-Marc Eustache, President and Chief Executive Officer of Transat via an official airline statement
Eustache goes on to say that, despite receiving approval from the Canadian authorities, it was now evident that the airlines “would not obtain the approval of the European Commission.”
With the termination of the deal, Air Canada has agreed to pay a C$12.5 million (US$9.98 million) termination payment to Air Transat. More importantly, Air Canada has agreed to waive its entitlement to a C$10 million (US$7.98 million) termination fee “in the event of an acquisition of Transat by a third party in the twelve months following termination of the Arrangement Agreement.” This key concession gives Air Transat more freedom to secure a buyer without facing a hefty financial charge.
Air Transat now
The collapse of this deal, whether it benefitted consumers long-term or not, puts Air Transat in a precarious situation. The airline has extremely limited domestic operations (which at the moment appear to be non-existent) and has thus relied on international travel as its main form of generating revenue.
However, international travel restrictions imposed by the Canadian government have severely limited travel activity, as those entering the country now face at least three nights in a government-authorized hotel upon their return. This is in addition to Canada’s strict arrivals policy, which only allows the entry of Canadian citizens and permanent residents- something that has been in place for a year now. To make matters worse, the Canadian government has yet to announce a sector-specific relief package to assist the struggling airline industry.
With international travel restricted and no government support yet forthcoming, Air Transat may not last long if these external conditions remain as-is. Indeed, Air Transat has stated previously (and has since reiterated) that it requires “new financing totaling at least of $500 million in 2021,” adding that it has been “taking and will continue to take all measures available to it to preserve cash and […] has put in place a $250 million short-term subordinated credit facility, which matures on June 30 and will need to be replaced or extended before that date.”
C$500 million is equivalent to US$399 million.
Péladeau to the rescue?
Now, everyone who has been following the story of Air Canada’s long and drawn-out acquisition attempt is turning their focus to businessman Mr. Pierre Karl Péladeau – the owner of the investment company Gestion MTRHP Inc. Péladeau had put forward his own offer and accused Air Transat of ignoring it. The airline said at the time that the proposal lacked the required level of financing.
Seemingly a response to Air Transat’s statement, in mid-February, the following public statement was issued by the Quebec businessman:
“For anyone in doubt, I have means to support my ambition and I wish to take over Transat so that Quebecers can continue to benefit from the choice that competition provides.” -Pierre Karl Péladeau via CTV News
With the winds shifting significantly, Air Transat is indeed hoping Péladeau (or at least someone with similar financial resources) can swoop in to rescue the airline. In its statement, it said:
“Now that the Arrangement Agreement has been terminated, Transat is free to hold discussions with potential strategic and financial acquirers, including Mr. Pierre Karl Péladeau, whose investment company, Gestion MTRHP Inc., previously made (and since reiterated) a proposal to acquire all of the issued and outstanding shares of Transat for $5 a share. The Board intends to examine available strategic alternatives, including the pursuit of the Corporation’s stand-alone business plan.”
Péladeau and his investment firm would seem to be a good fit to take control of the airline. Although Air Transat has had operations at major airports across Canada, it is based in Montreal and has strong roots in Quebec. With Péladeau being a Quebec-native himself (born in Montreal no less), the businessman would likely be higher on the list if other ‘outsiders’ were to also show interest in acquiring the carrier.
Could Air Transat now sell for less?
While Air Canada had agreed to acquire Air Transat for C$5 per share, the termination of the deal puts Air Transat in a vulnerable position. With the hefty price tag and current situation, there are few companies or individuals that have the resources and means to save the carrier and pour money into a business that is unable to generate revenue in the short term.
It’s in this position of weakness that we could see offers for less. If we consider competition as a force that drives up the bidding price, the lack of competition would logically bring it down. We’ll have to wait and see if bidders other than Péladeau make themselves known. Additionally, it will be interesting to see if Mr. Péladeau’s bidding price changes now that he knows the airline has fewer options.
What do you think will happen to Air Transat in the months going forward? Will the airline remain under its current form of ownership with the help of a government bailout? Or will a wealthy individual or investment group pick up the airline for a deal? Let us know your thoughts in the comments.
Canadian Business During the Pandemic
In 2019 the world was hit by the covid 19 pandemic and ever since then people have been suffering in different ways. Usually, economies and businesses have changed the way they work and do business. Most of which are going towards online and automation.
The people most effected by this are the laymen that used to work hard labors to make money for there families. But other then them it has been hard for most business to make such switch. Those of whom got on the online/ e commerce band wagon quickly were out of trouble and into the safe zone but not everyone is mace for the high-speed online world and are thus suffering.
More than 200,000 Canadian businesses could close permanently during the COVID-19 crisis, throwing millions of people out of work as the resurgence of the virus worsens across much of the country, according to new research. You can only imagine how many families these businesses were feeding, not to mention the impact the economy and the GDP is going to bear.
The Canadian Federation of Independent Business said one in six, or about 181,000, Canadian small business owners are now seriously contemplating shutting down. The latest figures, based on a survey of its members done between Jan. 12 and 16, come on top of 58,000 businesses that became inactive in 2020.
An estimate by the CFIB last summer said one in seven or 158,000 businesses were at risk of going under as a result of the pandemic. Based on the organization’s updated forecast, more than 2.4 million people could be out of work. A staggering 20 per cent of private sector jobs.
Simon Gaudreault, CFIB’s senior director of national research, said it was an alarming increase in the number of businesses that are considering closing.
“We are not headed in the right direction, and each week that passes without improvement on the business front pushes more owners to make that final decision,”
He said in a statement.
“The more businesses that disappear, the more jobs we will lose, and the harder it will be for the economy to recover.”
In total, one in five businesses are at risk of permanent closure by the end of the pandemic, the organization said.
The new sad research shows that this year has been horrible for the Canadian businesses.
“The beginning of 2021 feels more like the fifth quarter of 2020 than a new year,” said Laura Jones, executive vice-president of the CFIB, in a statement.
She called on governments to help small businesses “replace subsidies with sales” by introducing safe pathways to reopen to businesses.
“There’s a lot at stake now from jobs, to tax revenue to support for local soccer teams,”
“Let’s make 2021 the year we help small business survive and then get back to thriving.”
The whole world has suffered a lot from the pandemic and the Canadian economy has been no stranger to it. We can only pray that the world gets rid of this pandemic quickly and everything become as it used to be. Although I think it is about time, we start setting new norms.
Shopify shares edge up after falling on executive departures
By Chavi Mehta
(Reuters) -Shopify Inc shares edged higher on Thursday, recovering partially from the previous day’s fall, with analysts saying the news of planned senior executive departures may have limited impact due to the company’s deep talent pool.
Chief Executive Officer Tobi Lutke said in a blog post on Wednesday the company’s chief talent officer, chief legal officer and chief technology officer will all leave their roles.
“We remain confident it (Shopify) can continue to execute at a high level, despite the departures,” Tom Forte, analyst at D.A. Davidson & Co said, pointing to the company’s “deep bench of talented executives.”
Shopify, which provides infrastructure for online stores, has seen its valuation soar in the past year as many businesses went virtual during the COVID-19 lockdowns, turning it into Canada‘s most valuable company.
Shopify declined to comment further on Lutke’s statement suggesting current company leaders would step in to fill the three roles. After chief product officer Craig Miller left in September, Lutke took on the role in addition to CEO.
The Ottawa-based company is Canada‘s biggest homegrown tech success story, founded in 2006 and supporting over 1 million businesses globally, according to the company.
Jonathan Kees, analyst at Summit Insights Group, called the timing of the departures “a little alarming” but said the specific roles make it less concerning, given that the executives leaving are “more back-office roles.”
Lutke said each one of them had their individual reasons to leave, without giving details.
“I am willing to give Tobi’s explanation the benefit of the doubt,” Kees added.
Toronto-listed shares of Shopify were up 3.5% at C$1526.41 on Thursday, giving it a market value of C$188 billion ($150 billion). It ended down 5.1% on Wednesday.
“While we would refer to the departure of three high-level executives as ‘significant,’ we would not refer to it as a ‘brain drain,'” Forte added.
($1 = 1.2541 Canadian dollars)
(Reporting by Subrat Patnaik in Bengaluru; additional reporting by Moira Warburton in Vancouver; Editing by Sherry Jacob-Phillips and Dan Grebler)
Almost half of Shopify’s top execs to depart company: CEO
By Moira Warburton
(Reuters) – Three of e-commerce platform Shopify’s seven top executives will be leaving the company in the coming months, chief executive officer and founder of Canada‘s most valuable company Tobi Lutke said in a blog post on Wednesday.
The company’s chief talent officer, chief legal officer and chief technology officer will all transition out of their roles, Lutke said, adding that they have been “spectacular and deserve to take a bow.”
“Each one of them has their individual reasons but what was unanimous with all three was that this was the best for them and the best for Shopify,” he said.
The trio follow the departure of Craig Miller, chief product officer, in September. Lutke took on the role in addition to CEO.
Shopify, which provides infrastructure for online stores, has seen its valuation soar in the last year as many businesses went virtual during COVID-19 lockdowns. It has a market cap valuation of C$182.7 billion ($146 billion), above Canada‘s top lender Royal Bank of Canada.
It is Canada‘s biggest homegrown tech success story, founded in 2006 and supporting over 1 million businesses globally, according to the company.
“We have a phenomenally strong bench of leaders who will now step up into larger roles,” Lutke said, but did not name replacements.
Shopify said in February revenue growth would slow this year as vaccine rollouts encourage people to return to stores and warned it does not expect 2020’s near doubling of gross merchandise volume, an industry metric to measure transaction volumes, to repeat this year.
Chief talent officer, Brittany Forsyth, was the 22nd employee hired at Shopify and has been with the company for 11 years. She said on Twitter that post-Shopify she would be focusing on Backbone Angels, an all-female collective of angel investors she co-founded in March.
Shopify shares fell 5.1% while the benchmark Canadian share index ended marginally down.
($1 = 1.2515 Canadian dollars)
(Reporting by Moira Warburton in Toronto; Editing by Aurora Ellis)
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