$190M deal between Air Canada and Transat called off , after European (EC) approval denied !

Air Canada and Transat announced today that they have mutually agreed to terminate the Arrangement Agreement for the proposed acquisition of Transat by Air Canada.

Now, Transat AT is considering its options after the deal officially died on Friday with a statement that Air Canada had come to a mutual agreement with Transat to terminate their planned merger.

The Penalty !

Air Canada will pay Transat a $12.5-million termination fee, while Transat won't be required to pay Air Canada anything if it enters into another deal in the future.

What was the Plan ?

Air Canada and Transat had originally agreed in June 2019 on the acquisition, that would have seen Canada's largest airline acquire its smaller travel rival, the terms of which were subsequently amended in August 2019 and then revised in October 2020 as a result of the severe economic impact of the COVID-19 pandemic.

As previously disclosed, the acquisition was conditional on the approval of various regulatory authorities, including the European Commission ("EC"). In order to meet that key condition, Air Canada offered and enhanced a significant package of remedies, which went beyond the commercially reasonable efforts required of Air Canada under the Arrangement Agreement and what has been traditionally accepted by the EC in previous airline merger cases. Following recent discussions with the EC, it has become evident, however, that the EC will not approve the acquisition based on the currently offered remedy package.

What happened to the deal ?

Air Canada has concluded that providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise Air Canada's ability to compete internationally, negatively impacting customers, other stakeholders and future prospects as it recovers and rebuilds from the impact of the COVID-19 pandemic.

Especially in this challenging environment, it is essential that Air Canada focus on creating the optimal conditions for its full recovery by preserving and leveraging all of its key strengths and assets including its strong employee culture.

Both Air Canada and Transat have agreed to terminate the Arrangement Agreement with Air Canada paying Transat a termination fee of $12.5 million, and with Transat no longer under any obligation to pay Air Canada any fee should Transat be involved in another acquisition or similar transaction in the future.

Transport Minister Omar Alghabra said Friday that the federal government's priority is to protect jobs in Quebec and across Canada, and to support a competitive air transport sector.

"We are currently in active discussions regarding financial support options for many Canadian airlines, including Air Transat," Alghabra said in a statement shared on Twitter. "I spoke directly with Air Transat and we are examining next steps."