TRZ.TO - Transat A.T.

[Cardboard]

I wondered if any of you has looked into this arbitrage opportunity?

 

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aTRZ-2760558&symbol=TRZ&region=C

 

Air Canada has entered into exclusive negotiation for 30 day with the company for an offer at $13. A break-up fee is also in place or $15 million payable by Transat and up to $40 million payable by Air Canada if it cannot obtain regulatory approval. I saw no disclosure if it is an offer all in cash but, I assume so. In any case, AC is much larger, stock is doing well and just renewed NCIB. It is also the founder selling so probably interested in cash only.

 

There are also apparently other interested parties such as Peladeau of Quebecor.

 

I would think that the gap between $11.50 and $13 is entirely due to fear of regulatory approval. The stock was at $5 and change prior so the drop on no deal would be brutal. I would think that AC has already thought about that and planned on divesting some routes to please regulators.

 

What other parties are prepared to offer is another question. Air Canada seems to have bid high enough to get rid of almost any competition but, is this true?

 

Air Transat has been a dormant stock for about 2 decades following its initial fast growth phase with occasional ups and down but, no real progress. There is over $1 billion in cash on the balance sheet to mainly support customer deposits or $28.60 per share and they have no debt. How much could be freed to a better financed firm such as AC?

 

Book value is still $14.70.

 

Closing of the deal could also take quite a bit of time.

 

Cardboard

 

 

 

 

[york]

Has anyone gone back to take a look at this?

[samwise]

It’s an airline in trouble, being bought out by another airline in trouble, where the competition agency has expressed doubts about allowing this deal recently.

If they survive, you will make money some way.  The founder really wanted to sell , there was a bidding war. But I don’t know if they survive or in what shape they survive.

[wisowis]

Air Canada's takeover offer revised down from $18/share to $5/share: https://www.transat.com/en-CA/corporate/media/news-releases/124335

 

Very curious how large the spread is going to be under the revised offer.

[xasm]

Folks - is anyone following this transaction? Seems like the Canadian Government may allow it to occur, but I have no idea about the EU.  Also, I haven't followed an acquisition before and it seems like currently it could be a great investment in Air Transat just to be able to convert to AC.TO at the given transaction exchange in shares at a value of $17.47.  This seems like a Joel Greenblatt type trade...

 

What am I missing here? How do these deals typically go through? When is closing date? How can you tell if nothing's been press released yet?  Any help is appreciated.

 

https://www.transat.com/en-CA/corporate/media/news-releases/124335

 

Cheers,

[xasm]

A bit more reading for those interested:

 

https://www.thechronicleherald.ca/news/local/report-predicts-cost-hikes-for-halifax-flights-south-amid-air-canada-transat-merger-544904/

 

The above indicates that someone had obtained an exert from the European Commission regarding anti-competitiveness and price hikes that Canadians will have to swallow if it goes through.

 

https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04522.html

 

The study from nearly a year ago indicates serious concerns for anti-competitiveness but also indicates that the parties are willing to work with the government to counteract these potential issues.

[xasm]

UPDATE: Government of Canada approved but awaiting EU decision which may come before July 1, 2021. 

[bizaro86]

This is a tough arb. I like the spread, but the EU risk is hard to handicap, and the downside is potentially to zero if this doesn't close.

[wisowis]

On 2/24/2021 at 5:16 PM, bizaro86 said:

This is a tough arb. I like the spread, but the EU risk is hard to handicap, and the downside is potentially to zero if this doesn't close.

 

And the deal falls apart because of EU regulators. Good call bizaro https://www.theglobeandmail.com/business/article-air-canada-calls-off-180-million-takeover-of-rival-air-transat/

[xasm]

Thanks for the update. I just saw the article a few days ago.  Was awaiting news on this and glad I didn't start a position before the EU decision. On to the next!