Bidding For Transat Heats Up

Quebec independent real estate developer and owner, Group Mach Inc. is offering to acquire all issued and outstanding voting shares of Transat A.T. Inc. for $14 cash per share based on a deal value exceeding $1B, including substantial off balance sheet debt which that it estimates at between $1.1 billion and $1.2 billion.

Group Mach says that the Offer Price represents a premium of approximately 168% over the 20-day weighted average trading price prior to the announcement of Transat on April 30, and a premium of 24% over the 20-day weighted average trading price for the period ended June 3. The Offer is subject to conditions described further below.

The Offer is a culmination of a long process undertaken by Mach since last January 2019 when it approached the Company regarding a potential negotiated transaction including its initial letter of intent addressed to the board of directors of Transat on Feb. 7 and various amendments thereto and other exchanges with the Company up to its announcement of April 30.

Vincent Chiara, president & CEO of Mach, said, “We are excited about the potential synergies between our companies in which the leading integrated international tourism model of Transat could be combined with Mach’s vast experience in overseeing the construction, ownership and management of complex real estate development projects in a cost-effective manner and its on-going initiatives at modernizing the leisure travel experience.”

Mach says its offer would give Transat the opportunity to pursue its 2018-2022 strategic plan more competitively in a private setting, backed by the financial strength and extensive real estate development and ownership experience of Mach.

And would allow it to “effectively execute a more robust and modernized version of the higher profit margin hotel portfolio of Transat without the significant risks associated with the Company’s current strategy, thereby securing long-term value for Transat.”

Mach says its bid is in the best interests of Transat for a number of reasons, including:

• Our objective is to build a global leading vertically integrated leisure travel brand under the banner of Transat.
• Transat’s head office, executive team and centre of decision-making shall truly be based in Montreal.
• Mach is committed to reassure the Quebec Government that Quebec’s interests are truly protected.
• Mach shall strengthen Transat’s 2018-2022 strategic plan while preserving all operating units of Transat, including its airline, tour operator, travel agency and hotel divisions.
• Mach will preserve existing continued operational improvements in Transat’s legacy airline and tour operator segments based on Transat’s existing 2018-2022 strategic plan and integrate anticipated technological enhancements provided by Mach’s global leading leisure travel partners.
• The hotel development will generate overall significant and sustainable profit margins for Transat in which its other operating divisions, including the airline and tourism operator will exceed the current average of over 1.2 million passengers of Air Transat travelling to sun destinations by way of travel packages.
• Mach notes that upon closing of the Transaction, TM Grupo Inmobiliario (“TM”), the largest residential and leisure real estate developer in Spain and preferred hotel supplier of Transat in Mexico, shall contribute, in exchange for a minority equity stake in Transat, approximately $15,000,000 in cash and roll-over its three operating hotels in Mexico with approximately 1,000 rooms under the well-established banner The Fives Hotels and Residences into Transat’s platform (the “TM Roll-Over”) thereby immediately generating approximately $15,000,000 of EBITDA for Transat.
• While Transat’s 2018-2022 strategic plan projects 5,000 rooms within six years (3,000 owned, 2,000 managed), under the extensive real estate development expertise of Mach and TM and their significant financial capacity we plan to augment and accelerate to approximately 8,000 owned rooms and 4,000 managed rooms by such time.
• Mach also states that it will expand the travel package experience for Canadians to include European destinations at very competitive pricing namely in Spain in which we could leverage TM’s vast hotel portfolio effective in 2020.
• And it notes that the public markets are not the proper setting for Transat’s 2018-2022 strategic plan, particularly its hotel development strategy which shall require several years for any meaningful returns to be realized in face of pressures of immediate results from the public markets.
• The extensive construction, ownership and operational real estate expertise of Mach with the support of local equivalent expertise such as TM in Mexico and other sun destinations will significantly contribute to mitigating any construction and operational risks associated with Transat’s hotel development strategy.
• Mach’s leveraging of its current international efforts and relations in the modernization of leisure travel initiatives with global leaders the likes of Airbnb, Luxury Retreats and Sonder would be highly beneficial to Transat’s 2018-2022 strategic plan. Upon closing of the Transaction, Lawrence Tosi, Managing Partner of WestCap and former CFO of Airbnb and of Blackstone would join the Board of Directors of Transat.
• Mach is very well capitalized and readily has access to competitive financing from leading Canadian and international banks to carry out Transat’s 2018-2022 strategic plan, including as proposed herein by Mach.
• The Transaction would re-position Transat in a private setting thereby providing it the necessary platform to be more competitive, agile and keep pace in the fast-changing leisure travel industry.
• Transat is vulnerable to an ever increasing and highly competitive leisure travel industry in which various segments are steadily becoming commoditized thereby further squeezing margins all in the context in which many of its competitors benefit from having access to the Company’s continuous disclosure record.
• The Transaction shall increase cash generation from public market cost savings.
• The Transaction removes the risks for existing shareholders of Transat who would receive an upfront significant cash premium for their Shares without being exposed to significant uncertainties of the Company’s 2018-2022 strategic plan.
• And the Shares are highly ‘illiquid’ and the Company’s 2018-2022 strategic plan reinforces the long-term uncertainty as to future Share prices. The Transaction would provide immediate liquidity for shareholders of the Company at a substantial premium.

Mach also outlined its “post-acquisition” approach, noting that its investment strategy for the proposed Transaction has always been to invest alongside talented management teams to support profitable growth.

Its intent is to largely maintain Transat’s existing business plan as well as its management team, stating that its “intention is to leave management in place and for day-to-day operating control to remain with them where it belongs.”

Mach will also leverage the expertise of TM in sun destinations such as Mexico to mitigate construction and operational risks associated with Transat’s hotel development strategy.

The conditions of the transaction include:

• Transat terminating its current process with Air Canada prior to entering into any definitive binding acquisition agreement with Air Canada.
• The execution of a confidentiality agreement between Transat and Mach which includes a period of 30 days to complete due diligence and execute a definitive acquisition agreement.
• The execution of a definitive acquisition agreement between Transat and Mach.
• The Quebec government providing acquisition financing of approximately $120,000,000, subject to terms and conditions to be negotiated between Mach and the government. Mach shall file a business plan with Investissement Québec on or before June 10, 2019 (the “IQ Financing”).
• The Fonds de solidarité FTQ (“FSTQ”) and the Caisse de dépôt et placement du Québec (the “CDPQ”) executing support and voting agreements with Mach.
• And the receipt of regulatory approvals, namely the review of the Transaction by federal competition and transportation authorities.

For more, go to www.groupemach.com .