Why Air Canada (TSX:AC) Shareholders Should Be Thrilled at the Prospects of a Pending Merger With Air Transat

Air Canada’s (TSX:AC)(TSX:AC.B) pending merger with rival Air Transat looks like it could be a huge win for shareholders. Find out why.

| More on:
Hands shaking over a business deal

Image source: Getty Images.

On Thursday, it was announced that Air Canada’s (TSX:AC)(TSX:AC.B) board of directors had voted to approve the company’s acquisition of smaller rival Air Transat (whose parent company is TRANSAT AT) for $520 million, or $13 per share.

There are still several regulatory hurdles that are yet to be approved, but here are three reasons why shareholders in Canada’s largest airline ought to be feeling very, very happy about the prospects of a potential merger acquisition between the two airlines.

Air Canada stands to get a very good deal on the proposed transaction

Air Canada’s tender offer was finalized at $13 per share, but what’s significant about that figure is that the proposed takeover price is actually less than the $14 per share offer that Air Transat is reported to have already been offered by a Group Mach, a Quebec-based real estate developer.

The fact that Air Transat essentially turned down a better offer from a rival bidder has naturally raised the ire of some of the company’s larger shareholders, who have said they would vote against the proposed deal with AC if the price remains at $13 per share.

Needless to say, the fact that Air Canada could get the deal done at a price arguably below fair market value could be a huge financial win for the board of directors, company management, and shareholders.

A potential deal would be rife with synergistic opportunities

Beyond getting what could be a potentially very good price on the proposed transaction, a deal between the two airlines offers significant benefits for both parties.

Among those synergies would be the ability to reduce or even eliminate available redundancies between the two airlines, which together currently account for 60% of Canada’s transatlantic market and overlap routes on certain popular holiday destinations.

A merger, if approved by Air Transat’s owners, would still be subject to regulatory review to ensure that Canadian travellers won’t be at risk from a concentration of interests.

However, Air Transat has had to battle uphill in recent years, as it sought to compete with larger hub-and-spoke industry alliances and the company is on record that it hopes a deal with Air Canada would help it to deliver enhanced capabilities, more choices, and an overall better experience for travellers, while also helping to preserve the Transat brand and keep the firm’s head office where it is already in Montreal.

Immediately enhanced operational flexibility

Last but not least, this year’s earlier grounding of the Airbus 737 MAX fleet is costing Air Canada in cold, hard cash every day that those aircraft remain on the ground. It’s forced to lease less-efficient Airbus 320’s and Embraer E190’s in an already crowded market.

The pending acquisition of rival Transat would help alleviate some of that operational cash burn by giving it access to the smaller rival’s newer all-Airbus fleet and help it to offload operational headaches.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jason Phillips has no position in any of the stocks mentioned.

More on Investing

protect, safe, trust
Dividend Stocks

The 2 TSX Stocks to Buy for Decades of Safe Passive Income

Stable dividend stocks are common, but companies that you can safely hold in your portfolio for decades for their passive-income…

Read more »

woman data analyze

The Market Is Wrong About This 1 Value Stock

Restaurant Brands International (TSX:QSR) stock is getting cheap after the latest correction in shares.

Read more »

Airport and plane

Is Air Canada Stock Finally a Buy This Season?

When you are investing in a prospective recovery, it’s a good idea to watch for favourable industry trends.

Read more »

TFSA and coins
Dividend Stocks

TFSA Investors: How to Earn $2,500 Per Year on $40,000

Investors have an opportunity to secure high yields while reducing risk in their TFSA portfolios.

Read more »

Illustration of bull and bear

A Bull Market Is Coming: 3 Growth Stocks That Could Thrive

These growth stocks all trade undervalued and have tonnes of long-term potential, making them some of the best to buy…

Read more »

Volatile market, stock volatility
Metals and Mining Stocks

Weathering Volatility: Strategies for Success With TSX Stocks

The key to handling volatility is changing your asset mix. For example, if you suspect a market downturn, you can…

Read more »

Path to retirement
Dividend Stocks

Retirement Wealth: 2 Top Dividend Stocks for TFSA Investors

Parking a sizable portion of your savings in reliable dividend stocks is a time-tested wealth-building strategy appropriate for a wide…

Read more »

sale discount best price
Tech Stocks

2 Growth Stocks to Buy Every Time They Go on Sale (Like Now)

The right growth stocks are worth buying in almost any market, but they are especially attractive when they come with…

Read more »