Transat AT shares soar after disclosing talks about possible sale of company

MONTREAL — Transat AT Inc.’s efforts to cut costs and improve its profitability, in part by opening hotels on beaches at sun destinations, could result in it being sold.

The company’s shares soared more than 46 per cent Tuesday after the tour and travel company announced preliminary talks regarding the possible sale of the company.

On the Toronto Stock Exchange, shares of the parent company of Air Transat closed up $2.62 to $8.29. Shares touched an intraday peak of $8.85, which was still short of its 52-week high.

The Montreal-based company said before its annual meeting that it is in talks with more than one party regarding a potential transaction following expressions of interest it received.

Transat said it has formed a special committee of independent directors to evaluate the proposals with the assistance of financial and legal advisers.

“I cannot give a timetable, and I have no idea, how long it can take. We are in the preliminary .125stages.375,” president and CEO Jean-Marc Eustache said at a news conference after the shareholders meeting.

Several questions remained unanswered, including when talks started and who were the interested parties.

Air Transat was founded 33 years ago by a group of businessmen, including Eustache, 70, and current Quebec Premier Francois Legault, who sold his stake in the company in 1997 before making the leap into politics.

“I had a big twinge in my heart when I was informed Monday afternoon,” Legault told reporters in Quebec City. “It’s news that concerns me.”

Legault, whose government announced a $1-billion fund to protect Quebec headquarters, said “we will do everything to keep” the tour operator’s head office in the province.

The company has embarked on a financial turnaround and plans to build a network of hotels on sun destination beaches in the hope that this will better position it in the face of increased competition from Canadian rivals such as Air Canada Rouge, WestJet Vacations and Sunwing Airlines.

Transat did not name the potential bidders, but analyst Benoit Poirier of Desjardins Capital Markets said they could be the same groups that have expressed interest in Thomas Cook.

While the stock price has surged, Poirier says it was still well below Transat’s “intrinsic value” which he has conservatively pegged at $12 per share based on surplus cash, value of land and earnings.

Transat’s profitability has been volatile for some time, with EBITDA declining to $16.6 million in the last fiscal year, down from $102 million in fiscal 2017.

“Given the depressed valuation and lack of succession planning, we are not surprised that the company is evaluating a potential sale,” Laurentian Bank Securities analyst Mona Nazir wrote in a report.

She said a potential sale price is likely to be dictated by the type of buyer. A competitor would likely pay a premium over a private equity firm because of potential cost savings. However, the list of potential candidates is constrained because foreign ownership of Canadian air carriers is limited to 49 per cent.

The main shareholder of the tour operator — which has some 5,000 employees — is Letko, Brosseau and Associates with a stake of 18.14 per cent and the Quebec Federation of Labour’s Solidarity Fund with 11.58 per cent. The Caisse de depot et placement du Quebec holds a 5.84 per cent interest.

Transat offers vacation packages, hotel stays and air travel under the Transat and Air Transat brands.

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