Péladeau urges Ottawa to reject Air Canada takeover of Air Transat

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Quebec media baron Pierre-Karl Péladeau is urging the federal cabinet to deny Air Canada’s proposed takeover of Air Transat, offering to pay more in cash for the struggling airline to guarantee competition and fairer prices for Canadian travellers.

The Globe and Mail has obtained three letters from Mr. Péladeau to Transport Minister Marc Garneau calling for a rejection of the merger, saying he will pay $6 a share or 20 per cent more than Air Canada’s cash offer to purchase Transat AT Inc., a Montreal-based airline and tour company. Transat shareholders on Dec. 15 agreed to Air Canada’s bid of $5 a share or 0.2862 of an Air Canada share for each Transat share.

Mr. Péladeau’s offer of $223-million for Transat does not involve Quebecor Media Inc., which controls his media empire and telecom holdings, but is through his private investment firm Gestion MTRHP Inc. He said he has the backing of an unnamed major financial institution.

The federal cabinet is expected to soon decide whether to approve Air Canada’s $180-million purchase of Air Transat amid concerns the proposed merger would stifle competition and result in higher prices for travellers.

“It is time to make known your rejection of this transaction and allow us to acquire Transat, thereby maintaining an essential choice that benefits Canadian travellers,” Mr. Péladeau wrote in a letter dated Dec. 10.

In another letter dated Dec. 31, Mr. Péladeau said Transat’s board of directors declined his offer in a terse e-mail sent to him on Dec. 14, the night before Transat shareholders approved the arrangement with Air Canada.

He said the refusal showed “contempt” for Transat shareholders and those who rely on healthy competition in the airline industry.

Transat on Dec. 15 acknowledged its board had received a competing proposal in November and held negotiations with the unnamed “private investor,” widely believed to be Mr. Péladeau. Transat said it determined the offer was not superior to Air Canada’s and did not put it to shareholders for a vote.

Ninety-one per cent of shareholders who voted backed the Air Canada deal.

“While we considered Air Canada’s offer imperfect, it was the only offer on the table,” said Patrick McQuilken, a spokesman for the Fonds de solidarité FTQ, which is Transat’s second-biggest owner with 12 per cent of the shares. “It wasn’t an ideal situation. There should have been more transparency.”

A spokesman for Transat declined to comment, and would not confirm or deny Mr. Péladeau was the unnamed bidder.

Mr. Péladeau told the Transport Minister that he submitted another bid to Transat on Dec. 22 that would remain open for 24 hours after any federal cabinet decision to turn down the Air Canada purchase on grounds the merger would stifle competition.

“It appears obvious that our proposal constitutes the alternative that can settle this issue in the best interest of Transat, of its shareholders, of its employees, and of Canadian and Quebeckers, and should be taken into account in our analysis of the file,” he wrote.

Mr. Garneau’s office had no comment on the letters because the department is still conducting a public interest review of the proposed merger after the Competition Bureau warned the deal would be bad for consumers.

A source told The Globe and Mail that Mr. Garneau is expected to soon forward a recommendation to cabinet and a decision could be announced in January or early February. The Globe is not identifying the source because they were not authorized to talk about the federal review.

Mr. Péladeau warned there is every possibility European Union anti-trust regulators will not approve the Air Canada deal since they have expressed concerns that it may significantly reduce competition and result in higher prices on 33 routes between Europe and Canada.

On Dec. 6, the Quebec business leader said he was interviewed for 90 minutes by EU regulators where he outlined his anti-competitive objections to the takeover.

The European Commission, which oversees competition policy in the 27-country European Union, opened an investigation in May on concerns that the deal could push up prices and reduce choice for flights between Europe and Canada.

The federal Competition Bureau warned Mr. Garneau in March – based on prepandemic data – that the merger “is likely to result in substantial anti‑competitive effects through the elimination of rivalry between Air Canada and Transat in the areas of overlap between their networks.”

The watchdog found 83 routes between Canada and Europe, Florida, Mexico, the Caribbean and Central and South America where competition would be reduced or eliminated. This would lead to higher prices and fewer services and would particularly affect Montreal, Quebec City and Toronto, where the two airlines hold dominant market share.

Mr. Péladeau alleged that Air Canada delayed providing information to EU regulators and requested postponement on its ruling to drive down the purchase price.

Peter Fitzpatrick, an Air Canada spokesman, said this is not true. The airline has been eager to close the deal, given the benefits it offers to employees and investors of both companies, and the communities they serve, he said.

Air Canada had originally offered $720-million in August, 2019, to take over Transat in a merger that would give the country’s largest airline 60 per cent of transatlantic travel from Canada and 45 per cent of passenger capacity to sun destinations.

In October, Air Canada slashed its offer by almost 75 per cent to $180-million after airline revenues cratered as a result of the collapse in air travel owing to COVID-19.

In a letter to Mr. Garneau dated Nov. 23, Mr. Péladeau said his companies, including internet and mobile service provider Videotron, as well as his newspapers and TV network, TVA, have provided competition that have benefited Quebeckers.

He promised to respect any conditions Ottawa sets down as part of an expected airline bailout.

“We anticipate, as management of airline companies have indicated, that the government of Canada will soon provide financial assistance to the industry subject to certain conditions,” he wrote. “The refunding of airline customers for unused airplane tickets would be one of the most important, as well as one that would see the government of Canada become a partner (as shareholder or other) in return for this financial assistance.”

In a confidential letter to Mr. Garneau on May 14, WestJet president and chief executive officer Ed Sims urged Ottawa to impose conditions if it approves Air Canada takeover of small rival Transat.

Mr. Sims said Air Canada should give up some of its “peak period” slots at Toronto’s Pearson International and London’s Heathrow airports. He proposed other conditions as well to ensure competition.

“WestJet believes that Air Canada should be required to maintain all three brands – Air Canada, Rouge and Transat. Air Canada should also be expressly precluded from using its Aeroplan loyalty program with its Transat-branded flights,” Mr. Sims wrote. “Air Canada should also not be permitted to use its dominant position to tie up hotels in the sun region through the use of exclusive contracts or incentives that effectively create exclusivity.”

With a report from Campbell Clark in Ottawa

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