Quebec real estate developer Group Mach Inc. has outbid Air Canada by offering a $527.6-million takeover proposal for tour operator Transat AT Inc. which includes trying to convince the Quebec government to finance nearly one-quarter of the purchase.
The $14 per share offer comes after Transat announced last month it was in exclusive 30-day negotiations to be acquired by Air Canada for $13 per share or about $520 million.
Trading in Transat shares was halted all day Tuesday. The shares closed at $11.84 on the Toronto Stock Exchange on Monday.
Mach said the proposal is the culmination of a process that began when it approached Transat in January.
Under its offer, Mach committed to keep Transat's head office, executive team and decision-making hub in Montreal -- all essential, it said, if the Montreal developer hopes to get the $120 million in financing it seeks from Quebec.
Mach chief executive Vincent Chiara told The Canadian Press he aims to continue Transat's current business operations, with no layoffs or selloffs planned.
"The airline, for now, is definitely an integral part of that business," he said Tuesday. "It'll be important to keep that...The business plan is to get the passengers to their destinations, selling packages which include the hotel portion."
Key to the deal would be proposed minority partner TM Grupo Inmobiliario, a Spanish real estate developer that would roll over its three hotels in Mexico to Transat, according to Mach.
TM would contribute about $15 million in cash in exchange for a minority equity stake in Transat after the proposed agreement closed, Mach said. That would cover the $15-million break fee -- built into the Air Canada arrangement -- that Transat would incur by accepting the higher bid.
Chiara said he has spoken with officials at Quebec's economic development ministry and Investissement Quebec who "seem pretty open to our proposal."
He had harsh words for how Transat has handled its $750-million plan, unveiled in 2017, to develop a hotel chain in Mexico and the Caribbean.
"We don't understand why they haven't started executing. They haven't started the construction of the hotel which they propose to build," he said.
"Being in a different country and dealing with different laws and different authorities, I think they're having a hard time," he said, pointing to TM's experience as the solution baked into his would-be deal.
Mach, a prominent developer in Montreal, has little experience beyond the provincial borders, with one residential development under construction in the Ottawa area and about 2,000 units in Tampa Bay, Fla., Chiara said.
He added that Transat's hotel rollout was ill-suited for the public market. "It's going to be hard for them to show results on a short-term basis and their stock will continue to be penalized."
The 30-day period of exclusive negotiations between Transat and Air Canada will end in late June after a diligence review by Air Canada, Transat said.
Transat said it expects "the parties will finalize the negotiation of a definitive agreement regarding the acquisition of all of the shares of Transat."
"There is no assurance that a definitive agreement will be reached in relation to any proposed transaction," the travel company added.
Transat's biggest shareholder at more than 18 per cent ownership, Letko, Brosseau and Associates and PenderFund, opposes the deal with Air Canada, which has the first right to match Mach's bid.
"However, the offer provided by Mach seems to have the support of the Quebec government," said analyst Nauman Satti of Laurentian Bank Securities in a note to investors.
"Furthermore, the offer from Mach is less prone to regulatory scrutiny from the Competition Bureau as compared to the deal with Air Canada."
Benoit Poirier, an analyst with Desjardins Securities, said in an investor note that "we believe Air Canada could ultimately offer a better price for Transat given the strong rationale behind the transaction and the potential for cost synergies with its operations."
"It will be interesting to see if Transat terminates its letter of intent with Air Canada now that it has received a firm offer from Mach."
Industry observers previously cast doubt on whether another bidder would upset the proposed merger between Air Canada and Transat. Requisite reviews by federal transport and competition regulators were equally unlikely to derail the process, analysts said.
They also said consumers would likely see little change in their travel choices or ticket prices if Canada's biggest airline buys Transat, which offers vacation packages, hotel stays and air travel under the Transat and Air Transat brands and whose airline unit was co-founded in 1986 by current Premier Francois Legault.