Transat A.T. Inc. Announces Revised Acquisition Transaction with Air Canada

Transat also announces new $250 million loan facility

MONTREAL, Oct. 10, 2020 /CNW Telbec/ - Transat A.T. Inc. ("Transat" or the "Corporation") announced today that it has revised its arrangement agreement with Air Canada to reflect current market and economic conditions and the devastating impact of the COVID-19 pandemic on the worldwide airline, travel and tourism industries. Under the terms of the binding agreement they have entered into, unanimously approved by the Board of Directors of Transat, Air Canada will acquire all issued and outstanding shares of Transat for $5.00 per share, payable at the holder's option either in cash or shares of Air Canada, or a combination thereof, to form a global Montreal-based combined company. The purchase price represents a premium of 31.6% over the 20-day volume weighted average price (VWAP) of Transat shares on October 8, 2020. Transat also announced today the implementation of a new $250 million short-term loan facility.

"With the volume now forecasted to be down 66% worldwide at the end of 2020, it is clear that the world has changed since the signing of the original agreement in June 2019," said Jean-Marc Eustache, President and Chief Executive Officer of Transat. "This is the worst crisis since the founding of Transat 33 years ago and with a second wave of the pandemic underway, the timing of an eventual recovery remains uncertain. More than ever, having a national airline with the scale to weather current industry turbulence, which is expected to continue for several years, is in the best interests of our shareholders, customers, employees and other stakeholders."

Given the uncertainty related to the COVID-19 pandemic, continuing restrictions on non-essential travel, and the impact to date of the pandemic-related interruption of operations on its cash position, Transat needed to put in place additional sources of financing. The terms of the original transaction restricted Transat's ability to do so without Air Canada's consent. As part of the negotiation leading to today's announcement, Transat has been able to implement a new $250 million short-term loan facility, as well as certain critical amendments to its existing senior loan facility providing Transat with additional flexibility in the context of the current business and economic environment.

"Securing Air Canada's consent to put in place the new loan facility was critical in the decision to revisit the terms of the original agreement with Air Canada" said Jean-Yves Leblanc, Chair of the Special Committee of the Board of Directors of Transat overseeing the process leading to today's announcement. "Another key factor in Transat's decision was the likelihood of obtaining the necessary regulatory approvals before the fast arriving deadline of December 27, 2020, taking into account the significant and adverse impact of the pandemic on Air Canada's original motivations for completing the transaction at the price set initially. Consummating the initial deal at $18.00 was not an option that was viable given the full set of circumstances the Corporation is facing", continued Mr. Leblanc.

The process of obtaining the required regulatory approvals for the transaction under the original arrangement agreement has been significantly and adversely affected by the pandemic and its impact on the industry as a whole. With the passage of time, the concerns raised by regulatory agencies and the challenges posed by the post COVID-19 environment, the Board of Directors of the Corporation came to the conclusion that the transaction proposed under the original arrangement agreement was unlikely to obtain the required regulatory approvals prior to the ultimate outside date of December 27, 2020 and was therefore unlikely to be consummated.  "We believe that revised terms will provide the parties with greater incentives to address the concerns raised by regulatory agencies in order to obtain the regulatory approvals, including with respect to the offer of remedies which should provide a greater chance of obtaining the required approvals from regulatory authorities prior to the newly extended date of February 15, 2021," said Mr. Leblanc.

Based on the foregoing, Transat's Board of Directors determined that the revised transaction, with the implementation of the new financing, is the best prospect currently available for Transat's continued viability and the preservation of shareholder value relative to the alternatives available to it in the context of the original arrangement agreement, and therefore represents the best option for all Transat stakeholders, including shareholders, employees, creditors, suppliers, customers and partners.

The Transat Board of Directors, having received and considered the recommendation of its Special Committee of independent directors, and having considered all relevant factors including the terms of the original arrangement agreement and the status of the transaction contemplated thereby, has unanimously determined that the revised transaction is in the best interests of Transat and its stakeholders, approved the revised Arrangement Agreement and recommended that Transat shareholders vote in favour thereof. In addition, each of the directors of Transat has entered into a voting support agreement pursuant to which each of them has committed to vote in favour of the transaction.

Each of National Bank Financial and BMO Capital Markets has provided the Transat Board of Directors with an opinion to the effect that, as of the date thereof, the consideration to be received by holders of Transat shares with respect to the revised transaction was fair, from a financial point of view, to such holders, in each case subject to the respective limitations, qualifications, assumptions and other matters set forth in such opinions.

Additional Details about the Revised Transaction

The revised Arrangement Agreement terminates and replaces the original arrangement agreement between Transat and Air Canada dated June 27, 2019, as subsequently amended on August 11, 2019 pursuant to which Air Canada had previously agreed to acquire all issued and outstanding shares of Transat for a cash consideration of $18.00 per share.

Under the terms of the revised agreement, Transat shareholders will have the option to receive payment of the consideration in the form of cash or shares of Air Canada, or a combination of both. Air Canada shares issuable under the share payment election will be issued on the basis of a price of $17.47 per Air Canada share, translating into an exchange ratio of 0.2862 Air Canada share per Transat share. The price set for the Air Canada shares under the exchange ratio approximates the 30-day volume weighted average price (VWAP) of the Air Canada shares on September 23, 2020, the time the new cash consideration was in negotiation. Opting to receive shares of Air Canada provides upside opportunity by offering Transat shareholders the ability to participate in the potential long-term value created by Air Canada, and in the airline industry generally, in a post-Covid recovery environment, as well as sharing in the expected synergies resulting from the combination of the two companies.

The transaction will be subject to shareholder approval, including approval by at least two thirds of the votes cast by shareholders present in person or by proxy at the special meeting that will be called to approve the transaction in early December.

The transaction also remains subject to regulatory approvals, particularly those of authorities in Canada and the European Union. To this end, the parties are collaborating to provide information and make submissions to the regulatory authorities with the objective of securing the requisite approvals before February 15, 2021, which has been set as the outside date for the closing of the transaction. Based on information currently available, the European Commission's decision is now expected early 2021. The Government of Canada has not indicated when it would render its decision.

The terms of the revised Arrangement Agreement provide for a break fee of $10 million, payable by Transat in case of termination of the agreement in certain circumstances, including upon acceptance of a Superior Proposal that is not matched by Air Canada. Under the revised Arrangement Agreement, a Superior Proposal is defined, in part, as an unsolicited bona fide written acquisition proposal, that is made at a firm price per share equal to or exceeding $6.00 in cash, that has fully committed financing from a financial institution or similar organization (or is made by a person with adequate cash on hand), and that the Board of Directors of Transat determines in its good faith judgment, after receiving legal and financial advice, would result in a transaction that would be in the best interests of Transat and its stakeholders and be more favourable, from a financial point of view, to Transat shareholders. The terms and conditions for the making of a Superior Proposal and its complete definition are contained in the revised Arrangement Agreement. Furthermore, a break fee of $30 million would be payable by Transat if the agreement is terminated by Air Canada following a change in recommendation by the Board of Transat, which change would have been based on a governmental financial assistance program that is material to Transat becoming generally available to the Canadian airline industry or the segments of the travel, hotel and tourism industries in which the Corporation operates.

The revised Arrangement Agreement also provides for the payment by Air Canada of a reverse break fee of a maximum of $30 million in the event that the agreement is terminated because regulatory or governmental approvals are not obtained, subject to certain conditions.

Finally, the revised Arrangement Agreement contains a new closing condition that Transat's level of net indebtedness on closing not exceed a certain specified threshold.

In addition to shareholder and regulatory approvals, the transaction remains subject to court approval and other closing conditions usual in this type of transaction, and compliance with the revised covenants contained in the revised Arrangement Agreement (including with respect to the new requirement on Transat's level of net indebtedness on closing described above), all of which must be obtained or satisfied no later than February 15, 2021. If such approvals are obtained and conditions are met, the transaction is expected to be completed in late-January or early February 2021.

Further details regarding the terms of the transaction are set out in the revised Arrangement Agreement. The transaction will proceed by way of a court-approved plan of arrangement pursuant to the Canada Business Corporations Act. Additional information regarding the terms of the revised Arrangement Agreement and the background of the transaction will be provided in the information circular for the special meeting of Transat shareholders to be held in early December. Copies of both the revised Arrangement Agreement and the information circular will be made available on SEDAR at

Transat has retained National Bank Financial as financial advisor and Fasken as legal advisor. BMO Capital Markets and Norton Rose Fulbright are acting respectively as financial and legal advisors to the Special Committee of Transat's Board of Directors.

New Loan Facility

In connection with the revised Arrangement Agreement, Transat will immediately implement newly secured $250 million short-term loan facility with National Bank of Canada as lead arranger. Given the uncertainty related to the COVID-19 pandemic and continuing restrictions on non-essential travel, together with the uncertainty surrounding the obtaining of required approvals from regulatory authorities, securing this new financing is a necessary, prudent decision and in line with similar actions taken by nearly all airlines around the world.

The new loan facility can be drawn in tranches at any time before February 28, 2021, subject to meeting relevant conditions precedent and borrowing conditions. Conditions include certain requirements regarding freely available cash before and after drawing on the facility. The new loan facility will terminate on the earlier of March 31, 2021 and the closing of the arrangement with Air Canada.

As part of the implementation of the revised Arrangement Agreement and the new loan facility, Transat has also been able to implement certain amendments to its existing senior loan facility that will provide it with greater flexibility in the context of the current business and economic environment, including the temporary waiver of certain financial ratios. Revised terms also include the introduction of a minimum unrestricted cash level requirement and restrictions on the ability to incur additional debt.

Caution Regarding Forward-Looking Information

This news release includes forward-looking statements within the meaning of applicable securities laws. Examples of such statements include statements with respect to the timing and outcome of the transaction with Air Canada, the anticipated benefits of the transaction, the anticipated timing of the special shareholders' meeting, the satisfaction or waiver of the closing conditions and compliance with the revised covenants contained in the revised Arrangement Agreement (including with respect to Transat's level of net indebtedness on closing), the expectation of potential long-term value creation by Air Canada, and in the airline industry generally, in a post-Covid recovery environment, the formation of a global Montreal-based combined company and the creation of long-term value for Transat shareholders. Forward-looking statements, by their nature, are based on assumptions and are subject to important risks and uncertainties. Forward-looking statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business. Actual results may differ materially from results indicated in forward-looking statements due to a number of factors.

The transaction with Air Canada is subject to shareholder approval, court approval, regulatory approvals, approval of the Toronto Stock Exchange and certain customary conditions and compliance with the revised covenants contained in the revised Arrangement Agreement (including with respect to Transat's level of net indebtedness on closing) and there are no assurances that the transaction will be completed on the terms and conditions described in this news release or at all. If the proposed transaction is not completed for any reason, there is a risk that the announcement of such transaction and the dedication of substantial resources of the Corporation to the completion thereof could have a negative impact on the Corporation's operating results and business generally, and could have a material adverse effect on the current and future operations, financial condition and prospects of the Corporation, including the loss of investor confidence in connection with the Corporation's ability to execute its strategic plan. In addition, failure to complete the proposed transaction for any reason could materially negatively impact the market price of the Corporation's securities. If the proposed transaction is not completed for any reason, there can be no assurance that management will be successful in its efforts to identify and implement other strategic alternatives that would be in the best interests of the Corporation and its stakeholders within the context of existing economic, market, regulatory and competitive conditions in the industries in which the Corporation operates, on favourable terms and timing or at all, and, if implemented, that such actions would have the planned results. We also have incurred significant transaction and related costs in connection with the proposed transaction, and additional significant or unanticipated costs may be incurred.

Any forward-looking statements contained in this news release represent expectations as of the date of this news release and are subject to change after such date. However, except as required under applicable securities regulations, any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, is disclaimed.

About Transat AT Inc.

Transat A.T. Inc. is a leading integrated international tourism company specializing in holiday travel. It offers vacation packages, hotel stays and air travel under the Transat and Air Transat brands to some 60 destinations in more than 25 countries in the Americas and Europe. Transat is firmly committed to sustainable tourism development, as reflected in its multiple corporate responsibility initiatives over the past 12 years, and was awarded Travelife certification in 2018. Based in Montreal, the company has 5,000 employees. (TSX: TRZ).

SOURCE Transat A.T. Inc.

Media: Christophe Hennebelle, Vice-President, Human Resources and Corporate Affairs, 514 987-1660, ext. 4584

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