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Proxy advisory firms Glass Lewis, ISS back revised Transat deal with Air Canada

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MONTREAL — Two investor advisory services have recommended that shareholders of Transat AT Inc. support a takeover offer from Air Canada at a reduced price.

The revised terms will see Air Canada pay about $5 per share cash for the parent company of Air Transat, compared with the $18 per share originally pledged in its takeover bid.

The revision brings the total sale price down by 72 per cent, to $190 million from $720 million.

Glass Lewis report said the arrival of the COVID-19 pandemic had forced Transat to suspend all flights from early April through late July and restrictions continue.

"Placed in this rather unfortunate context, the proposed transaction ultimately appears to represent a reasonable lifeline, in our view," Glass Lewis said.

It also noted that the revised offer gives Transat shareholders the choice of accepting either $5 cash or new Air Canada shares at a rate of 0.2862 per Transat share.

"While we continue to recognize the substantial reduction in value implied by the revised terms, we believe the sum of available information suggests Transat investors would be best served supporting the Air Canada transaction at this time," Glass Lewis concluded.

Institutional Shareholder Services Inc. also recommended that Transat shareholders vote for the revised acquisition transaction. 

ISS said the chance of getting some or all of the payment in Air Canada stock provides shareholders "with the opportunity to participate in the potential long-term value and upside that could be created by Air Canada."

It added that the revised arrangement also gives Transat the ability to respond to superior proposals.

"In light of the above reasons, the favourable market reaction and the absence of significant governance concerns, shareholder approval of this resolution is warranted," ISS said.

Air Canada's offer has been endorsed by Transat's board of directors but must also be approved by a two-thirds majority vote by Transat's shareholders at a special meeting set for Dec. 15. 

ISS and Glass Lewis are independent, third-party proxy advisory firms that made recommendations to large investors including pension funds, investment managers, mutual funds and other institutional shareholders.

This report by The Canadian Press was first published Dec. 7, 2020.

Companies in this story: (TSX:AC, TSX:TRZ)

The Canadian Press