Provided by Mach Group Inc/CNW
MONTREAL, June 4, 2019 /CNW Telbec/ – Group Mach Inc. (“Mach”), the largest independent real estate developer and owner in Quebec proposes the acquisition of all issued and outstanding voting shares (the “Shares”) of Transat AT Inc. (TSX: TRZ) (“Transat” or the “Company”), at a price of $14.00 cash per Share (the “Offer Price”) based on a deal value exceeding $1B, including substantial off balance sheet debt which we estimate between $1.1B and $1.2B (the “Offer” or the “Transaction”). The Offer Price represents a premium of approximately 168% over the 20-day weighted average trading price prior to the announcement of Transat on April 30, 2019, and a premium of 24% over the 20-day weighted average trading price for the period ended June 3, 2019. The Offer is subject to conditions described further below.
Context of Offer
The Offer is a culmination of a long process undertaken by Mach since last January 2019 when it approached the Company regarding a potential negotiated transaction including its initial letter of intent addressed to the Board of Directors of Transat on February 7, 2019 and various amendments thereto and other exchanges with the Company up to its announcement of last April 30, 2019.
Building Transat to be Global Leader
Mr. Vincent Chiara, President & CEO of Mach, stated: “We are excited about the potential synergies between our companies in which the leading integrated international tourism model of Transat could be combined with Mach’s vast experience in overseeing the construction, ownership and management of complex real estate development projects in a cost-effective manner and its on-going initiatives at modernizing the leisure travel experience.”
The Offer would provide the opportunity for Transat to pursue its 2018-2022 strategic plan more competitively in a private setting, backed by the financial strength and extensive real estate development and ownership experience of Mach. Therefore, we can effectively execute a more robust and modernized version of the higher profit margin hotel portfolio of Transat without the significant risks associated with the Company’s current strategy, thereby securing long-term value for Transat.
We are of the view that the Offer is in the best long-term interests of the Company in compliance with the fiduciary duties of the Board of Directors of Transat to act in the best long-term interests of the Company for various reasons namely the following:
- Our objective is to build a global leading vertically integrated leisure travel brand under the banner of Transat;
- Transat’s head office, executive team and centre of decision-making shall truly be based in Montreal;
- Mach is committed to reassure the Quebec Government that Quebec’s interests are truly protected;
- Mach shall strengthen Transat’s 2018-2022 strategic plan while preserving all operating units of Transat, including its airline, tour operator, travel agency and hotel divisions;
- We shall preserve existing continued operational improvements in Transat’s legacy airline and tour operator segments based on Transat’s existing 2018-2022 strategic plan and integrate anticipated technological enhancements provided by Mach’s global leading leisure travel partners;
- The hotel development will generate overall significant and sustainable profit margins for Transat in which its other operating divisions, including the airline and tourism operator will exceed the current average of over 1.2 million passengers of Air Transat travelling to sun destinations by way of travel packages;
- Upon closing of the Transaction, TM Grupo Inmobiliario (“TM”), the largest residential and leisure real estate developer in Spain and preferred hotel supplier of Transat in Mexico, shall contribute, in exchange for a minority equity stake in Transat, approximately $15,000,000 in cash and roll-over its three operating hotels in Mexico with approximately 1,000 rooms under the well-established banner The Fives Hotels and Residences into Transat’s platform (the “TM Roll-Over”) thereby immediately generating approximately $15,000,000 of EBITDA for Transat;
- Whereas Transat’s 2018-2022 strategic plan projects 5,000 rooms within six years (3,000 owned, 2,000 managed), under the extensive real estate development expertise of Mach and TM and their significant financial capacity we plan to augment and accelerate to approximately 8,000 owned rooms and 4,000 managed rooms by such time;
- We will expand the travel package experience for Canadians to include European destinations at very competitive pricing namely in Spain in which we could leverage TM’s vast hotel portfolio effective in 2020;
- The public markets are not the proper setting for Transat’s 2018-2022 strategic plan, particularly its hotel development strategy which shall require several years for any meaningful returns to be realized in face of pressures of immediate results from the public markets;
- The extensive construction, ownership and operational real estate expertise of Mach with the support of local equivalent expertise such as TM in Mexico and other sun destinations will significantly contribute to mitigating any construction and operational risks associated with Transat’s hotel development strategy;
- Mach’s leveraging of its current international efforts and relations in the modernization of leisure travel initiatives with global leaders the likes of Airbnb, Luxury Retreats and Sonder would be highly beneficial to Transat’s 2018-2022 strategic plan. Upon closing of the Transaction, Lawrence Tosi, Managing Partner of WestCap and former CFO of Airbnb and of Blackstone would join the Board of Directors of Transat;
- Mach is very well capitalized and readily has access to competitive financing from leading Canadian and international banks to carry out Transat’s 2018-2022 strategic plan, including as proposed herein by Mach;
- The Transaction would reposition Transat in a private setting thereby providing it the necessary platform to be more competitive, agile and keep pace in the fast-changing leisure travel industry;
- Transat is vulnerable to an ever increasing and highly competitive leisure travel industry in which various segments are steadily becoming commoditized thereby further squeezing margins all in the context in which many of its competitors benefit from having access to the Company’s continuous disclosure record;
- The Transaction shall increase cash generation from public market cost savings;
- The Transaction removes the risks for existing shareholders of Transat who would receive an upfront significant cash premium for their Shares without being exposed to significant uncertainties of the Company’s 2018-2022 strategic plan; and
- The Shares are highly illiquid, and the Company’s 2018-2022 strategic plan reinforces the long-term uncertainty as to future Share prices. The Transaction would provide immediate liquidity for shareholders of the Company at a substantial premium.
Post-Acquisition Approach – Transat Team in Place
Mach’s investment strategy for the proposed Transaction has always been to invest alongside talented management teams to support profitable growth. Mach’s intent is to largely maintain Transat’s existing business plan as well as its management team. Our intention is to leave management in place and for day-to-day operating control to remain with them where it belongs. Mach will also leverage the expertise of TM in sun destinations such as Mexico to mitigate construction and operational risks associated with Transat’s hotel development strategy.
Conditions of Transaction
The Transaction is subject to conditions, namely the following:
- Transat terminating its current process with Air Canada prior to entering into any definitive binding acquisition agreement with Air Canada;
- The execution of a confidentiality agreement between Transat and Mach which includes a period of 30 days to complete due diligence and execute a definitive acquisition agreement;
- The execution of a definitive acquisition agreement between Transat and Mach;
- The Quebec Government providing acquisition financing of approximately $120,000,000, subject to terms and conditions to be negotiated between Mach and the Government. Mach shall file a business plan with Investissement Québec on or before June 10, 2019 (the “IQ Financing”);
- The Fonds de solidarité FTQ (“FSTQ”) and the Caisse de dépôt et placement du Québec (the “CDPQ”) executing support and voting agreements with Mach; and
- The receipt of regulatory approvals, namely the review of the Transaction by federal competition and transportation authorities.
Quebec Government Conditions
Mach shall satisfy the Quebec Government that, in particular, the following conditions regarding the operations of Transat’s activities shall be respected:
- Transat’s head office, executive team and centre of decision-making must truly be based in Montreal;
- Mach must provide assurances that no layoffs of current employees in Transat or its subsidiaries will result from the Transaction; and
- Unless the IQ Financing has been reimbursed, the sale of any material assets or operational units of Transat must be subject to the prior consent of the Quebec Government.
Post-Closing Equity Structure of Transat
Upon closing of the Transaction, Mach shall control a minimum of 75% of the issued and outstanding voting securities of Transat with up to 25% of the remaining said securities being held by TM as a result of the TM Roll-Over, subject to any roll-over of Shares held by FSTQ and the CDPQ or any equity stake to be held by Investissement Québec in connection with the IQ Financing.
Transat’s Current LOI
Based on Transat’s public record, the letter of intent entered into between Transat and Air Canada as announced on May 16, 2019 is not binding as to any sale. As such, presuming that said letter of intent contains customary terms and conditions, it appears that Transat would be free to terminate at any time its process with Air Canada unless a definitive binding acquisition agreement is entered into between such parties.
About MACH
For more than twenty years, Mach (www.groupemach.com) is recognized for its expertise in commercial, industrial, institutional and residential projects and in the harmonization of mixed-use built environments. Mach is positioned as a leader in all aspects of development, including acquisition, construction and property management. With a total portfolio of over 30M sq. ft. of properties (including over 4,000 residential units) and 10M sq. ft. of land, including over 20 properties in development (including Quartier des lumières, former CBC headquarters) in Montreal, Quebec City and also in Ontario and Florida, Mach is the leading independent real estate owner and developer in Quebec. Our portfolio of real estate assets consists of office, retail, hotel, industrial, land and multi-residential and includes many Quebecois prestigious buildings, such as the Sun Life Building, the CIBC Tower, Place Victoria and Le St-James Hotel in Montreal and the CGI / Le Soleil Building, the Telus Building, Le Cartier Building and the new Fasken Tower in Quebec City.
We are currently developing the Quartier des lumières in Montreal (the former CBC headquarters) which shall be one of the largest and most innovative real estate projects of the next decade consisting of a 20-acre site at the edge of the downtown core, which will welcome over 4.5 million square feet of new mix-use buildings. Mach is also in the process of developing other innovative projects including constructing Airbnb’s new head office in Montreal for its luxury retreat division, such building to be co-owned with Airbnb.
In addition to the significant direct and indirect economic benefits for the Quebec economy resulting from Mach’s extensive real estate development portfolio, our status as a good corporate citizen has been further reinforced by the millions of dollars we have donated to local Quebec charities over the years.
About TM Real Estate Group
Founded in 1969, over the last 50 years TM Real Estate Group has become Spain’s leading residential and hotel real estate developer whose main objective is to develop real estate, tourism and hotel projects in prime locations, that incorporate competitive services and provide an excellent customer purchase experience.
Specializing in the construction and development of second homes for residential tourism, with more than 20,000 homes delivered mainly in the Mediterranean coast, the company also covers other lines of business related to its main activity, such as the operation and management of more than 800 hotel units in the Riviera Maya-Mexico, holiday rentals, real estate intermediation and agricultural exploitation, among others.
Commitment, reliability, innovation, leadership and a clear focus on the client and results are the six pillars on which the company’s success is based. And together with its more than 500 employees and an expansion plan of more than 4,200 homes in privileged locations by the sea in Spain and Mexico, its main objective is to remain the leading real estate group in the residential tourism sector.
TM Real Estate Group is the preferred supplier of hotels in Mexico to Transat over the last seven years under the well-established banner “The Fives Hotels and Residences“, a collection of exclusive resorts delivering a unique style of Sensory Hospitality to the guests. Under its unique “ALL SENSES INCLUSIVE” concept, the brand’s portfolio of one, two or three-bedroom residence resorts go beyond traditional lifestyle brands by designing immersive, multi-sensory experiences throughout the guest journey that delight each of the five senses.
TM Real Estate Group: www.tmrealestategroup.com
The Fives Hotels: https://www.thefiveshotels.com/
TM Real Estate Group corporate video: https://tinyurl.com/TMCorporatevideo
The Fives Downtown Hotel by Hilton video: https://tinyurl.com/FivesDowntownvideo