(Reuters) - Real estate developer Group Mach Inc said on Tuesday it offered to acquire Canadian tour operator Transat AT Inc for C$527.6 million ($392.9 million), topping an earlier offer from Air Canada.
A deal with Transat would help Mach expand in the leisure and hospitality business by leveraging its expertise to ramp up the development of Transat’s hotel chains.
Mach said it would take Transat private at C$14 per share in cash, C$1 more than Air Canada’s all-cash offer that valued the parent company of leisure carrier Air Transat at C$520 million.
Mach’s offer represents a premium of 18.2% to Transat’s closing price on Monday’s close.
“The public markets are not the proper setting for Transat’s 2018-2022 strategic plan, particularly its hotel development strategy,” Mach said in a statement.
Transat’s strategic plan projects 5,000 rooms within six years. However, Mach said it can turn that into 12,000 rooms in the same time.
Air Canada said in May, it was in exclusive talks to buy Transat as it looked to boost its leisure travel business at a time when the carrier faces a potential turnaround in rival WestJet Airlines.
However, Air Canada’s potential deal runs the risk of scrutiny from Canadian regulators that are concerned with protecting fares and service for travelers in a country where the cost of air travel is padded with fees and surcharges.
Transat and Air Canada have both agreed to a 30-day period of negotiations to finalize a deal.
“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”, Desjardins analyst Benoit Poirier wrote in a note.
Air Canada is in the process of finalizing its binding agreement with Transat, the airline said on Tuesday.
Also, Transat on Tuesday confirmed that it has taken note of the press release issued by Mach, but declined to provide further details on the offer.
Mach said on Tuesday it had approached Transat seeking a potential negotiated deal earlier this year and followed it up with an initial letter of intent addressed to Transat’s board.
While Group Mach does not have a background in running airlines, president Vincent Chiara said Transat executives would continue to operate the carrier.
“We’re buying an existing team,” he said in an interview.
Mach’s offer to take Transat private comes at a time when Transat’s largest shareholder, investment manager Letko Brosseau, urged the company to not sell itself to Air Canada until it had restored its profitability, according to a Globe and Mail report.
Peter Letko, a co-founder of Letko Brosseau, could not be immediately reached for comment.
A spokesman for Transat’s second-largest shareholder said the company is analyzing Mach’s offer.
Any formal submission to the federal government will be subject to several conditions, including regulatory reviews, a spokeswoman for Canadian Transport Minister Marc Garneau said by email.
Reporting by Arundhati Sarkar and Uday Sampath in Bengaluru and Allison Lampert in Montreal; Editing by Shailesh Kuber and James Emmanuel