EU antitrust regulator launches a full-scale investigation into Air Canada-Transat deal

EU antitrust regulator launches a full-scale investigation into Air Canada-Transat deal
  • EU antitrust regulator launches a full-scale investigation into Air Canada-Transat deal.
  • The watchdog says acquisition will reduce choices and increase prices across 33 routes.
  • Some investors also see a need to renegotiate the deal in consideration of COVID-19.

Air Canada (TSE: AC) was recently reported to have shown interest in acquiring Transat AT Inc. for £425 million. Launching a probe into the potential agreement on Monday, EU antitrust regulator warned that the buyout might result in reduced choices and increased prices for people travelling between Canada and Europe.  

Following the announcement, Air Canada is currently posting a 2% intraday loss in the stock market versus a much broader 10% intraday loss in Transat AT. At £4 per share, Transat is a little under 60% down year to date. Learn more about stock market volatility.

Acquisition will hurt fair competition across 33 routes

The largest airline of Canada is seeking to acquire the Montreal-based tour operator in hopes of expanding its leisure travel business. The move, as per the air carrier, will also improve its reputation as the competitor of WestJet Airlines.

According to the European Commission, the deal is likely to hurt fair competition for flights between the two regions across 33 different routes. EU watchdog also branded other European airlines as distant competitors while the regulator did not see WestJet as a big enough rival. EU competition commissioner Margrethe Vestager commented on Monday:

“This is a challenging time, especially in markets severely impacted by the Coronavirus outbreak, but a return to normal and healthy market conditions must be based on markets that remain competitive.”

After the preliminary review undertaken by the European commission, the two companies refused to offer concessions aimed at improving the chances of getting a green light for the deal. The EU watchdog has now announced a deadline of September 30th to release its verdict. Canadian Competition Bureau had also expressed similar concerns in March.

Some investors see a need to renegotiate the deal

Earlier this month in May, the agreement was also reported to have not been well-received by a few investors who saw a dire need to renegotiate the contract in consideration of the Coronavirus pandemic that has brought the global aviation industry to a near halt.  

Originally, Air Canada announced to have received shareholders’ approval for the acquisition in 2019. The airline had placed a bid of £10.56 per share to takeover Transat AT.

Canada’s flag carrier is currently under 65% down year to date in the stock market. At the time of writing, the airline has a market capitalisation of £2.56 billion and has a price to earnings ratio of 88.68.

By Wajeeh Khan
Mr. Khan specialises in Public Health by academia but is a trader by passion. Taking up two new hobbies of writing and trading in his teen years, he is now a professional trader and news writer with over 5 years of experience in various financial markets. Khan is passionate about bringing insightful articles to his readers and hopes to add value to their portfolios.