MONTREAL — Air Canada will pay more for Transat than it originally intended but the new $720 million price tag will help pave the way for the proposed acquisition, with support via a lock-up agreement with Transat’s biggest shareholder.

While Air Canada and Transat signed off on their definitive agreement in late June, there were still hurdles to overcome, including regulatory approval and also a green light from shareholders.

Letko, Brosseau and Associates and PenderFund Capital Management, which jointly own a 21.1% stake, had both said they would vote against the agreement if the purchase price remained at $13 per share.

Now Air Canada has announced that it has agreed to increase the purchase price for the acquisition of all issued and outstanding shares of Transat, from $13 to $18 per share, making the acquisition a $720 million deal, up from the original $520 million announced in May.

Air Canada also says it has entered into a lock-up and support agreement with Letko Brosseau & Associates Inc., Transat’s largest shareholder, which owns or has control or direction over 7,277,104 Class B voting shares or approximately 19.3% of all issued and outstanding shares of Transat.

Under the terms of the Lock-up and Support Agreement, Letko Brosseau has agreed to support and vote all of the Class B voting shares of Transat it controls at the Aug. 23 Special Meeting of Shareholders of Transat in favour of Air Canada’s acquisition of Transat.

Updates to the agreement also include an increase in the break fee payable by Transat from $15 million to $40 million in case of termination of the agreement.

Meanwhile a Quebec securities tribunal has cease traded an offer made by Groupe Mach Acquisition Inc. for 6.9 million class B voting shares of Transat. The decision means the Montreal developer is not allowed to acquire any shares under its scheme and is expected to return promptly to shareholders any shares already deposited.

Group Mach had offered $14 per share in an effort to derail a pending acquisition of the company by Air Canada. It had hoped to secure the shares and then vote against Air Canada’s offer, which requires at least two-thirds support from shareholders.

“After extensive consultations with Letko Brosseau and several other large shareholders of Transat, we agreed to materially increase our price to ensure the transaction receives the necessary level of support at the Special Meeting of Shareholders of Transat,” said Air Canada’s President and CEO, Calin Rovinescu.

“We are therefore very pleased to have received Letko Brosseau’s strong endorsement for our transaction. We know this achieves the best possible outcome for all stakeholders. For shareholders of Transat and Air Canada, the combination delivers excellent value, while also providing increased job security for both companies’ employees through greater growth prospects.”

Rovinescu added: “Air Canada intends to preserve the Transat and Air Transat brands and maintain the Transat head office and its key functions in Montreal. Travellers will benefit from the merged companies’ enhanced capabilities in the highly competitive, global leisure travel market and from access to new destinations, more connecting traffic and increased frequencies. The Quebec economy will derive maximum advantage of having a Montreal-based, growth-oriented global champion in aviation, the world’s most international business, spurring more employment and securing Montréal’s position as a leader among world aviation centres.”

Jean-Marc Eustache, President and Chief Executive Officer of Transat, had this to say: “We are very pleased by the added stability brought about by Air Canada’s increased bid as supported by Transat’s largest shareholder, Letko Brosseau. We appreciate the time and energy that Air Canada has spent in extensive consultations with our shareholders, in addition to our own efforts, with a view to ensuring the best outcome for all stakeholders. This fully funded cash transaction is the ideal platform for Transat’s continued presence and growth in Montreal. We look forward to joining forces with a proven and successful player in our highly competitive and complex industry.”

With file from The Canadian Press