The Quebec government has said it would consider requests for financial backing from bidders for Montreal-based Transat that support its political objectives for the company - namely, maintaining Transat’s brand, head office, and as much employment as possible in Quebec.DANIEL SLIM/AFP/Getty Images
Quebec’s wading into the sale of holiday company Transat AT could have unintended market consequences, but the government won’t make “a stupid investment,” the province’s economy minister says.
“I think the criticism is fair that we may be creating an overbidding in the process,” Pierre Fitzgibbon told The Globe and Mail in an interview, in response to a question about the effects of Quebec intervening in the private sector.
Premier Francois Legault’s Quebec government has said it would consider requests for financial backing from bidders for Montreal-based Transat that support its political objectives for the company - namely, maintaining Transat’s brand, head office, and as much employment as possible in Quebec. It has mandated Investissement Quebec to analyze those requests. While observers have warned for weeks that Quebec’s involvement could drive away some would-be buyers, the province’s move has attracted other suitors to the bidding process.
At least two groups that have expressed interest in Transat have approached the Quebec government on its willingness to provide financial backing for a bid to counter Air Canada’s current $13 per share offer, which values Transat at about $520-million. The Transat board accepted Air Canada’s all-cash bid last week and recommended it to shareholders, but at least one major Transat investor said the offer is too low and urged rival bidders to renew their efforts.
Group Mach, a Montreal-based real estate developer, has made a formal request for $120-million in Quebec financing and won conditional and unspecified support for some of that amount, Mr. Fitzgibbon confirmed. Mach has made a non-binding proposal to take over Transat for $14 per share. Dominik Pigeon of FNC Capital, a Montreal financial-services consultancy, is leading a group working on a separate bid and has also sounded out the government for support, the minister said.
The Legault government announced in its spring budget that it would set aside $1-billion to encourage companies deemed strategic to the economy to keep their head offices in the province. The government also pumped another $1-billion into Investissement Québec, raising the capital of the government’s investment and loan arm to $5-billion.
Transat is the first real test of just how far Mr. Legault’s government is willing to push its brand of economic nationalism. And how it has handled the Transat process so far raises questions about how it will approach other deals in the future.
When the government offers money, people will try to get it, said Germain Belzile, an economist at Montreal’s HEC business school and researcher at the Montreal Economic Institute. It’s also devoting financial resources to a problem that doesn’t exist, because research shows Quebec companies are more frequently predator than prey in recent takeover deals, he said.
“The barn is not on fire right now. There’s no real big problem here,” Mr. Belzile said. “I think it’s very bad in the medium and long term for the economy. It sends a very bad message.”
Carlos Leitao, Quebec’s former finance minister and now finance critic for the Liberal Party, has said it was hazardous for Quebec to announce publicly that it would dedicate specific funds to protect head offices and that the province is seeing the consequences now with the Transat situation.
“I’m very uneasy with this whole story now,” Mr. Leitao told Quebecor’s TVA network. “When you announce publicly those kinds of intentions, well what happens is what’s happening now, which is a bidding war. So is it appropriate for the public treasury to participate in fuelling this bidding war? I’d say no.”
Mr. Fitzgibbon, a trained accountant with experience in various executive and board-level positions in companies like Domtar and National Bank of Canada, said there are limits to Quebec’s economic nationalism. He said the government will be disciplined in how it spends taxpayer funds and “won’t do a stupid investment.”
“I may protect the employment for a while but if I take $100-million of Quebeckers’ money to put in a company overpaying for the stock, I mean I’m going to be criticized in three years saying ’Well, what the hell have you done because the stock has come down?’” Mr. Fitzgibbon said. “So hopefully people will ascribe us some financial rigour.”
Air Canada declined to comment.
It’s not the first time Quebec has tried to flex its muscle in a takeover battle. The government of Jean Charest opposed an initial offer from U.S. hardware chain Lowe’s Cos. Inc. for Rona Inc. in 2012. Questions about the intentions of the buyers were also raised when Guy Laliberté sold control of Cirque du Soleil to U.S. private-equity group TPG Capital in 2015 and more recently, when Michelin bought Quebec off-road tire maker Camso in 2018.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.
Nicolas Van Praet