Transat co-founder could make more than $17M from sale to Air Canada

An Air Transat A310 Airbus is shown in this undated photograph. (Jeff McIntosh/The Canadian Press)

MONTREAL -- Transat A.T. Inc. chief executive Jean-Marc Eustache stands to make more than $17 million from the sale of the tour operator he co-founded.

The 71-year-old chairman's stake, which sits at about one per cent, adds up to more than $5.55 million at $13 a share, the price Air Canada has agreed to pay for the Montreal-based company.

That cash-out jumps to $11.66 million when combined with Eustache's other options and bonuses of $6.11 million, according to Transat's new proxy circular, a document filed with regulatory authorities. If he's fired following the deal, the one-time student organizer is entitled to a further allowance of nearly $5.48 million.

The $520-million takeover agreement includes $35.06 million in total for Transat's 11 other board members and 11 other executives, not counting termination allowances.

Board member Philippe Sureau, another co-founder from Transat's inception in the 1980s, stands to receive the second-highest amount at $4.3 million.

Approved by the board last month, the transaction continues to face legal and regulatory scrutiny along with resistance from major Transat shareholders who feel the price is too low.

Shareholders are scheduled to vote on the deal on Aug. 23. It requires approval from two-thirds to go through.

Tuesday's proxy circular brought other details to light, including the board's reasons for rejecting a $14-per-share offer from Montreal developer Group Mach Inc. as well as the haggling between Transat and Air Canada executives in the preceding months.

The developer provided no "evidence of Groupe Mach's liquidity levels," and "no demonstration was made either regarding Groupe Mach's long-term business plan, or ability," the board wrote, citing a special committee that reviewed the options.

Both found that the Air Canada deal "affords the best opportunity to maintain long-term employment, in particular for the corporation's highly skilled and specialized employees such as pilots, mechanics and flight attendants."

Negotiations played out over nine months, with Air Canada chief executive Calin Rovinescu first reaching out to Eustache in early October.

Rovinescu's initial bid in December pegged the purchase price at $520 million, or $13 per share. Come April, however, Air Canada played it cool, reducing the buyout to $460 million, or $11.50 per share, in a second offer that cited "disappointing financial results" and higher-than-expected integration costs.

A third offer in May conceded to $12.50 per share before a final bump-up to the $13 per share several days later.

The deal with Air Canada may still face an obstacle in Transat's biggest investors.

Letko, Brosseau and Associates and PenderFund Capital Management, which control about 22.06 per cent of shares, have said they would vote against the agreement if the purchase price remained at $13 per share.

Quebec's Fonds de solidarite FTQ, Franklin Templeton Investments, and the Caisse -- Quebec's pension fund manager -- are also among the top five investors, collectively holding 26.18 per cent of shares.

Air Canada and Transat command a combined 60 per cent slice of the transatlantic market from Canada, overlap on some sun destinations and maintain a firm hold on Montreal air travel, enough of the market to trigger a forthcoming review from Canada's Competition Bureau.