Air Canada (TSX:AC) announced on April 2 that it would be walking away from its deal to purchase Transat A.T. Inc (TSX:TRZ). The company gave up after the European Commission said it would not approve the acquisition.
For Air Canada, this means it will need to pay Transat $12.5 million for a termination fee. CEO Jean-Marc Eustache said that "Air Canada reached its limit in terms of concessions it was willing to provide the European Commission to satisfy their competition law concerns."
The $190-million deal could have put Air Canada in a great position to benefit from a resurgence in air travel, which could be coming sooner rather than later as health officials are rolling out multiple vaccines.
Shares of Air Canada closed last week at $26.45. And while that's down from a high of $3.00 it reached in recent weeks, it is still nowhere near the +$50 price tag it was at before the pandemic began over a year ago.
Air Transat would have helped increase Air Canada's market share over the long run. However, it doesn't make the airline's recovery any less likely. You could argue it would have made things worse in the short term if Air Canada needed to bankroll both operations.
So, no, the failed acquisition doesn't make Air Canada stock a worse buy – it just limits the upside it may have. If you're long on Air Canada then this shouldn't be a reason to sell your shares. The more problematic scenario is if you're a Transat shareholder as the company could be in trouble without an acquisition to help bail it out.
