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Quebec Premier François Legault, seen here, quit as chief executive officer of Air Transat in 1997.

When François Legault quit as chief executive officer of Air Transat in 1997, he was no longer on speaking terms with co-founder Jean-Marc Eustache. Their relationship had so soured that Mr. Legault sold his shares in parent Transat A.T. Inc. without first informing his business partner.

The share sale left Mr. Legault able to retire wealthy before turning 40. Instead, the avowed sovereigntist went into politics, serving as a prominent Parti Québécois cabinet minister, only to give up on the independence dream later as support for “the cause” foundered.

Although an accountant by training, Mr. Legault remains a sentimental Quebec nationalist. And now, as Premier of the province he once wanted to make a country, Mr. Legault is faced with the prospect of watching the company he co-founded sold off to non-Quebec interests.

Last week, Mr. Eustache revealed that Transat had entered preliminary discussions with more than one potential suitor that could lead to the sale of the company. Mr. Legault admitted that the prospect of Transat’s sale “tugged at his heartstrings,” and insisted his government “must make every effort to keep this head office in Quebec.”

In last fall’s provincial election campaign, Mr. Legault’s Coalition Avenir Québec vowed to protect companies based in the province from being taken over by non-Quebec interests. Mr. Legault had been a relentless critic of Liberal governments that failed to block the sale of local hardware chain Rona, global entertainment colossus Cirque du Soleil, barbecue-chicken chain St-Hubert, aluminum giant Alcan and others. He warned Quebec’s economic independence was at risk.

“My fear is that we go back to where we were 50 years ago, when, in Quebec, we only had branch offices of companies from outside” the province, Mr. Legault said in 2016.

That the first test of Mr. Legault’s plan to protect Quebec head offices involves a company he walked away from puts the Premier in a dicey position. He admitted last week that he faced a conflict of interest, “not financial, but emotional,” in deciding whether his government should intervene.

For that reason, Mr. Legault said he would leave the decision to Economy Minister Pierre Fitzgibbon, who oversees provincial economic development agency Investissement Québec. The March CAQ budget announced a $1-billion increase in the agency’s capitalization, enhancing its ability to invest in strategically important Quebec-based companies. The government set aside another $1-billion to create a fund aimed at protecting head offices.

With a market capitalization of about $340-million, even after the price of its shares surged by more than 40 per cent on last week’s announcement of a potential takeover, Transat might seem like an easier head office to protect than local heavyweights such as SNC-Lavalin Group Inc. or Metro Inc.

However, a decision to intervene could depend on whether a special board committee Transat struck to evaluate any formal takeover offers rejects or recommends a deal. In a twist of fate, Raymond Bachand – who as Liberal finance minister ordered Investissement Québec to buy shares in Rona when U.S. giant Lowe’s made its first (and unsuccessful) takeover attempt in 2012 – now sits on Transat’s board.

According to a report last week in La Presse, Transat was first approached about a potential deal by Calgary-based WestJet Airlines Ltd. Air Canada followed up with an unsolicited bid, the report said. Some analysts, however, have cited German tour operator TUI Group, which has a 49-per-cent equity stake in Toronto-based Sunwing Group Inc., as a potential suitor.

The Quebec government would frown on a takeover by WestJet, and not only because the Alberta-based company would likely gut Transat’s Montreal head office. There are concerns that WestJet does not have the financial heft to swallow Transat, while its commitment to bilingualism is dubious at best. Thousands of francophone Quebeckers have discovered Europe thanks to Transat’s affordable tour packages. The airline has deep ties in France, where it recently entered a venture with the French national railway to offer joint fares.

An offer by Air Canada would present the Legault government another kind of problem. While Canada’s flag carrier is headquartered in Montreal, where chief executive officer Calin Rovinescu resides, the company has made Toronto’s Pearson Airport its most important hub. And Transat’s Montreal head office would likely still be eliminated in the event of a takeover by Air Canada.

Besides, the rivalry between Air Canada and Transat runs deep, and Transat has earned buckets of goodwill by positioning itself as a customer-friendly David taking on a corporate Goliath. The election-year timing of a deal would pose a problem for the Liberal government in Ottawa.

Still, Air Canada’s Rouge discount airline has hurt Transat on its core Caribbean and European routes. Transat has been losing money, and its stock is worth about a quarter of its 2007 peak. Mr. Eustache has embarked on a risky plan to build and run hotel resorts in Mexico, amassing more than $600-million in cash for the effort. Transat has also signed leases for 15 Airbus A321 neos, the first of which was delivered just last week, leaving it with costly commitments.

Many analysts believe Transat’s survival lies in being taken over by another airline. And in his head, if not his heart, the accountant who became Premier might eventually have to agree.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
TRZ-T
Transat At Inc
-0.78%3.83

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