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Air Canada has raised its offer to buy Transat A.T. Inc. by 38 per cent, to $720-million, buckling to pressure from some investors and a would-be rival bidder.

Air Canada’s move to hike its price for the Montreal airline and travel company came after weeks of calls and meetings with investors who said they would reject the takeover attempt unless they got more for their shares. Montreal real estate developer Group Mach had also offered a higher price for a portion of the company in hopes of blocking the deal.

Air Canada and Transat said the new offer is worth $18 a share, up from $13 or $520-million, has the support of Transat’s largest shareholder, Letko Brosseau and Associates Inc., the Montreal money manager that controls almost 20 per cent of shares and opposed the first bid.

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The deal would give Air Canada control of a competitor on transatlantic flights as well as Air Transat’s Airbus fleet of planes at a time Air Canada is facing capacity and revenue constraints. The squeeze stems from its Boeing 737 Max passenger jets that are grounded amid a global halt that came after two fatal crashes.

“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,” said Calin Rovinescu, Air Canada’s chief executive.

Peter Letko, a partner at Letko Brosseau, had told The Globe and Mail that Transat should not sell itself until it restores margins and profitability in order to fetch a better price.

In an interview on Monday, after the new offer had been announced, Mr. Letko said: “We’re satisfied with the price.

"We thought that Air Canada was very thoughtful and sensitive to the fact that we were not pleased with the original price,” he said of the meetings he held with the company.

Air Canada’s takeover of Canada’s third-largest airline requires support of two-thirds of Transat shareholders by Aug. 23. The deal is expected to close next year and requires approval from legal, regulatory and antitrust bodies in Canada and Europe. The combined companies would control at least 60 per cent of domestic flights over the Atlantic and most of the Montreal travel market, and are expected to face a rigorous review by the Competition Commissioner.

Transat has lost money in two of the past four years, and is expected to post a loss in 2019 as it tries to expand its sun-destination hotel operations. The company’s share price in the past five years has rarely been higher than $9, and sank to less than $5 in March.

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Transat said in April that it was in talks with “more than one” possible suitor, and soon entered exclusive talks with Air Canada. The two sides announced on June 27 that they had an agreement on a takeover at $13 a share.

Christophe Hennebelle, a spokesman for Transat, said the $13 offer the two sides first negotiated was deemed fair by Transat’s outside advisers, National Bank and Bank of Montreal. “It was a good price and obviously now we have an even better price,” Mr. Hennebelle said.

Montreal real estate developer Group Mach had offered – and later dropped – a conditional bid worth $14 a share. Mach recently took a new tack, offering $14 for up to 19.5 per cent of Transat and trying to collect vote proxies to block the Air Canada deal.

Quebec’s Financial Markets Administrative Tribunal, in a ruling issued on Monday, sided with a Transat complaint and blocked the Mach offer.

Still, Alfred Buggé, vice-president of Mach, did not rule out another attempt to buy Transat, and took credit for spurring Air Canada to increase its bid by $200-million. “The shareholders of Transat owe us a great debt of gratitude,” Mr. Buggé said. “If it wasn’t for Mach, the shareholders wouldn’t have this offer.”

Transat shares closed at $16.75 on Monday on the Toronto Stock Exchange, a discount of $1.25 to the revised offer that Mr. Buggé attributed to the deal’s uncertainty.

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PenderFund Capital Management of Vancouver, Transat’s fifth-largest investor, opposed the initial price agreed to by Transat’s board.

Amar Pandya, an analyst and portfolio manager with PenderFund, said other shareholders he spoke to also opposed the price initially agreed to by the Transat board of directors, but that the higher offer and Letko’s support make it “almost a done deal.”

“There was not a lot of support for the $13 offer,” he said. “With Mach instigating as well, that created more disagreement within the shareholder base,” Mr. Pandya said in a telephone interview.

Patrick McQuilken, a spokesman for the Fonds de solidarité FTQ, which owns 12 per cent of Transat, said there were at least three meetings and phone calls between the labour-sponsored investment fund and Air Canada. He said, as is typical for the fund in any investment decision, the Fonds focused on the offer price as well as the employment and economic effects of the takeover.

He said it is too soon to say if the Fonds is supporting the new offer.

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