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Air Canada had made a $520-million bid for travel company Transat A.T.

Ryan Remiorz/The Canadian Press

Another large investor in Transat A.T. Inc. says it opposes Air Canada’s friendly $520-million bid to take over the Montreal-based airline and travel company.

Amar Pandya, a senior investment analyst at Vancouver-based PenderFund Capital Management, says Air Canada’s offer of $13 a share is too low and does not reflect the value of the business.

“We think Air Canada is getting a great price,” Mr. Pandya said. PenderFund, Transat’s fifth-largest shareholder, according to the latest filings, holds about 4 per cent of the company’s shares.

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Transat’s biggest shareholder, Montreal money manager Letko, Brosseau and Associates Inc., told The Globe and Mail on Thursday that Transat should not be sold until it can improve its business by raising vacation prices and restoring profits.

“If you’ve got a hole in the roof and the roof is leaking, you fix the roof before you put the house up for sale. So that’s what we would like to see happen,” said Peter Letko, whose company is also the biggest shareholder in Air Canada, at 12-per-cent ownership.

Transat said on May 16 it is in exclusive sale talks with Air Canada for 30 days. The deal will need to be approved by two-thirds of Transat’s shareholders. It would also need approval from the federal Transport Minister after reviews by government officials that include the Competition Commissioner.

According to the letter of intent signed by the two companies, Air Canada will pay as much as $40-million to Transat if the deal fails to get regulatory or government approvals. Transat will pay Air Canada $15-million if it terminates the agreement or accepts another higher, unsolicited offer.

“The due diligence is proceeding,” Transat spokesman Christophe Hennebelle said, declining to comment on shareholders’ opinions.

Transat has posted several money-losing quarters amid increasing fuel costs, a rising U.S. dollar and intense competition from larger domestic airlines and foreign discount carriers. Transat has 5,000 employees and a fleet of about 40 passenger jets, and sells vacation packages to Europe and the Caribbean. It is also developing a hotel in Mexico.

Mr. Pandya said market conditions dictate that Transat cannot operate on its own and needs to find a buyer, either another airline such as Air Canada or a private-equity investor that can cut costs and streamline the operations.

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“In the current environment, we see significant value,” Mr. Pandya said, “and Air Canada’s bid doesn’t reflect that.” He said he has spoken with other large investors who share his opinions. “They are all supportive of the views I have expressed,” he said, declining to name them.

Mr. Pandya said he has calculated Transat’s value at more than $15 a share. To reach this figure, he tallied the company’s excess year-end cash ($9 a share), land in Mexico ($2 a share) and the company’s operating cash buffer ($4 a share).

“If you sum all that up together, there’s roughly $15 of value that Air Canada gets that they can just extract. They’re effectively not paying anything for the operating business,” he said in a phone interview.

Transat holds slots at several key destinations in Europe, including London, Paris and Nice, and is renewing its jet fleet to include 17 Airbus A321 Neos. The new, fuel-efficient Airbus planes are free of any stigma that might now be attached to Boeing’s 737 Max planes, which are used by Air Canada and WestJet Airlines Ltd. and are grounded worldwide after two crashes that killed 346 people.

“Obviously, the challenges with the Max are still there, and we think there could be a permanent impact on consumer sentiment ... and an aversion to fly on it,” Mr. Pandya said.

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