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Montreal real estate developer Group Mach Inc. has pulled its offer to buy Transat A.T. Inc., a move that clears the way for Air Canada, which has an agreement to buy the airline and travel company at a lower price.

Alfred Buggé, Mach executive vice-president of mergers and acquisitions, said he is unhappy with the sales process, adding that Transat would not discuss his company’s higher offer of $14 a share, nor previously disclose it had signed a “mutual confidentiality and standstill agreement” with Air Canada on Feb. 1.

“They completely ignored our proposal,” Mr. Buggé said in a phone interview.

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“How could [Transat board members] look at themselves in the mirror and say, ‘We properly discharged our fiduciary duties to act in the best long-term interests of Transat shareholders,’ … when they had before them a $14 offer proposal that was going to guarantee the success of Transat in the longer term.”

Transat’s stock price dropped sharply upon loss of the Mach offer, sliding 8 per cent to close at $12.39 Wednesday.

The company’s shareholders will vote on Air Canada’s takeover offer of $13 a share, or $520-million, by August 26, according to a final agreement filed with regulators. The takeover requires two-thirds approval of shareholders, which means a combination of a few large investors could block the deal.

Air Canada’s offer is opposed by two large shareholders, Letko Brosseau of Montreal, which owns 17 per cent of Transat, and PenderFund Capital Management of Vancouver, which owns 4 per cent, according to the latest filings. Letko has said money-losing Transat should delay any sale until it is able to raise prices and overcome rising fuel prices to restore profitability. PenderFund has said Air Canada’s offer merely covers the cash and equivalents on Transat’s books, and does not cover the operating business – the 40-plane airline and the tour division.

The Fonds de solidarité FTQ, a labour-sponsored fund whose mission includes preserving jobs and economic development in Quebec, owns 12 per cent of Transat. Patrick McQuilken, a spokesman for the FTQ, declined to comment on Air Canada’s offer yesterday. He said the FTQ is analyzing publicly available information but has yet to receive a formal offer from Air Canada.

The Caisse de dépôt et placement du Québec, which owns 6 per cent of Transat, did not respond to a request for comment yesterday. A Transat spokesman could not be reached.

The agreement recommended by the Transat directors includes a $15-million fee payable to Air Canada should Transat later accept a cash offer from another bidder worth $14 or more that Air Canada does not match. Such an offer must also meet several conditions, according to the takeover plan, including that it not be conditional on a new bidder performing any due diligence.

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Should regulators reject Air Canada’s takeover offer, the airline will pay Transat up to $40-million.

Mr. Buggé said the plan filed by Transat and Air Canada is written in such a way as to exclude offers such as Mach’s. “We are never ever going to submit a superior proposal as defined in this arrangement agreement," he said.

Mr. Buggé predicted the takeover plan will face shareholder opposition when it goes to court for approval, and at the Transat investor vote. Additionally, he said the Competition Commissioner will likely extract concessions from the combined company – possibly forcing it to abandon routes and airport landing rights – before granting approval.

“It is doomed to failure,” he said.

Transat is Canada’s third-largest airline, with 5,000 employees and a sun-destination travel business. It is updating its fleet to an all-Airbus lineup, which offers Air Canada desirable capacity at a time when its 24 Boeing 737 Max planes are grounded along with the rest of the world’s.

Air Canada and Transat announced they were in talks on May 16, three days after Onex Corp. said it had a friendly deal to buy WestJet Airlines Ltd. for $3.5-billion.

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