Quebecor CEO Pierre Karl Péladeau in Montreal in March, 2024.Fred Lum/The Globe and Mail
Pierre Karl Péladeau is right – about his latest business proposal, at least.
Mr. Péladeau, of course, is the self-avowed separatist and billionaire businessman, whose day job is serving as chief executive officer of telecom and media giant Quebecor Inc.
As a columnist, I’ve been critical of its wireless division, Videotron, for receiving generous implied taxpayer subsidies through federal spectrum auction policies over the years.
Mr. Péladeau’s latest ambition to rejuvenate Montreal-based Transat AT Inc., by contrast, is a private-sector solution that would hopefully help the beleaguered airline and travel company get out from under the federal government’s thumb and eliminate federal taxpayer exposure to the company’s ongoing financial messiness.
(Quebec Premier François Legault‘s previous comments about not letting Transat fail could mean a decidedly different story for Quebec taxpayers. These days, it seems that Mr. Legault has intervention on the brain.)
The rest of us, however, should find Mr. Péladeau’s proposal entirely appropriate.
There’s no denying that Transat remains in bad financial shape despite a previous federal government bailout and subsequent restructuring of its debt. It is also true that Ottawa faces an inherent conflict of interest because it is both an investor holding a 20-per-cent stake and the company’s regulator.
This is not the first time that Mr. Péladeau has pushed for change at Transat. But his latest proposals merit serious consideration by other shareholders, who’ve already seen their rights trampled when they were denied the opportunity to vote on the company’s debt-restructuring plan earlier this year.
Opinion: Transat shareholders deserved a vote in the federal government’s bailout
From the archives: How Pierre Karl Péladeau is doubling down on fortress Quebec
Through his investment company, Financière Outremont Inc., which holds a 9.5-per-cent economic and voting interest in Transat, Mr. Péladeau is requesting “immediate action” from the board of directors “to prevent further destruction of shareholder value.”
Financière Outremont is calling for the company to hold a special meeting of shareholders no later than Feb. 6 to consider proposals including a reconstitution of Transat’s board of directors, an overhaul of its balance sheet and a strategic review.
Specifically, its requisition seeks to replace board chair Susan Kudzman with André Brosseau, who is vice-chair of Quebecor Media and one of Financière Outremont’s three board nominees. The two others include Mr. Péladeau (no surprise there) and Jean-Marc Léger, who is the co-founder of Leger Marketing.
The requisition also proposes slashing the total number of board seats to six from 11.
“These actions are necessary to demonstrate the Board’s commitment to creating value for shareholders and other stakeholders, and to reassure key stakeholders that the Company’s strategy has been realigned under improved and robust oversight,” Mr. Péladeau stated in a news release on Monday.
While Mr. Péladeau’s motivations to pursue control of Transat remain a mystery, the company’s financial woes are clear.
Beyond its steep share price decline over the past five years, Transat’s total net debt – which reflects its obligations offset by cash on hand – was roughly $1.41-billion on July 31, which marked the end of its third quarter.
Sure, that amount fell dramatically in the prior nine months, but the remaining debt continues to weigh down the company’s balance sheet.
Other metrics are also flashing red.
Its net debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio, a measure of long-term solvency, was 8.1 times as of July 31, according to data from S&P Global Market Intelligence. In other words, it could take roughly eight years of profits to pay off the debt.
Transat’s current ratio, which reflects the company’s ability to repay its short-term obligations by comparing its current assets to liabilities, was an anemic 0.7 times at the end of its third quarter, according to that same screen from S&P Global Market Intelligence. Although it varies by industry, ideally a company should have a current ratio of at least one.
The company is scheduled to report fourth-quarter results on Dec. 17.
Transat, meanwhile, issued a statement stressing that its board and management have their own plan and they are confident it will create long-term value.
“While we do not typically comment on discussions with individual shareholders, multiple directors have recently met with Mr. Péladeau and his team to explore constructive solutions, including potential changes to the Company’s board composition,” stated Ms. Kudzman.
Trouble is, it appears that investors are losing interest in the company.
At the end of April, Transat was forced to adjourn its annual meeting of shareholders because it failed to reach the required quorum. Such a lack of investor participation is nothing short of an embarrassment for a publicly traded company.
If Mr. Péladeau successfully parlays his public dissent into a full-blown proxy fight, it will be fascinating to see which side comes up on top.