Greg,
Here is the explanation:
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Tuesday, January 20, 1998
Transat recapitalizes Look Voyages
By PETER FITZPATRICK
Transportation Reporter The Financial Post
ÿTransat AT Inc. is hoping a recapitalization will bolster its troubled French tour operator.
ÿShareholders of Look Voyages SA, in which Transat holds an 84.37% interest, have approved a plan providing for a 106 million French francs ($24.8 million) share issue followed by a reduction in share par value to 0.22 francs from 10 francs.
ÿTransat will subscribe for up to the full amount of the issue, paying for the shares with loans made to Look in 1996 and 1997, said Lorraine Maheu, Transat chief financial officer.
ÿThe move essentially will eliminate Look's debt. Transat plans to take up any shares not subscribed to by other shareholders, who have preferred rights, potentially giving it 98% of Look.
ÿMaheu said apart from eliminating most of Look's debt, the transaction should also give the unit a boost by restoring travel agent confidence that Look will remain in business.
ÿThe plan will help Transat get closer to its goal of acquiring 100% of Look, in which it first bought a 33.7% stake in April 1996.
ÿ"If the minority shareholders do not subscribe, which I don't think they will, quite frankly, and Transat converts its advances, they will wind up with most likely close to 98% of the equity in Look, which is what they've been trying for," said Ron Schwarz, an analyst at CIBC Wood Gundy Securities Inc.
ÿMaheu said while French securities law won't allow Transat to squeeze out remaining minority shareholders, their presence won't be a problem. Look has been an underperformer, largely due to an earlier contract dispute with a French carrier, and its turnaround has been slower than expected, she said.
ÿThe unit is expected to lose about $10 million this year. In the most recently reported results, the nine months ended July 31, Transat reported profit of $11.2 million (35› a share) and revenue of $972.8 million.
ÿSome expected Look to break even in 1997, but now the company is not expecting to return to profitability until the 1998-99 fiscal year ending Oct. 31, 1999.
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I find a bit disturbing the news about Look's profitability. I feel that this is not in line with what the spokeman told me just a few days ago. On the plus side, it seems that they have found an ingenious way to buy the rest of Look at a cheap price. Now, they will have to turn a profit but I don't know if I will still be a shareholder when they do so...
Marc
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