ACE set to buy remaining 25 per cent stake in Air Canada, says analyst

By The Canadian Press

MONTREAL - Air Canada's (TSX: AC-B.TO) parent company will buy the remaining 25 per cent of the airline's shares it doesn't own for $215 million and then dissolve the holding company, an airline analyst said Thursday.

Jacques Kavafian of Research Capital said the move is "the only realistic option" for ACE Aviation Holdings Inc. (TSX: ACE-A.TO) because of the weak outlook for airline shares given the volatility of oil prices.

The other options open to ACE would be to sell its majority stake in Canada's largest carrier into the stock market or to make a special cash distribution, which might provoke a special tax liability.

ACE has said it intends to wind itself up this year.

The recent resignation of ACE's chief financial officer, Brian Dunne, from Air Canada's board of directors may be to remove a possible conflict of interest ahead of the share purchase, Kavafian said.

His suggested $8.50 per share purchase price would be double Wednesday's market price.

"It would be difficult for any shareholder to resist, and as such we believe the takeover could be successful," he added.

Air Canada shares rose 15 per cent Thursday morning on the TSX, gaining 63 cents to $4.85. ACE shares were down five cents to $8.52.

ACE sold the 25 per cent stake at $21 per share late in 2006.

With net cash on hand of $505 million, ACE has ample money for the potential buyback.