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Air Canada dropped its takeover of vacation operator Transat AT Inc. because it couldn’t convince European regulators to approve the deal on acceptable terms.

Canada’s largest airline said it offered a “significant package of remedies” to satisfy the European Commission’s concerns the merger would reduce competition on flights between EU countries and Canada.

“It has become evident, however, that the EC will not approve the acquisition based on the currently offered remedy package,” Air Canada said in a statement Friday. The Montreal-based airline said “providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise Air Canada’s ability to compete internationally.”

Air Canada agreed to buy Transat, one of Canada’s biggest sellers of vacation packages, in June 2019 and later raised its bid to C$18 a share to win over recalcitrant shareholders and seal a friendly deal. After the coronavirus pandemic struck, the companies agree to revise the deal to C$5 a share in cash or Air Canada stock, valuing Transat at about C$200 million ($159 million).

Justifying its stance, the European Commission said the combination would have resulted in higher prices and reduced choice for travelers, adding that it wouldn’t relax merger conditions because of the pandemic.

“Markets should remain dynamic and competitive when travelers will again be able to fly over the Atlantic for holidays or to visit their beloved ones,” Margrethe Vestager, the EU’s competition commissioner said in a statement.

Transat said it will now examine alternatives, including staying independent. It’s also free to hold discussions with other suitors, including Pierre Karl Peladeau’s Gestion MTRHP Inc., which had made an offer of C$5 a share. Peladeau is a media and cable executive who controls Quebecor Inc. and is a former separatist politician in the majority-French-speaking province.

Transat needs money. Its business model is focused on selling vacation packages to Canadians to visit sun spot destinations in winter and European cities in summer. But in January, Canada shut down all direct flights to Mexico and Caribbean countries on concerns about new variants of Covid-19. Transat has a C$250 million credit facility that expires June 30.

The company said last month it would need at least C$500 million in long-term financing if the Air Canada deal falls through and is exploring an emergency government loan. Discussions for financing “are in an advanced stage and Transat’s management is confident that a satisfactory financing will be secured in the coming weeks,” Transat said in a statement Friday.

Air Canada has to pay a C$12.5 million termination fee.

— With assistance by Sandrine Rastello, and Aoife White