Air Canada & Partners Offer To Acquire Aeroplan Business From Aimia

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Air Canada, TD, CIBC and Visa today made an offer to acquire Aimia’s Aeroplan loyalty business to ensure smooth transition to new program in 2020. It is unclear if Aimia is willing to accept.

Air Canada

Air Canada announced last year (read more here) that they would sever their partnership with Aimia in 2020 and launch their own loyalty program (Aeroplan used to be theirs). Aimia last week made some announcements how they would deal with post-Air Canada period (read more here).

Here’s the press release from Air Canada:

Benefits both Aeroplan members and Aimia shareholders

  • Allows for smooth transition of Aeroplan members’ points to Air Canada’s new loyalty program launching in 2020
  • Provides value to all Aimia stakeholders and a viable solution to Aimia’s current business and financial challenges
  • Represents a total purchase price of $2.25 billion, including $250 million in cash and the assumption of approximately $2 billion of Aeroplan points liability
  • Proposal implies approximate value of $3.64 per Aimia Inc. common share, a 52.3% 30-day VWAP premium and a 45.6% premium to spot closing price as of July 24, 2018, when added to value of Aimia’s other assets1

TORONTO, July 25, 2018 /CNW Telbec/ – Air Canada, The Toronto-Dominion Bank (“TD”), Canadian Imperial Bank of Commerce (“CIBC”), and Visa Canada Corporation (“Visa”), on behalf of a corporation to be formed, have made a proposal to Aimia Inc. (“Aimia”) to acquire its Aeroplan loyalty business (including approximately $2 billion of Aeroplan points liability at March 31, 2018) for $250 million in cash (the “Proposed Transaction”), representing a total purchase price of approximately $2.25 billion.

The Proposed Transaction, if accepted by Aimia, will ensure value and continuity for their members as well as customers of Air Canada, TD, CIBC and Visa. The proposal implies an estimated market equivalent value of $3.64 per Aimia share, a 52.3% premium to the 30-day VWAP and a 45.6% premium to spot closing price as of July 24, 2018. The market equivalent value is comprised of the Aeroplan loyalty business proposal value of $1.64 per Aimia common share plus non Aeroplan loyalty program net assets valued at $2.00 per common share based on fair market value estimates contained in Mittleman Investment Management’s Q1 2018 investor letter.1

The parties have requested a prompt response from Aimia regarding the proposal, which has an expiry date of August 2, 2018. The Proposed Transaction is subject to the satisfactory conclusion of transaction documents and certain other customary conditions, including due diligence, receipt of customary regulatory approvals and the negotiation and satisfactory completion of credit card agreements between Air Canada and each of TD and CIBC.

If completed, the Proposed Transaction would result in a positive outcome for Aimia shareholders and Aeroplan members, allowing for a smooth transition of Aeroplan members’ points to Air Canada’s new loyalty program launching in 2020, safeguarding their points and providing convenience and value for millions of Canadians.

Given Aimia’s current situation and future prospects, the Proposed Transaction delivers value to Aimia’s stakeholders. Air Canada, TD, CIBC and Visa are committed to engaging with Aimia’s board to complete a transaction and trust that Aimia’s Special Committee and Board of Directors, in discharging their fiduciary duties, will respond promptly by August 2, 2018. A timely completion of the transaction is essential for the continued participation of the parties.

1 Value of other Aimia assets is as per Mittleman Investment Management’s commentary dated April 13, 2018. No responsibility is assumed regarding the accuracy or completeness of the estimates or disclosures contained in the Mittleman commentary.

Conclusion

Air Canada spun off Aeroplan when they desperately needed the cash and markets foolishly believed that standalone loyalty program could be financial success. It was brilliant idea to announced that the partnership would. This tanked the Aimia’s stock price (by 70% or more) that then would enable the Air Canada & partners to buy back the Aeroplan business cheaply.

The deal would only be $250 million in cash and $2 billion in points liability. Seems that Aeroplan business have been highly leveraged and some would say already going concern. Not sure if there is anything left of Aimia if this goes through.

The idea of spinning of loyalty programs was hot topic in the 2000’s and some airlines did just that. The problem is that it creates friction between the airline and their supposed loyalty program that now have competing interests. Both are trying to maximize profits to their shareholders.

I don’t think that the experiment with MultiPlus (LATAM) and Smiles (GOL) in Latin America will end up well either. These programs are dependent of the airline partner and they are worth only a fraction without one. Why airlines would allow these companies to capture most of the profit and lose the customer access/touch point at the same time is beyond of my understanding?

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