Aeroplan strikes deal with new airline, but still willing to negotiate buyout
TORONTO — Aimia Inc. says it remains open to negotiating a fair deal for the purchase of its Aeroplan loyalty program by Air Canada and its partners despite striking a deal with Toronto-based Porter Airlines and holding discussions with the Oneworld airline alliance.
“We never stop negotiating. Should the consortium want to engage with us in a constructive dialogue, we would be happy to entertain that,” Aimia CEO Jeremy Rabe said Friday during a conference call.
“At the same time, we feel very confident about our future plans. So either or, we’re happy to go down either path."
Rabe insisted that Aimia didn't reject the Air Canada group's offer, but said it was very conditional and didn’t fairly value the business.
The consortium — which includes TorontoDominion Bank, Canadian Imperial Bank of Commerce and Visa Canada — initially offered $250 million cash and the absorption of $2 billion of mileage liability, but subsequently raised the offer to $325 million, still short of the $450 million Aimia believes would be a fair price.
“We have a number of shareholders that are frankly pretty upset that we offered a number that low,” Rabe said.
One of those shareholders — Cetus Capital — said it is frustrated by the consortium's lower offer.
“We’re scratching our heads as to why the offer is so low in light of the significant and substantial strategic and financial benefits to Air Canada and the consortium partners,” Bart Stout said during the call, outlining a series of strategic benefits to the airline and its credit card partners.
They include the significant cash Aeroplan generates for Air Canada, the valuation discount relative to other airlines that would decrease by having its own in-house loyalty program and a lower risk for the credit card partners who may not be chosen as a partner for Air Canada in a standalone plan.
“We continue to believe that Air Canada is acting very penny-wise pound-foolish as it relates to their tactics here. They should be more than willing, more than excited to acquire Aeroplan. Frankly, we believe the value that they should be acquiring Aeroplan for should be significantly more than $450 million.” Rabe said Stout was “spot on” with his assessment. “We felt like $450 million was a very, very reasonable number. And if there was a real willingness to engage from the consortium, that would have been accepted and then it just kind of leaves you wondering if there was really a real willingness or not.”
The future of Aeroplan, which has more than five million members, has been in doubt since Air Canada announced in May 2017 that it planned to launch its own loyalty rewards plan in 2020.
Aimia and Air Canada issued statements Thursday evening signalling that talks had broken down just hours before a midnight deadline for the offer to expire.
Aimia announced Thursday it is in talks with the Oneworld airline alliance, a major competitor to the Star alliance, of which Air Canada is a member. On Friday, it said it will partner with Toronto-based Porter Airlines.
WestJet Airlines said it has no interest in joining Aeroplan after 2020.
Air Canada said Thursday evening that its proposal delivered a sizable premium for Aimia shareholders and was the only opportunity for all Aeroplan Miles to transfer into Air Canada’s new loyalty program it is developing.
TD informed its Aeroplan credit card customers that it participated in a proposal to buy Aeroplan after not receiving assurances from Aimia that the Aeroplan program will deliver the long-term value they would expect.
“After engaging in extensive discussions with Aimia, the proposal, enhanced from the original offer, would have provided the best outcome for all Aeroplan members,” it wrote.
“We’re disappointed Aimia rejected this proposal and we're now evaluating next steps.”
Aimia’s shares closed at $3.74, up 8.1 per cent on the Toronto Stock Exchange. That’s down from $8.93 before Air Canada announced plans not to renew its contract.
There remains a reasonable likelihood that Aimia will reach an agreement with Air Canada given the high uncertainty in transitioning Aeroplan through 2020, said Drew McReynolds of RBC Capital Market.
“We also believe the difference in the perceived value of Aeroplan among the parties is not overly material to the consortium yet meaningful to the value of Aimia,” he wrote in a report.
Under a new deal announced Friday, Toronto-based Porter would become a preferred Canadian airline for the Aeroplan loyalty points program as of July 2020, when the current arrangement with Air Canada ends.