TD voices cau­tion about Aeroplan’s fu­ture af­ter failed takeover at­tempt

The Globe and Mail Metro (Ontario Edition) - - REPORT ON BUSINESS - TIM KILADZE

Aeroplan credit-card cus­tomers are find­ing them­selves caught in the mid­dle of a cor­po­rate spat, with Toronto-Do­min­ion Bank send­ing mixed mes­sages to its clients about Aimia Inc., the com­pany that runs the air­line-loy­alty pro­gram.

Af­ter its joint takeover bid for Aeroplan was re­jected last week, TD Bank warned its Aeroplan card hold­ers that their points could be in jeop­ardy if a takeover isn’t com­pleted. The bank sug­gested Aeroplan’s value will de­te­ri­o­rate if it is left as part of a stand-alone com­pany.

The bank’s no­tice comes as its re­la­tion­ship with Aimia grows in­creas­ingly strained. TD teamed up with Air Canada, Cana­dian Im­pe­rial Bank of Com­merce and Visa Canada Corp. to ac­quire Aeroplan in July, but the bid was re­jected af­ter the two sides swapped coun­terof­fers. Although Air Canada led the takeover ef­fort, TD is the dom­i­nant fi­nan­cial in­sti­tu­tion in the con­sor­tium be­cause it is Aeroplan’s lead credit-card part­ner.

“We have sought, but not re­ceived, as­sur­ances from Aimia that the Aeroplan pro­gram will de­liver the value that we and you, as a TD Aeroplan credit-card holder, would ex­pect from Aimia in the long term,” the bank wrote in its no­tice to card hold­ers, which was also posted on its web­site.

TD de­clined com­ment for this story. Aimia could not be reached for com­ment.

TD’s tac­tic is un­usual. De­spite the failed takeover of­fer, the bank re­mains un­der con­tract with Aimia as Aeroplan’s lead fi­nan­cial spon­sor un­til 2024.

“It’s a bit shock­ing to see,” said Robb En­gen, who writes about the re­wards in­dus­try for Re­wards Cards Canada and is a TD Aeroplan cred­it­card holder.

TD says, ‘We’re dis­ap­pointed Aimia re­jected this pro­posal and we’re now eval­u­at­ing next steps.’ What does that mean? ROBB EN­GEN WRITER FOR RE­WARDS CARDS CANADA

“TD says, ‘We’re dis­ap­pointed Aimia re­jected this pro­posal and we’re now eval­u­at­ing next steps.’ What does that mean?” he added. Aeroplan’s fu­ture own­er­ship, mean­while, re­mains un­cer­tain. Although takeover talks have bro­ken off, the Air Canada-led con­sor­tium has not ruled out mak­ing an­other of­fer. At the mo­ment, the two sides dis­agree on price. Be­fore the bid was re­jected, the con­sor­tium raised its of­fer price to $325-mil­lion from $250mil­lion; Aimia de­manded $450mil­lion. This week, TD’s ac­tions were also called into ques­tion in a pub­lic let­ter from Mit­tle­man Broth­ers, Aimia’s largest share­holder. The firm’s chief in­vest­ment of­fi­cer, Christo­pher Mit­tle­man, crit­i­cized TD’s pro­mo­tion strat­egy for Aeroplan cards. Early in 2018, Aimia’s chief fi­nan­cial of­fi­cer had noted on a con­fer­ence call that the com­pany suf­fered some­what from lower pro­mo­tional spend­ing on Aeroplan cards in the sec­ond half of 2017 − but did not name any pro­mo­tional part­ners by name. TD holds the ex­clu­sive rights to mass-mar­ket Aeroplan Visa credit cards and, in his let­ter, Mr. Mit­tle­man specif­i­cally called the bank out. In do­ing so, Mr. Mit­tle­man sug­gested that TD’s ef­forts were in­ten­tional, done “as we now see, in ad­vance of try­ing to buy Aeroplan on the cheap. … The pat­tern of be­hav­iours here is dis­con­cert­ing to say the least,” he wrote At the mo­ment, Aeroplan’s most valu­able mem­bers are fre­quent Air Canada fly­ers, largely ow­ing to a deep-rooted re­la­tion­ship be­tween the two com­pa­nies that dates back decades. Aero- plan was orig­i­nally built in-house at Air Canada in 1984, and although it was spun out in a 2005 ini­tial pub­lic of­fer­ing, the two have shared a long-stand­ing con­tract that guar­an­tees Aeroplan mem­bers 8 per cent of seats on ev­ery Air Canada route each month. In May, 2017, Air Canada abruptly an­nounced it would let its cur­rent con­tract with Aeroplan ex­pire in 2020, which con­trib­uted to Aimia’s shares tum­bling 63 per cent in a sin­gle day. The news also af­fected TD Bank, which be­came the lead fi­nan­cial part­ner for Aeroplan in 2014, af­ter for­mer lead part­ner CIBC dis­closed that it was mulling whether to let its Aeroplan con­tract ex­pire. As part of TD’s deal, the bank agreed to a 10-year con­tract and paid Aimia $100-mil­lion up front − plus 15 per cent more per travel-re­ward point than CIBC paid un­der its old con­tract. TD also paid CIBC $275-mil­lion over three years and CIBC was able to keep roughly half of the port­fo­lio – but only those cards for which there was an ac­com­pa­ny­ing CIBC bank­ing prod­uct, such as a chequing ac­count. Na­tional Bank Fi­nan­cial analyst Gabriel Dechaine es­ti­mates the pro­gram now de­liv­ers $400-mil­lion in profit to TD and CIBC com­bined.

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