Shares of Aimia (TSX:AIM) a jumping Wednesday after a consortium consisting of Air Canada (TSX:AC), The Toronto-Dominion Bank (TSX:TD)(NYSE:TD), Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) and VISA Canada (NYSE:V) disclosed their efforts to acquire the Aeroplan loyalty program operations of the marketing and analytics provider.
The airline and banks are offering to pay $250 million in cash plus assume the liability of $2 billion worth of Aeroplan points that have yet to be redeemed by members.
Ironically, Air Canada created the Aeroplan program back in 1984, spun it out publicly in 2005 with a $2-billion market cap and watched the parent company be renamed Aimia. Aimia generates about 80% of its revenue through the airline.
Just over a year ago, Air Canada said it was done with Aeroplan and Aimia when its contract expires in July 2020 in favor of initiating its own loyalty program. Shares of Aimia were crushed on the news and remain worth about one-third of what they were when Air Canada made the announcement last May. Through Tuesday, Aimia was valued at about $475 million.
Apparently after thinking it through, the AC board decided it would be better to try and take its old business back than start from scratch, hence teaming with the big banks and coming in with a low-ball offer now that Aimia's value is depressed. The plan would be to roll the millions of Aeroplan members and their unredeemed rewards into the new Air Canada loyalty program, giving it plenty of runway to get the program flying.
TD Bank and CIBC aren't strangers to Aeroplan either; they are the top financial partners to the program and offer Visa cards that can be used to build Aeroplan points. CIBC has been the lead bank for Aeroplan for a long time and TD Bank joined the mix four years ago by agreeing to pay $275 million to CIBC and $100 million to Aimia.
The hostile bid comes at a time of transformation for Aimia. With the looming divorce from Air Canada, the Montreal-based company has been shaking up operations, in part due to activist investor Mittleman Partners taking an 18 percent stake, claiming two board seats and replacing the former CEO David Johnston with Jeremy Rabe, a seasoned vet of the loyalty rewards space. Part of Rabe's plan to offset the loss of Air Canada was to create a pathway for Aeroplan members to book flights at any airline.
If the bid is successful, Aimia would be left with its other, smaller business, Air Miles Middle East. The company said it has formed a special committee and is reviewing the consortium's offer. They better discuss things quickly because Air Canada, et al want an answer by August 2, a day before Aimia is slated to release its second quarter financial results.
Unless Aimia can come up with something highly creative, odds are that it'll have to give in to the offer because building the value that it once had without Air Canada is a seriously uphill battle. However, it would be a surprise if it didn't at least come back trying to squeeze more cash out of TD Bank, CIBC, Visa and Air Canada, something the consortium has plenty of.
With about 90 minutes left in the trading day, shares of AIM are up 38.8% to $3.47, marking their highest level since the start of February.
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