AIM Preferreds Skyrocket on Bid for Aeroplan

Air Canada wants Aeroplan back:

Air Canada has made a hostile bid to buy back Aeroplan at a heavily discounted price, 13 years after it spun off the popular Canadian loyalty rewards program.

Rather than starting from scratch, the airline and its partners Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Visa Canada Corp. are now offering to pay $250-million in cash to Aimia for a program that in 2005 had a $2-billion valuation through an initial public offering.

In response to Air Canada’s announcement, Aimia’s stock surged on Wednesday, climbing 36 per cent. Air Canada’s shares had a much more muted reaction, rising 1.4 per cent.

In the the offer announced Wednesday, Air Canada and its partners would assume a $2-billion outstanding liability on Aimia’s books for loyalty points that have not yet been redeemed. Aimia currently has $300-million in cash reserved to cover these liabilities.

Air Canada has set up a Q&A page on their website in addition to the consortium’s press release:

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.

Aimia has acknowledged receipt of the proposal:

Aimia Inc. (TSX: AIM), a data-driven marketing and loyalty analytics company, today confirms that it has received a conditional proposal from a consortium (the “Consortium”) consisting of Air Canada, The Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and VISA Canada Corporation to acquire the Aeroplan loyalty program business (the “Proposal”), and acknowledges the press release issued by the Consortium earlier today with respect to the Proposal.

This public Proposal follows prior private engagement and discussions between Aimia and the Consortium. The Board of Directors of Aimia had formed a special committee of independent directors (the “Special Committee”) some time ago in connection with such engagement and discussions and had engaged legal and financial advisors. Further to its ongoing mandate, the Special Committee will consider this Proposal in consultation with its legal and financial advisors to assess whether the Proposal is in the best interests of shareholders and the Company as a whole and will make appropriate recommendations to the Board of Directors.

Given the nature of the Proposal, shareholders of Aimia do not need to and are advised not to take any action with respect to the Proposal at this time. Aimia intends to provide updates if and when necessary in accordance with applicable securities laws.

AIM preferreds jumped on the news:

AIM Preferreds Performance
Ticker Description Bid
AIM.PR.A FixedReset
11.24 17.05 +52%
AIM.PR.B FloatingReset
11.45 17.00 +48%
AIM.PR.C FixedReset
12.22 17.00 +39%

All three issues are tracked by HIMIPref™ but are relegated to the Scraps index on credit concerns.

Note that the bid is not for the company, but for the Aeroplan asset. If successful, the bid will change the balance sheet significantly – and just how good the preferreds will look at that point will be the topic of much speculation and puzzling over the balance sheet.

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