Aimia Inc. has announced:
Air Canada, TD, CIBC, Visa and Aimia Reach Agreement in Principle for Acquisition of Aeroplan Loyalty Business
•Purchase price consists of $450 million in cash and the assumption of approximately $1.9 billion of Aeroplan Miles liability
•Agreement in principle was unanimously approved by Aimia’s Board of Directors and is supported by Mittleman Brothers
•Transaction would provide value for Aimia and its shareholders and continuity for Aeroplan members and customers of Air Canada, TD, CIBC and Visa
•Transaction subject to negotiation of definitive agreements and other conditions; completion expected fall 2018TORONTO, Aug. 21, 2018 /CNW Telbec/ – Air Canada, The Toronto-Dominion Bank (“TD”), Canadian Imperial Bank of Commerce (“CIBC”), Visa Canada Corporation (“Visa”) (collectively, “the Consortium”) and Aimia Inc. (“Aimia”) announced today that they have entered into an agreement in principle for the acquisition of Aimia’s Aeroplan loyalty business.
…
Mittleman Brothers, LLC, Aimia’s largest shareholder who owns approximately 17.6% of Aimia’s common shares, has provided a lock-up and support agreement under which it has agreed to vote in favour of the proposed transaction.The aggregate purchase price consists of $450 million in cash and is on a cash-free, debt-free basis and includes the assumption of approximately $1.9 billion of Aeroplan Miles liability.
The Canadian Press points out:
Aimia’s recent Aeroplan partnership agreements with three Canadian airlines — Air Transat, Flair Airlines and Porter Airlines — are now up in the air.
“Those were perhaps part of the negotiations and trying to build the pressure on getting a transaction,” said AltaCorp Capital analyst Chris Murray.
Aimia had also been in discussions with the Oneworld airline alliance, whose members include British Airways, American Airlines and Cathay Pacific.
Gabor Forgacs, associate professor at the Ted Rogers School of Management at Ryerson University, said the key incentive for Canada’s largest airline is customer data that can be used to encourage more member spending.
“Every time a member of the loyalty program goes to make a purchase and taps or swipes that card, he or she would earn points — however, they will agree to give away the information,” Forgacs said. “They will know where I was, what I bought, how much I spent.”
AIM preferreds jumped on the news:
| AIM Preferreds Performance | ||||||
| Ticker | Description | Bid 2018-07-24 |
Bid 2018-07-25 |
2018-07-26 | 2018-08-21 | Total Change |
| AIM.PR.A | FixedReset 4.50%+375 |
11.24 | 17.05 | 19.02 | 21.75 | +93.5% |
| AIM.PR.B | FloatingReset +375 |
11.45 | 17.00 | 19.06 | 22.00 | +92.1% |
| AIM.PR.C | FixedReset6.25%+420 | 12.22 | 17.00 | 19.30 | 22.15 | +81.3% |
All three issues are tracked by HIMIPref™ but are relegated to the Scraps index on credit concerns.
Aimia’s been in the news quite a bit lately … it began when preferred dividends were suspended in June, 2017, continued through dark muttering from DBRS in February, 2018, reached a nadir when S&P declared the preferreds in default, but then got happier when the initial bid for Aeroplan was followed by a bid for the Mexican assets.
Note that the bids are not for the company, just for most of its assets. 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.
Update, 2018-08-22: DBRS comments:
DBRS notes that although the Consortium’s proposal is not for Aimia shares, the sale of the Aeroplan program could be sufficient in size to trigger a change-of-control provision in Aimia’s Senior Secured Debt that requires the occurrence of both a change of control and a rating event (i.e., a rating downgrade of the Senior Secured Debt). If triggered, the provision requires that an offer be made to repurchase at a price equal to 101% of the outstanding Senior Secured Debt of the Company.
DBRS notes that as of Q2 2018, Aimia had approximately $329 million of debt, $249 million of cash, $22 million of restricted cash and $260 million invested in corporate and government bonds. The debt consists of $250 million of Senior Secured Notes due May 2019 and $80 million (including $9 million of letters of credit) drawn on the credit facility, which matures in 2020. Following the Transaction, Aimia would be meaningfully smaller in size and consist of Proprietary Loyalty Canada and Insights & Loyalty Solutions (which includes Air Miles Middle East), along with investments in PLM Premier, S.A.P.1. de C.V.; Cardlytics; and Think Big Digital. The Company would have approximately $720 million of cash and $260 million of bond investments that would be sufficient to repay the outstanding debt.
DBRS will proceed with its review as more information becomes available.
In addition, it will be noted that the company has $315.8-million worth (par value) of preferreds outstanding, which have so far accumulated $17-million of unpaid cumulative dividends, which continue to accumulate at $17-million p.a.
In addition, the company reports a pension funding deficit of $21.3-million, and “Other Employee Future Benefits” of $21.6-million.
My girlfriend works for Aimia and they aren’t telling the employees anything about the offer.
Aimia is unionized and they have a defined benefit pension plan. The last time I looked it was significantly under funded even with the usual over optimistic projections regarding future returns.
I don’t know much about Aimia but from what I have read most of their business deals with Aeroplan. When (if) the deal completes, I wonder what happens with the employees, would Air Canada offer them jobs? I highly doubt that Air Canada would want to take over the pension plan even if they do offer some employees work at the new Aeroplan.
I doubt that AC would offer a job to these employees. Don’t forget who are the other members of the consortium, BANKS…
Even at harms lenght, I am sure they will do all they can to avoid any contacts with unionised employees…
I am sure this was a major issue in the negotiations and would not be surprised if the consortium agreed to a higher price once convinced they did not have to take on the union…
It seems obvious to me the most valuable thing for the consortium is Aeroplan’s member list. It is not known yet if in the future Aeroplan would exist only AC points or they could be redeemed for other things as well as it is today. Also we do not know what is the role of the banks. Would the banks provide only the financing part or together with AC will create a new company similar with the old Aimia?
What I am surprised of is the high valuation of the Aimia’s preferred shares and of the fact the Madmani, head of alternative investments at PH&N, saw them valuable even at $19.50 and his funds owns about 35% of Aimia’s preferred shares (see https://business.financialpost.com/transportation/airlines/rbc-fund-urges-aimia-to-accept-bid-to-avoid-existential-crisis )
Maybe James could shed some light for less sophisticated investors. Also if I may ask, out of curiosity, has the Malachite fund recently owned any Aimia preferred?
Hi James,
Do you know what will become of the Aimia preferreds? Will all the cumulated dividends be paid soon? Is Aimia likely to call the issues? Thanks!
Do you know what will become of the Aimia preferreds?
Nope. Management is holding their cards close to their vests – I can’t find a pro forma balance sheet anywhere.
Their balance sheet has an awful lot of intangible assets on it …the loss of those assets could essentially nullify the benefits from jettisoning the Aeroplan Miles liability.