There is a lot of coverage about the Air Canada and Aeroplan split, but this is just the latest crazy development to come in. Air Canada, along with TD Bank, CIBC, and Visa, is making a hostile bid to buy back Aeroplan.
Air Canada Offer For Aeroplan
The news broke this morning. The offer is for $2.25 billion – $250 million in cash and $2B in Aeroplan points liabilities. This is the equivalent of a $3.64 market price per share. The closing price yesterday was $2.50, and the stock has since jumped over 40% to sit at $3.43. Aimia, before the split, had a share price of close to $10. It still is a huge cut from shareholders who held stock at that original price.
I’m curious how the liabilities are valued, because it seems easy to manipulate them. If, say, Aeroplan decided to raise redemption prices by 100% – would that drop the liabilities in half? That being said, I think it’s a difficult amount to quantify because any change in redemptions would create an enormous uprising by angry collectors.
Aeroplan last week unveiled their new plans after 2020, so it looks that they were completely unaware of this bid. From what I’ve read, analysts have said that shareholders may be voting on whether to accept the offer. Not many other companies want to acquire Aeroplan, so the two likely options are that they accept this bid or continue as their path as a separate program. It will be heavily dependent on whether Aimia can put out data to show that they will outperform the bid.
Earlier this year, American Express renewed its partnership with Aimia until in June 2020, when Aeroplan ends their partnership with Air Canada. This leaves the only TD and CIBC as the only financial partners of Aeroplan after 2020, who are both part of this takeover bid. I’m not sure how much each party is involved in the takeover, but the highest revenue sources for loyalty programs are with financial partners. If Aimia doesn’t accepted the bid, I wonder what it will do to that relationship.
One huge issue that the bid addresses is reducing the consumer angst that will come about in 2020. It is very likely that should the split happen, most folks won’t know where their points are going. Aeroplan has really tried to clarify a lot of things, but many people are still wary. As an avid loyalty points aficionado, I’m not a fan of this takeover, because it reduces the number of companies in the Canadian loyalty space. I love maximizing the value of my miles, and fewer competitors isn’t going to help that.
Despite the negative forecasts about the new Air Canada and Aeroplan programs, there isn’t anything that surprises me at the moment. My advice hasn’t changed. I plan to keep on collecting on Aeroplan miles until June 2020. I will redeem at the same speed so that I end up with a very small balance closer to the date the programs split. At that point, I will decide whether the new Aeroplan program is worthwhile to continue participating in.
If Aimia accepts the bid, this will change nearly everything that has been going on the past 18 months. Aeroplan is a huge chunk of the core business, so one wonders what will happen if Air Canada and their consortium buys back Aeroplan.