Aeroplan Income Fund, the popular loyalty program that became a trust in 2005, is converting into a corporation as it seeks greater flexibility to expand internally and make foreign acquisitions.
Montreal-based Aeroplan said Friday that its conversion is necessary partly due to ownership rules that limit foreigners to controlling 49.9 per cent of an income trust, to stay onside with Canadian laws governing tax-efficient trusts. At the end of March, foreign investors owned 41 per cent of Aeroplan's units.
By switching to corporate status, Aeroplan gains unfettered access to capital markets and foreign investors, Aeroplan chief executive officer Rupert Duchesne said in interview.
“The corporate structure is the right one for us, and we've found a way to do it quickly and effectively,” he said.
Aeroplan Income Fund
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Several trusts have been considering their options, long after Ottawa unveiled plans on Halloween in 2006 to tax existing trusts in 2011. Trusts gain greater flexibility to expand if they turn into corporations because trusts face constraints when issuing new equity, analysts say.
Mr. Duchesne said takeover targets, such as frequent flier programs overseas, will be smaller than Aeroplan's $755-million purchase late last year of Loyalty Management Group, the private owner of Britain's Nectar rewards program.
Montreal-based ACE Aviation Holdings Inc., Air Canada's parent company, spun off a 14.4-per-cent stake in Aeroplan in 2005. ACE has been gradually reducing its interest since then, currently owning 9.9 per cent of Aeroplan.
Internally, Mr. Duchesne said Aeroplan expects to sign up a major new retail partner by the end of this year within Canada, likely a grocery chain, drugstore outlets or department stores.
The proposed Aeroplan conversion is subject to approval by unitholders at the company's annual meeting set for June 19 in Toronto, rescheduled from the original meeting date of June 2. Aeroplan hopes to complete the conversion by June 25.
After it becomes a corporation, Aeroplan expects to set a quarterly dividend of 12.5 cents a share, beginning with the three months that will end Sept. 30, or an annual payout of 50 cents. Aeroplan's current payout is 7 cents a month, or 84 cents a year.
RBC Dominion Securities Inc. and TD Securities Inc. served as financial advisers on the conversion plan, and Aeroplan directors are recommending that unitholders approve the new arrangement.
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