Aeroplan’s parent company, Aimia Inc., rejected a hostile takeover bid from Air Canada and three financial partners after the two sides exchanged counteroffers but could not agree on a price.
Aimia walked away from the talks late on Thursday.
During the negotiations, Air Canada and its partners raised their initial bid for the loyalty plan to $325-million, from $250-million. But Aimia demanded $450-million, according to the loyalty rewards company.
Even though Air Canada and its partners raised their takeover price to $325-million, Aimia argued that neither the original bid nor the higher offer “reflects the value of the Aeroplan business to members and stakeholders,” according to a statement.
The takeover bid, which was launched eight days ago, was to expire on Thursday. Last week, Air Canada chief executive Calin Rovinescu stressed that a short fuse was necessary for the offer because Air Canada needed time to move on and negotiate a credit card partner for its own program.
After Aimia announced its rejection on Thursday, Air Canada and its three partners put out a statement that acknowledged the rejection, but they did not elaborate on their future plans.
Last week, Air Canada teamed up with Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Visa Canada Corp. on an offer to purchase the Aeroplan program for $250-million in cash. As part of the proposed deal, Air Canada and its partners would also assume a $2-billion outstanding liability on Aimia’s books for loyalty points that have not yet been redeemed. Aimia currently has roughly $500-million in cash available to cover these liabilities, according to the company.
The public bid followed private talks between the two companies that resulted in “low-ball offers,” according to someone familiar with the process. Aimia referenced such talks in a statement last week, when it announced there had been negotiations “some time ago.”
In its latest public offer, the consortium argued that the implied value of its bid amounted to $3.64 for each Aimia share. The stock was trading at $2.50 the day before the offer was announced.
Aimia believed Aeroplan was worth much more, yet the company lowered its price expectations during the latest talks. Air Canada and its partners, however, would not budge all that much, according to the person close to the talks.
Their proposals also came with conditions that would lower Aimia’s return, such as adjusting for pension liabilities. Aimia alluded to these requirements in its statement Thursday, noting that the offers contained “onerous terms and conditions.”
Air Canada’s hostile bid came a year after the airline unveiled plans to launch its own loyalty program, prompting shares in Aimia to plummet 63 per cent in a single day. Aeroplan contributes almost 80 per cent of the earnings its parent company typically reports and most of that comes from Air Canada.
Air Canada’s current partnership contract with Aimia and Aeroplan expires in July, 2020.
With Aimia re-tooling in preparation for the 2020 split with Air Canada, there was speculation in financial circles that the airline could make a bid to buy back the rewards program, potentially with the help of a private equity partner.
Still, Air Canada’s bid caught many analysts by surprise. To explain itself, the airline sent a message to its frequent fliers last week. “Straight to the point: we heard from many customers who were excited about our plans, and would prefer to transfer their Aeroplan Miles to the new Air Canada loyalty program,” the airline wrote. “Aimia is an independent company and it’s ultimately their decision to accept or reject the proposal."
Air Canada has also stated in a question-and-answer section of its website that it became aware of talks between Aimia and others, but wouldn’t provide specifics on those discussions. “There have been other proposed transactions to purchase Aimia over the past several months,” the website reads.
Last week, Aeromexico announced its own hostile offer to purchase Aimia’s stake in a Mexican loyalty-rewards program. Although it was not a bid for the whole company, it is possible Air Canada became aware of Aeromexico’s interest. Aimia quickly rejected the offer.
On Wednesday, Aimia also confirmed that behind the scenes it has been negotiating a new partnership with the Oneworld alliance, whose member airlines include British Airways, American Airlines and Cathay Pacific. Oneworld is a direct competitor to Star Alliance, of which Air Canada is a member.