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The largest shareholder of Aimia Inc. has fired back at Air Canada and its three financial partners, calling their recent takeover bid for the Aeroplan loyalty program “blatantly inadequate” and arguing that the business is worth between $1-billion and $2-billion.

“I applaud the board for not acquiescing and continuing negotiations,” Christopher Mittleman, the chief investment officer of New York-based Mittleman Brothers LLC, wrote in a five-page letter after Aimia rejected the consortium’s bid late last week. The investment firm called the takeover strategy a “’shock and awe’ tactic designed to incite panic and anchor expectations to an absurd level.”

The letter is the first public statement from Mittleman Brothers, which is Aimia’s largest investor with a 17.6-per-cent stake, since Air Canada teamed up with Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Visa Canada Corp. on an offer for Aeroplan on July 25. The opposition of such a large shareholder to the sale of Aimia’s most important asset will make it more difficult for the consortium to complete a deal at a price similar to what it has offered, although Aimia said last week it will keep the door open to offers.

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The Air Canada-led group originally bid $250-million in cash for Aeroplan, whose members collect points and redeem them for flights and other rewards. After a week of negotiations, the group raised its offer to $325-million, but late on Thursday, hours before the bid was set to expire, Aimia walked away, later disclosing that it wanted $450-million and a different set of conditions.

Mittleman Brothers, which has two seats on Aimia’s board and helped install Jeremy Rabe as Aimia’s chief executive officer in May, is now publicly demanding at least double Aimia’s counteroffer.

“The strategic value of Aeroplan [to the bidding partners] is clearly much greater than its stand-alone value to Aimia,” Mr. Mittleman wrote. “Thus, a compromise between what it’s worth to Aimia, at certainly no less than $1-billion, and what it’s worth to the consortium, at $2-billion-plus, seems reasonable.”

If no such offer is forthcoming, he wrote, Aimia should carry on with its new strategy.

That strategy includes pivoting away from Air Canada and allowing Aeroplan members to redeem their miles for seats on any airline. Aeroplan is also in the process of signing on new preferred partners. The company announced a deal on Friday with Toronto-based Porter Airlines that takes effect in 2020, when Aeroplan’s contract with Air Canada ends. Last week, Aeroplan also touted the potential for an arrangement with the Oneworld airline alliance, whose members include British Airways, American Airlines and Cathay Pacific.

In the letter, Mr. Mittleman took issue with the way the bidders used Aimia’s $2-billion redemption liability – the estimated future cost of flights and other rewards for the billions of Aeroplan points that exist – as a negotiating tactic. The bidders tried to add this amount to the offer price, claiming their original bid was worth $2.25-billion.

“I can find no precedent where it was treated as a charge to enterprise value in similar M&A transactions,” Mr. Mittleman wrote. He noted that when Air Canada purchased Canadian Airlines in 1999, the points liability for Canadian’s loyalty program was not factored into the price.

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The bidders, it seems, have seized on the fear that Aeroplan members will rush to redeem their miles before Air Canada’s contract with Aeroplan expires in 2020, thus creating a rush of cash out the door for Aimia. MR. Mittleman, however, argued that “even during the 2003 bankruptcy [court filing] of Air Canada, there was no run on the bank.”

Aimia currently has about $530-million in cash to cover the liability. Mr. Mittleman argues that over the next two years, internal cash flow plus a potential sale of Aimia’s 49-per-cent stake in Mexico’s leading loyalty program would more than double the reserve ratio to 66 per cent. (Aeromexico recently offered to buy Aimia’s stake, but was turned down.)

As for Aeroplan’s value, Mr. Mittleman said that when Air Canada announced in May, 2017, that it would not renew its Aeroplan contract in 2020, the airline said it would build an in-house loyalty program that would create a value of $2-billion to the company − many times what the consortium offered for Aeroplan.

One analyst recently estimated TD and CIBC now make more than $400-million combined annually from the Aeroplan program, through issuing Aeroplan credit cards.

“Aeroplan is the lynchpin in the nexus of this powerful network, where TD, CIBC, Visa, Amex, and Air Canada generate hundreds of millions in net profits annually from their Aeroplan card holders,” Mr. Mittleman argued. He compared the group to “school yard bullies, trying to force a smaller kid to give them his bicycle.”

Mr. Mittleman wrote that he recently received calls from other shareholders who collectively own an estimated 20 per cent of Aimia and noted these investors “largely concur with my own views.”

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If true, it has implications for the bidding consortium’s next move. One option is for Air Canada and its partners to launch a hostile takeover bid for all of Aimia. Should that happen, they would likely need to win approval from two-thirds of all shareholders to proceed.

Air Canada did not respond to a request for comment.

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