Hostilities resume in Aimia takeover battle after OSC hearing delivers mixed result

Open this photo in gallery:

Less than 30 minutes after Ontario’s securities watchdog issued an order related to the ongoing battle between Aimia Inc. AIM-T and its largest shareholder, the fight for control of the loyalty plan provider-turned investment holding company resumed.

The Ontario Securities Commission’s Capital Markets Tribunal released a decision Thursday evening dismissing applications from both Mithaq Canada Inc. and Aimia. As a result, Aimia will not have to reverse a recently closed private placement that Mithaq called an abusive defensive tactic intended to entrench Aimia’s current leadership and thwart Mithaq’s hostile bid to take the company private.

While the tribunal has yet to release the reasons for its decision, the order also requires Aimia to immediately withdraw its shareholder rights plan – also known as a poison pill – which was preventing Mithaq from acquiring more shares of the company.

Just 27 minutes after the tribunal order was released, Mithaq announced plans to acquire another 5 per cent of Aimia shares, which would bring its total ownership stake in the company to just shy of 32 per cent. Mithaq, the Saudi Arabian-based private investment company for the Al Rajhi family – founders of the Al Rajhi Bank, the world’s largest Islamic bank by market capitalization – started 2023 owning less than 13 per cent of Aimia.

The resumption of hostilities follows a two-day hearing the tribunal held earlier this week that at times grew heated. At one point during the testimony of Aimia chief executive officer Phil Mittleman – who is also locked in a dramatic litigation against his older brother, former Aimia chief investment officer Chris Mittleman – tribunal panel chair Tim Moseley interrupted, accusing Mr. Mittleman of going “off on tangents.”

“It would be more efficient for all of us, including you, if you just listen carefully to the question please and confine your answer to the question,” Mr. Moseley said. “Please stick to what is being asked of you.”

Later, Aimia lawyer Orestes Pasparakis of Norton Rose Fulbright Canada LLP accused lawyers representing Mithaq of “not even attempting to comply with the schedule that they proposed.”

Mithaq lawyer Sarah Whitmore of Torys LLP, who had been leading the questioning of Mr. Mittleman, responded that she had “attempted to ask very targeted, narrow questions” and had “received quite a few speeches that have contained irrelevant information.”

The purpose of the hearing was to determine whether a $32.5-million private placement Aimia closed in October was for a legitimate business purpose, as Aimia argues, or whether, as Mithaq claims, it was primarily intended to dilute the company’s shareholder base to the point where Mithaq’s takeover bid would become untenable.

Several high-profile investors participated in the private placement, including Massachusetts Mutual Life Insurance Company CEO Roger Crandall – whom Mr. Mittleman referred to in his testimony as “one step below Warren Buffett” – former Cardinal Health Inc. CAH-N CEO Kerry Clark and former Procter & Gamble Co. PG-N chief legal officer Deborah Majoras.

Without the private placement, Mr. Pasparakis argued, citing an analysis by Canaccord Genuity in October, Aimia would have ended 2023 with a cash deficit of $8.3-million.

“If you are being told in October that in a mere 2½ months your company is going to be negative $8.3-million, that is a problem for any company, let alone a company that relies on having healthy cash balances to fund its investments and pursue new opportunities,” he said. “Undoing the plan puts Aimia back in an $8.3-million cash deficit as of two weeks from now. That is a significant problem for Aimia shareholders that goes far beyond making it harder for Mithaq to win a takeover bid.”

It is possible, however, that Aimia engineered the cash shortfall in order to justify the private placement, Ms. Whitmore argued.

“Aimia understands its need for financing is crucial to defend the private placement,” she said.

Citing evidence submitted by Mr. Mittleman, Ms. Whitmore said a decision by Paladin Private Equity LLC not to exercise its option to acquire a nearly 20-per-cent stake in Tufropes Pvt. Ltd., a fishing net producer based in India that Aimia acquired earlier this year for $253-million, “had a $115-million swing in the amount of cash that may have been available to Aimia.”

“I am not saying this lightly,” Ms. Whitmore said. “We know that Eric Hauser is a principal at Paladin and we know that Eric Hauser is the son of Mark Hauser, who is one of the lead investors in the private placement.”

According to a spreadsheet submitted at the hearing showing Aimia’s projected cash deficit, the company is set to spend a total of $7-million on “legal/activist related costs” over a six-month period, from its final quarter of this year through its first quarter of 2024.