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opinion

Shareholders in loyalty program operator Aimia Inc. have every reason to be furious with Calin Rovinescu. The rest of us should be thrilled with the Air Canada CEO’s hardball tactics.

Air Canada and a trio of financial players that offer credit cards linked to everyone’s favourite frequent-flier points (sorry WestJet, but it’s true) tabled a hostile takeover offer on Wednesday for Aimia’s Aeroplan program, which five million members turn to for “free” flights and other rewards.

There’s likely to be much rending of garments and gnashing of teeth over the price of the offer: Air Canada and its partners are bidding just $250-million for a company the airline spun off 13 years ago with a valuation of $2-billion. But this deal makes so much sense for consumers, credit-card companies and the airline that it simply has to happen.

Mr. Rovinescu, whose career includes stints as a lawyer and investment banker along with an investor-friendly flight at the helm of Air Canada, can take credit for launching Aimia as a public company back in 2005. Air Canada’s CEO also pulled the rug out from under Aimia, setting the stage for this takeover, by announcing in May, 2017, that the airline planned to end its relationship and start its own loyalty program when its contract expires in 2020. That announcement knocked back Aimia’s stock price by more than 50 per cent, and shares have never recovered.

Air Canada’s decision to spin out Aimia, along with the airline’s maintenance business and regional carrier, amounted to inspired financial engineering. The offerings brought in the cash needed to spruce up the fleet with fuel-efficient jets and pay down debt. It’s fair to say these deals set the stage for Air Canada’s stunning stock-price performance on Mr. Rovinescu’s watch.

The decision to buy back Aimia is also strategically and financially sound. Loyalty programs and the data they generate are valuable assets for airlines and credit-card companies. Along with Air Canada, this takeover is backed by Toronto-Dominion Bank, Canadian Imperial Bank of Commerce and Visa Canada Corp. The consortium leaves long-time Aeroplan partner American Express on the outside looking in.

The takeover is consumer friendly: Millions of Aeroplan members can continue to rack up points without switching credit cards and loyalty programs. As someone who recently cashed in all his points on fears of carnage at Aeroplan in 2020, when Air Canada walked away, I know these concerns are widely held.

But the optics on this deal are brutal. Air Canada sold high on Aimia, then knocked the stuffing out of the company by ending its partnership. Now, the airline is buying low. Long-time Aimia shareholders will emerge from this journey badly bruised. But Mr. Rovinescu’s tactics are good business.

Students of corporate deal-making may recall how TD Bank, a member of the Aimia takeover consortium, played capital markets to its advantage. In 1999, the bank raised $1.5-billion by spinning off a stake in its discount brokerage division, TD Waterhouse. The move gave TD Bank the capital it needed to buy Canada Trust the following year, a transformative deal.

By 2001, the dot-com bubble had burst, taking with it the premium valuation on discount brokerages. The parent bank bought back TD Waterhouse for a fraction of the price it had sold shares for, just two years earlier. TD Waterhouse shareholders complained, but at the end of the day, they sold. TD Bank’s bosses came out of the experience with a stronger company and burnished reputations.

Expect the same outcome as the Air Canada consortium stalks Aimia. The target company has hired lawyers and investment bankers, and its board will try to negotiate better terms. But there is no more motivated buyer for Aimia.

Selling Aeroplan marked the start of a terrific run at Air Canada for Mr. Rovinescu. At age 62, the CEO is in a position to make the airline even stronger by buying back the loyalty program.


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