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CIBC, AIMIA win big in workout of Aeroplan program with TD

Today, Aimia announced that CIBC, TD and Aimia have agreed on a go forward plan that would see CIBC sell its non-relationship Aeroplan credit card accounts to TD, and then have the ability to retain the right to offer an Aeroplan credit card to its customers. TD would then convert the non-relationship Aeroplan accounts to a TD Aeroplan account and have the exclusive right to mass-market the Aeroplan program.
Other than renewing a deal with Aimia on a below-market deal, this is one of the best possible outcomes for CIBC and Aimia. It gives CIBC the ability to retain some of its most valuable cardholders, retaining close to 500,000 accounts, and continue to market the program to its customers. While they did sell their non-relationship accounts at a little over par, when considering the anticipated attrition and cost of retention, had CIBC not come to agreement with TD, it seems like a completely appropriate valuation range.
For Aimia, they’ve achieved all of their stated goals. They have significantly increased the distribution opportunities of the credit card, received more revenue per point, $100M signing bonus and revenue certainty int he form of contractual guarantees. Aimia now has Aeroplan being marketed to the entire customer bases of TD AND CIBC, as well as through mass market channels by TD and Amex. Now all they have to worry about is renewing their agreement with Air Canada and ensuring their loyalty program remains relevant and attractive in the face of increasing competition and loyalty alternatives. They have some money to play with now.
For TD, the jury is out. They did pick up about half the portfolio, and we assume there are a significant number of non-CIBC relationship high transactors in their acquired accounts, which they picked-up at a below market valuation. We also assume, they’ve done the analysis, which demonstrated that the cost of peace was cheaper than the cost of war. That said, not sure if they new the cost of war when they made their binding offer to Aimia to begin with.
One theory, is that TD got into something they did not know how to fully extricate themselves from once they made a binding offer to Aimia. It wouldn’t be far-fetched to assume CIBC threatened extended litigation if TD did not agree to some form of co-opetition. Not that TD ended up in a bad place. They did end-up with Canada’s crown jewel travel program. But it wasn’t the TKO they were expecting to deliver to CIBC.

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