Aimia says TD, CIBC compromise eliminates uncertainty for Aeroplan cardholders

TORONTO – TD Bank Group, Canadian Imperial Bank of Commerce and Aimia Inc. have reached a compromise covering the Aeroplan loyalty credit cards that handle billions of dollars worth of transactions annually.

As a result of the agreement, each bank will have rights to half the portfolio of accounts that offer their customers loyalty points that can be exchanged for airline tickets and other goods through Aimia’s flagship Aeroplan program.

“I think you’ll agree that this is really a very strong outcome for all parties concerned,” Rupert Duchesne, group chief executive for Aimia, told analysts after the announcement on Monday.

“Being with two leading credit card providers, and what that will do to drive immediate growth for us, is very encouraging. It will also take out any uncertainty for credit card holders.”

He said every Aeroplan credit card holder will carry on earning miles seamlessly for the rest of this year and through next year.

“And that is a great asset of this deal,” Duchesne said.

TD said it expects to acquire approximately 550,000 cardholder accounts from CIBC, representing approximately $3 billion in card balances and $20 billion in annual retail spending.

CIBC will retain the half of the portfolio that includes Aerogold customers with broader relationships with the bank, which has been the primary Aeroplan credit card issuer for more than 20 years.

The three companies have been in negotiations for weeks, following Aimia’s decision to pick TD as the primary issuer of Aeroplan Visa credit cards for a 10-year term, starting Jan. 1, 2014.

CIBC objected to the decision and the three parties agreed to seek a compromise agreement.

Aimia says about $312.5 million will be paid to CIBC for the shift of half its Aeroplan cards portfolio to TD, with Aimia (TSX:AIM) funding about $150 million of the payments.

TD (TSX:TD) will pay $162.5 million, including $50 million when the deal closes. The rest will be paid over three years — about $37.5 million annually.

CIBC (TSX:CM) also said it plans to introduce its own travel loyalty rewards card.

Desjardins analyst Michael Goldberg said CIBC’s agreement to sell 50 per cent of its Aeroplan customers to TD will ultimately lower its ongoing earnings per share by about 45 cents. TD’s earnings per share are expected to increase by just 15 cents, Goldberg said, due to the higher-than-expected cost of the acquisition.

“It is a complex agreement that removes the overhanging threat of litigation and involves a fairly significant upfront payment from TD and Aimia to CIBC,” Goldberg said in a research note.

Goldberg said CIBC will retain about 630,000 credit card accounts, representing $2.8 billion in credit card balances and $18 billion in annual retail spending.

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