Aimia Inc. (AIM) gained the most in almost four years after Toronto-Dominion Bank (TD) agreed to replace Canadian Imperial Bank of Commerce as the main credit-card partner for the company’s Aeroplan loyalty program.
Aimia climbed 11 percent to close at C$15.40 in Toronto, the biggest jump since July 2009. Under a conditional agreement, Toronto-Dominion would become the primary card issuer for Montreal-based Aimia’s Aeroplan program starting Jan. 1, according to statements today from the companies.
“Investors don’t like uncertainty and there was a fear that perhaps we’d end up with no banking relationship,” Aimia Chief Executive Officer Rupert Duchesne said in a telephone interview. “That has been completely assuaged because we definitely have a deal, and it’s either with TD or CIBC.”
Canadian Imperial (CM), whose partnership with Aimia expires at the end of the year, has the right to match the terms of the new agreement by Aug. 9.
“Upon legal review, we have concluded that the notice and document provided by Aimia to CIBC appears to have been intentionally structured in a way that attempts to nullify CIBC’s right of first refusal and any ability to match,” the Toronto-based bank said in a statement. “Given the structuring of the document and our contractual rights, we are exploring our options.”
CIBC, the country’s fifth-biggest bank by assets, said in March that it’s exploring alternatives for its 22-year partnership that has made the CIBC Aerogold Visa the bank’s most popular credit card. Aimia, which owns and manages rewards programs including Nectar in the U.K., counts CIBC as its biggest partner.
Toronto-Dominion, Canada’s second-largest lender, would commit C$100 million ($96 million) to the loyalty program and agree to minimum annual miles purchases. Aeroplan’s loyalty partners include Air Canada, the country’s biggest airline.
“TD announced that it did not anticipate that the agreement would have a material impact on 2014 earnings, however, it remains positive on the outlook for 2015,” John Aiken, an analyst with Barclays Plc, said in a note. “Signing the agreement fits in quite well with TD’s strategy to focus on assets and should complement the growth of the MBNA card acquisition.”
TD agreed in August 2011 to pay C$7.5 billion to buy Bank of America Corp. (BAC:US)’s MBNA Canada unit to gain its MasterCard portfolio. That transaction was completed in December 2011.
Incremental spending from marketing and guaranteeing minimum purchases from Aimia won’t be “overly disruptive” to earnings, Aiken said.
Canadian Imperial rose 0.4 percent to C$75.31 and TD gained 0.6 percent to C$83.90. CIBC has slid 5.8 percent this year, the worst performer on the eight-company Standard & Poor’s/TSX Banks Index. TD shares have gained 0.2 percent and Aimia has climbed 3.6 percent.
TD is entitled to a C$80 million fee to cover costs if CIBC agrees to match the terms by the deadline, the Toronto-based lender said in a statement. Kevin Dove, a CIBC spokesman, and TD’s Ali Duncan Martin declined further comment.
Aeroplan began in 1984 as a promotional tool for business travelers on Air Canada. CIBC Aerogold Visa was started in 1991, according to Aimia. The card allows users to collect Aeroplan points for travel on Air Canada and get goods from retailers.
Aimia also has a pact with American Express Co. (AXP:US), and negotiations with the credit-card company are “proceeding in parallel,” the company said.
CIBC is Canada’s largest credit-card issuer based on total outstanding balances, according to an April 2013 issue of the Nilson Report, a credit-card industry publication. Toronto-Dominion is the second-largest.
Aimia also said it’s canceling a policy that put a seven-year expiry date on Aeroplan reward miles. The policy would have removed unredeemed miles from customer accounts starting Jan. 1.
“People were worried that that was going to cause a big run on Aimia’s cash flow at the end of the year,” Duchesne said. “Getting rid of that policy has taken that off the agenda, as well.”
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