Wow, I can say that we did not see this one coming! I’m mean we all knew that some agreement had to be reached between Aimia (Aeroplan’s parent company), CIBC and TD Canada Trust. We knew that CIBC wanted to keep half of the credit card portfolio, primarily those people that have other banking products with CIBC but it was assumed those people would be moved to another CIBC credit card product. But it looks like CIBC must have pushed Aimia and TD hard because as I had stated in numerous interviews, what is going to keep those people staying at CIBC from getting a TD Aeroplan credit card anyway? Well by issuing an Aeroplan credit card is what is going to keep those people! Here is a snippet of the press release that came out this morning from Aimia:
Aimia Secures Strong Future Positioning of Aeroplan under 10-year Agreements with TD and CIBC
Montreal, Quebec, September 16, 2013 – Aimia confirmed today ten-year financial credit card agreements with each of TD Bank Group (TD) and Canadian Imperial Bank of Commerce (CIBC), effective from January 1, 2014. TD will become Aeroplan’s primary financial services partner and credit card issuer, under an amended version of the agreement announced previously, while CIBC will also continue to be an issuer of Aeroplan credit cards. Aimia also announced entering into a purchase agreement with TD and CIBC, under which TD will acquire approximately half of the current Aeroplan card portfolio and CIBC will retain the balance, comprised of Aeroplan cardholders who have broader banking relationships with CIBC.
Both banks will offer members an enhanced suite of Aeroplan Visa credit cards to include more earning options and benefits than ever, including exclusive Air Canada benefits, in addition to the ground breaking changes to Aeroplan with Distinction benefits to be launched in January 2014 for all Aeroplan members.
“The agreements we are announcing today with TD and CIBC will put real momentum behind the transformed Aeroplan program we will launch in January and provide a strong and stable platform for growth in the Canadian business,” said Rupert Duchesne, Group Chief Executive, Aimia. “Having these agreements in place will also preserve the financial flexibility to invest in the growth opportunities we might see for Aimia over the next few years.”
Terms of the New Financial Credit Card Agreements
The terms of both the new 10-year financial credit card agreements include:
· a more than 15% increase in price per mile to align to market levels; and
· more comprehensive collaboration around data and customer insight analytics.As disclosed in June, the TD agreement specifically provides for:
· a $100 million upfront contribution payable by TD to Aimia in 2014 to help fund program enhancements; and
· a joint marketing spend commitment of around $140 million funded by TD and Aimia over 4 years to support new cards and new program features.The TD minimum miles purchase commitment has been updated to a five-year volume commitment based on miles purchases by TD and CIBC. These payments, in aggregate, could be up to $95 million.
Features of the new credit card offerings to be introduced by the banks during 2014 were announced on June 27, 2013. TD will market its cards through a wide range of TD, Aeroplan and mass market channels, with CIBC using its proprietary channels to market to CIBC customers.
“Partnering with two of Canada’s leading financial institutions will be a market changing outcome for Aeroplan which will strengthen our leadership position,” said Vince Timpano, President and CEO, Canada, Aimia. “As a result of these unique agreements, Aeroplan members have a lot to look forward to in 2014 – not only will we be offering an exciting new suite of credit cards, January also marks the launch of Distinction, our innovative recognition program, and Market Fare Flight Rewards will provide members with even more seats at great value. With these ground breaking changes, Aeroplan will continue to be able to deliver the fastest path to the flights and experiences most valued by premium Canadian consumers.”
Aimia, TD and CIBC are committed to ensuring that members stay informed throughout this process and that any transition will be easy. A tri-party marketing campaign will be launched shortly to provide Aeroplan members and cardholders with the information they need to know for the transition to new cards in 2014.
Regardless of whether members will transition to a new card, all Aeroplan Miles that members accumulate through the end of 2013 are deposited into their Aeroplan accounts and are not tied to their current credit card.
Terms of the Purchase TransactionTD, CIBC and Aimia have also entered into an agreement in connection with the purchase by TD of approximately half of the Aeroplan credit card portfolio from CIBC. Pursuant to this agreement, CIBC will retain the remaining 630,000 Aeroplan accounts held by its existing banking customers. At June 30, 2013, the portfolio to be acquired by TD represented approximately: $20 billion of purchase volume, 550,000 accounts and $3 billion of credit card receivables outstanding.
An aggregate amount of $312.5 million (plus the par value of the related credit card receivables outstanding) will be paid to CIBC for the conveyance of approximately half of its Aeroplan cards portfolio to TD as well as other related arrangements. Pursuant to these agreements, Aimia will fund $150 million of the payments payable to CIBC.
Cardholders in the CIBC portfolio may choose to migrate to TD and vice versa. Depending on the net migration of Aeroplan-branded credit card accounts between CIBC and TD over the next five years, TD, Aimia, and CIBC have agreed to make additional payments of up to $400 million. Aimia will be responsible for – or entitled to receive – up to $100 million of these payments.
CIBC will also work with TD under an interim servicing agreement to effect a smooth transition of the customers moving to TD, allowing members to keep accumulating Aeroplan Miles.
Legal and Closing Conditions
In conjunction with the agreements being announced today, CIBC has also agreed that, upon closing of the transaction contemplated by the purchase agreement, CIBC will fully release Aimia and TD from any potential claims in connection with TD becoming Aeroplan’s primary financial credit card issuer.
The Aimia and CIBC financial credit card agreement includes an option for either party for an early termination after the third year of the agreement if certain conditions related to the migration of Aeroplan credit cards in CIBC’s retained portfolio to other CIBC credit cards are met.
The parties currently anticipate that the purchase transaction will close before the end of 2013, subject to obtaining certain regulatory approvals and satisfaction of other closing conditions customary in transactions of this nature.
The really winner in this deal is Aimia/Aeroplan as they stand to retain all the members in the current CIBC Aeroplan credit card portfolio (approximately 1.18 million cardholders according to the numbers above) whether they stay with CIBC or move over to TD. TD is losing more case in the deal as they now have to pay CIBC $162.5 million but they should be able to make that up over the years from merchant fees, interest and annual fees.
Ultimately this is good news for the current CIBC Aeroplan cardholders as they now have the option to choose to migrate to TD and vice versa. It does appear from the press release that with TD being the primary issuer they will be the ones advertising the Aeroplan cards to masses while CIBC will only be able to advertise to own clients (proprietary channels) which means TD should get the majority of any new Aeroplan credit card applications.
The next question that needs to be answered, is what will the TD card offerings look like? Will they be stronger than CIBC’s or will both banks issue cards that are equal to each other in order for CIBC to retain their 50% of the portfolio? Only time will tell.
What are you thoughts on this latest development? Will you stick with CIBC now that will continue to issue Aeroplan cards or will you move to TD if the card(s) have a stronger offering?