MONTREAL — Aimia Inc. has replaced its CEO and shaken up its board in a sweeping move to reinvent itself as a holding company that will see it shed its rewards programs and the bulk of its staff.
The board has appointed Philip Mittleman as interim chief executive, effective immediately in light of the "different skills" demanded by the sudden shift that follows a tumultuous year of shareholder unrest and litigation, the company said following its annual general meeting Wednesday.
Aimia, which sold its Aeroplan points program to Air Canada last year, said an ad hoc strategic review committee formed by the new board has opted to focus on long-term investments in public and private companies.
Aimia also announced it will spin off its money-losing loyalty points business in a merger with Kognitiv Corporation.
The agreement will see Aimia's Loyalty Solutions business join forces with the Waterloo, Ont.-based tech company to form a new entity called Kognitiv. Aimia will provide $21 million in funding and Kognitiv investors will furnish $14 million, leaving the new holding with a net value of $525 million, Aimia said.
"It's not like Aimia had some huge track record of success acquiring loyalty companies. We wanted to expand our horizons, and in the process it just so happens that we found Kognitiv, which had incredible cost and business synergies with our loyalty businesses," Mittleman said in a phone interview.
The deal, expected to close by May 29, will send roughly 430 of Aimia's 450 employees to work under the new banner, leaving Aimia with just 20 full-time staff, he said.
The entity could start to break even on adjusted earnings next year, he said.
The board overhaul at Wednesday's AGM — held virtually — was sparked by a group of dissident shareholders last year.
After a drawn-out fight over control of the company, the two sides settled on a deal in November that marked a partial surrender by Aimia to Mittleman and a faction led by shareholder Charles Frischer. Mittleman —Aimia's new CEO and largest shareholder at 26.95 per cent — was locked in a court battle with the firm while Frischer, who now sits as Aimia's chairman, had sought to overthrow half of the eight-member board.
All seven directors voted to the board Wednesday are new except for Mittleman.
“For the first time we've seen every director buy stock on the open market in sizable amounts," he said.
Under Rabe's watch, which lasted just under two years, the Montreal-based outfit sold its flagship Aeroplan business back to Air Canada — 14 years after the carrier spun it off — for $516 million, leaving it with significant cash on hand but also questions about its future amid months of turmoil over its leadership.
The company continued to rely on investments in a pair of foreign loyalty programs to keep earnings out of the red over the past year. Operating expenses far outpaced revenues, with the loyalty business operating at a loss of more than $110 million over the past two years. Meanwhile Rabe earned $4.2 million in 2019.
"It had a history of burning cash," Mittleman said of Loyalty Solutions.
Despite an operating loss of more than $20 million, the firm stayed in the black through its 48.9 per cent stake in PLM — which runs Aeromexico's Club Premier loyalty program — and its 20 per cent share of AirAsia's Big Loyalty program operator, Biglife.
With the COVID-19 pandemic pummelling the airline industry, PLM now expects “materially lower” earnings in 2020, Aimia said.
Aimia currently has about $265 million in cash and liquid investments, the company said.
It has also signed an agreement to buy Mittleman Brothers LLC, a New York-based investment firm run by Aimia's new CEO and his brother Christopher, who will join his sibling on the board when the deal closes. Christopher will also become Aimia's chief investment officer, his current role at the eponymous boutique.
Aimia will pay the Madison Avenue firm — which manages more than US$200 million in assets — US$5 million in cash on top of four million shares, with roughly 2.67 million of those held back for performance-related targets, the company said.
Aimia shares rose more than 13 per cent or 28 cents Wednesday to close at $2.49 on the Toronto Stock Exchange.
This report by The Canadian Press was first published April 29, 2020.
Companies in this story: (TSX:AIM, TSX:AC)
Christopher Reynolds, The Canadian Press