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Blackstone and the Caisse de dépôt et placement du Québec are leading the deal, which values the Aeroplan program at $10-billion.Mike Blake/Reuters
Air Canada AC-T is selling a 25-per-cent stake in its Aeroplan loyalty program for $2.5-billion to Blackstone Inc. and a group of Canadian pension funds, bolstering the airline’s balance sheet by allowing it to pay down debt.
Blackstone and the Caisse de dépôt et placement du Québec are leading the deal, which values the program at $10-billion. Other investors include the Public Sector Pension Investment Board and British Columbia Investment Management Corp.
Air Canada is keeping control of Aeroplan’s day-to-day management, and plans to use proceeds from the sale to repay $1.7-billion of bonds that will soon mature, and to buy back $800-million in shares through a tender offer to shareholders in September.
The transaction is expected to close on Aug. 17, and from five to eight years from that date Air Canada will have the right to buy back the investor group’s minority stake.
The deal assigns a value to the Aeroplan program, which gives travel and merchandise rewards to more than 10 million active members, that exceeds Air Canada’s total market capitalization, which ended Tuesday at $7.4-billion.
It also keeps the program under Canadian control, while giving pension funds and Blackstone a chance to receive distributions from Aeroplan.
For Blackstone, the deal follows a recent trend of large-scale investments in large, blue-chip corporations. Those companies are looking for “customized capital solutions,” as Blackstone chief financial officer Michael Chae described them in a July earnings call, which allow companies to raise an infusion of cash without giving up control of key assets or infrastructure.
Last year, Blackstone led a similar consortium of investors that included Canadian pension funds in buying a minority stake in some wireless telecommunications infrastructure owned by Rogers Communications Inc. RCI-B-T for $7-billion.
“Blackstone is a long-term believer in Canada as both a compelling place to invest and serve clients,” Mark Rutledge, a senior managing director at the asset manager, said in a statement.
The Caisse’s head of private equity and private credit, Martin Longchamps, said in the same statement that the deal shows the pension fund’s ability to offer “tailored capital solutions” to companies, and serves as a “diversification opportunity for our global portfolio.”
Canada’s largest pension funds have been under pressure from political leaders and senior business executives to invest more in Canada, as Ottawa seeks to expand the country’s trade relationships and reduce its economic dependency on the United States.
Air Canada’s sale of its Aeroplan stake “showcases the exceptional value created since its acquisition,” the airline’s chief financial officer, John Di Bert, said in a statement.
Air Canada acquired Aeroplan in 2018 from another loyalty program provider, Aimia Inc., for $450-million and assumed what was then a $1.9-billion liability for unredeemed points. The airline subsequently struck lucrative partnerships with Toronto-Dominion Bank and Canadian Imperial Bank of Commerce to be its financial partners, offering Aeroplan credit cards.
Air Canada’s share price finished Tuesday up 5.9 per cent at $27.27, before the transaction was announced.
The investment banking arm of Bank of America Corp., law firm Stikeman Elliott LLP and consultants Deloitte LLP advised Air Canada on the transaction. Blackstone was advised by Bank of Nova Scotia, U.S.-based law firm Kirkland and Ellis and Canadian law firm Blake, Cassels & Graydon LLP.