By Jonathan Spicer
TORONTO (Reuters) - Aeroplan Income Fund
The fund, which owns a minority stake in Air Canada's
"We here at Aeroplan are entering the next phase of our business cycle to become that global leader in loyalty management," Rupert Duchesne, the fund's chief executive, said on a conference call.
Aeroplan has previously said it was considering an acquisition worth about C$700 million.
However, the bulked-up trust will not attempt to set up a coalition program in the United States, Duchesne said, adding the right way into the massive U.S. market would be a joint venture with an existing airline which already has a points plan.
Units of Aeroplan were down 63 Canadian cents, or 2.7 percent, at C$22.37 in afternoon trading on the Toronto Stock Exchange.
The deal for LMG, which should close by the end of the year, is expected to add modestly to distributable cash in 2008. Including working capital adjustments of C$36.9 million, the purchase is worth a total of C$754.4 million.
The acquisition could spur the world's first publicly traded points firm to convert to a corporate structure from a trust, a move it has mulled it eyes new foreign markets.
"As we go forward and think about future deals, it would be much easier for us to do that as a corporation," Duchesne said. "It's something that we will be looking at very seriously over the coming months."
Aeroplan was spun out from Air Canada when the airline ran
into financial difficulties five years ago. Its parent holding
company, ACE Aviation Holdings Inc
The trust generates cash by selling points to merchants, who pass them along to consumers. Aeroplan then buys seats on Air Canada planes and trades them with consumers for their points, making a profit on the differential.
The trust's market value has more than doubled since its initial offering, proving that its maiden strategy of taking a points firm public has been "phenomenally successful," said Jacques Kavafian, analyst at Research Capital.
"If they can get their hands on another frequent flyer program, they'll do it," Kavafian said. "But it took them over two years to make this acquisition, so there's no rush."
Aeroplan said LMG, which owns the global rights to the Air Miles trademark, was the ideal acquisition.
The two programs -- Aeroplan and Nectar -- are expected to be operated independently, with Duchesne remaining president and CEO at Aeroplan and CEO Alex Moorhead and his executive team continuing at LMG.
The purchase price is subject to a holdback of C$64.8 million, which is subject to the outcome of Aeroplan's outstanding value added tax litigation.
Duchesne said Aeroplan's next steps would likely be into other European countries, and could also include growth prospects in Asia and South America.
"You'll find us focusing jointly on those opportunities before we take a big bet on the U.S.," Duchesne said. "The model is harder to play there -- we'll play it at the right point, but it's not the current priority."
Duchesne added the trust will likely have to add staff in Canada and elsewhere to deal with the next round of international ventures.
($1=$1.00 Canadian)
(Additional reporting by Scott Anderson and John McCrank; Editing by Bernadette Baum)
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