The two rival banks and Aeroplan operator Aimia Inc. (TSX:AIM) have agreed to continue talks and are aiming to have a definitive compromise by Aug. 26, about 2 1/2 weeks after a Aug. 9 deadline for CIBC to match TD's offer.
CIBC (TSX:CM) said Monday that it's willing to have TD buy the half of the Aerogold portfolio whose clients only have credit cards, but it wants to keep the half held primarily by clients with broader banking relationships.
"In the event an agreement is not reached, CIBC retains its rights to exercise its legal options under the provisions of its existing contract with Aimia," CIBC said in a news release.
Story continues below slideshow
CIBC has said previously that the proposed agreement with between Aimia and TD Bank (TSX:TD) fails to honour the existing 10-year credit card agreement which expires Dec. 31. CIBC argues that the deal with TD was structured in a way that "nullifies CIBC's right of first refusal and ability to match."
Montreal-based Aimia says CIBC's assertion is "without merit" and it is prepared to "vigorously defend" itself from any claim made by CIBC.
However, it said the three parties will "work vigorously to try reach agreement, complete due diligence and finalize definitive documentation by Aug. 26."
"We are delighted to confirm TD as our new financial credit card partner. TD is a leading financial institution with a strong Canadian retail and global banking franchise that shares our customer-centric vision for Aeroplan and that is committed to building the program with us," stated Aimia CEO Rupert Duchesne.
"We are confident that the strength of the transformed Aeroplan program will drive increased engagement and market share among premium Canadian consumers."
TD, parent of TD Canada Trust as well as a U.S. retail banking network, said its will offer Aeroplan customers more choice and grow its premium travel segment.
"The co-branded Aeroplan credit cards will complement TD's already strong line-up of cards, and allow our customers to select from an even wider range of options for earning great travel rewards," stated Michael Rhodes, executive vice-president, North American Credit Cards and Merchant Services.
With TD, Aeroplan Visa holders would be able to select from three levels of credit cards — enhanced premium, premium and mid-market — each with different benefits and mile earn rates. TD said it expects to provide a credit card for U.S. residents and a credit card for Canadian small business owners.
TD has said the Aeroplan arrangement would not have a material impact on its 2014 earnings but would make "a solid contribution to 2015 earnings."
"TD does not expect a significant change in that outlook as a result of the proposed deal but will provide additional disclosure if an arrangement is reached," it stated.
John Aiken of Barclays Capital described CIBC's potential sale to TD of customers with only Aerogold credit cards as a "common sense" approach that should benefit both Canadian banks.
"We believe that this should defray some of the retention costs anticipated to be incurred by CIBC as it can focus on retaining the customers it has a more fulsome relationship with," he wrote in a report.
"For TD, it alleviates some of the risk that current Aeroplan card holders will move to an alternative platform as it will likely make the transition much more seamless."
Aiken doesn't believe the sale will reap a significant premium because TD likely believes it can successfully attract those Aeroplan Visa customers to switch providers.
CIBC hasn't disclosed the number of cardholders or the outstanding balances associated with its Aeroplan card.
"While we view the potential sale of this 50 per cent of the portfolio as an incremental positive, given that the likelihood of retention would have been a challenge, CIBC is still faced with the $50 million expenditure to develop the new card offering, with additional marketing and retention costs after the new cards are issued. As well, the lost revenues from the potential portfolio sale will still weigh on the bottom line," he added.
Drew McReynolds of RBC Capital Markets added there would be "considerable uncertainty" about the outlook for Aeroplan if there is a prolonged legal battle.
The switch to TD will re-position Aeroplan for renewed growth over the medium term, but he said transition risk remains under terms of the potential deal among the three parties is announced.
"While we understand CIBC is seeking to keep Aerogold rights for its retained Aerogold portfolio (a positive for transition risk, in our view), what remains to be seen is how these (or any other) rights obtained by CIBC would impact the overall economics for Aeroplan under the June 26th agreement with TD," he wrote in a report.
It has been known for some time that Toronto-based CIBC and Montreal-based Aimia were in for some hard bargaining as they approached the end of their current 10-year agreement.
On the Toronto Stock Exchange, Aimia's shares gained 31 cents at $15.61 in Monday morning trading. CIBC shares were up $1.45 at $78.36 while TD stock gained once cent at $86.67.