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Report on Business Aimia sues biggest shareholder, escalating board battle after Aeroplan’s sale

Aimia Inc. is suing its biggest shareholder in a major escalation of the boardroom battle that has erupted since the company sold the Aeroplan loyalty program to Air Canada late last year.

On Monday, Montreal-based Aimia filed a lawsuit against Mittleman Brothers LLC, which owns 24 per cent of the company, alleging the New York-based investment fund breached a standstill agreement. Aimia is seeking $50-million in damages and also wants to prevent Mittleman from launching a proxy contest to replace board directors before the company’s next annual general meeting in 2020.

Mittleman has “deliberately and repeatedly breached their obligations under a standstill agreement … whereby they agreed to support Aimia, its strategic direction, and board,” Aimia alleges.

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The lawsuit is the latest salvo in a fight between Mittleman, which now has one seat on Aimia’s board, and the company’s management team and other board members. At its core, the battle is over who will determine the company’s future.

A major source of tension between Mittleman and Aimia is the question of how the company should proceed now that it has sold Aeroplan, its major asset, and has more than $475-million in cash and short-term investments on the balance sheet.

The standstill agreement dates back to March 23, 2018, when Mittleman was first attempting to shake up Aimia’s board and management team. At the time, the loyalty program provider’s share price had plummeted after Air Canada announced plans to pull out of Aeroplan, because Aeroplan contributed about 80 per cent of Aimia’s operating earnings.

To prevent a heated proxy fight, Aimia agreed to give Mittleman two board seats and to also rework its management team by installing Mittleman’s preferred candidate, Jeremy Rabe, as chief executive officer. In return, Mittleman agreed to the standstill agreement.

The agreement expired on July 1 and, in the weeks since, Mittleman has publicly stated it is putting together its own slate of directors to be nominated to the board. The fund also wants Aimia to pursue acquisitions outside the loyalty rewards industry.

Aimia has fired back by adding two directors to its board last week, even though the company held its annual meeting at the end of June and these meetings are the traditional venue for electing directors.

Mittleman is run by Chris and Phil Mittleman. In one alleged instance of breaching the standstill agreement, Aimia’s lawsuit claims that on July 12, 2018, Chris Mittleman e-mailed Mr. Rabe to lay out a vision for company that included making Aimia “a permanent capital vehicle” for Mittleman, redomiciled in Delaware.

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In an interview, Mr. Rabe said the e-mail concerned him. Even though he had been Mittleman’s hand-picked CEO, “I’d never heard any of those things before,” he said. “From that day, I realized I couldn’t support the Mittleman brothers’ agenda to take over the company for free.”

In its lawsuit, Aimia alleges that Chris Mittleman wanted to be appointed executive chairman of the board and his brother Phil appointed as executive vice-chairman. Aimia says they also want Aimia to commit to investing US$200-million into an existing private fund managed by their investment firm.

“The claims are baseless; we will vigorously defend and we will publicly respond more fully soon,” Mittleman Brothers said in a statement.

After Air Canada launched a hostile bid for Aeroplan and secured a deal to buy the loyalty rewards plan in the summer of 2018, Aimia alleges Phil Mittleman e-mailed the rest of the board and suggested Aimia acquire Intralot USA, the U.S. lottery operations of a Greek company, even though “Aimia had no lottery business or gaming expertise, nor any plans to enter this business.”

Aimia alleges Mittleman was the second-largest shareholder of Intralot’s parent company and “sought to have Aimia prop up its investment.”

Aimia board chair Bill McEwan said in an interview that the company “had no choice but to go forward with a statement of claim” in order to “illuminate for all shareholders” the strategy that Mittleman is allegedly pursuing.

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Pushing back, Mittleman took aim at Aimia’s board in its statement. “This is a board which has been at odds with Aimia’s former major business partner (Air Canada), its current major business partner (Aeroméxico), its former president, its largest shareholder and yet another group of concerned shareholders. None of these disputes have benefited the business or its owners. Maybe it’s time for a board which can work co-operatively with business partners and shareholders,” the firm said.

“The only damaged parties here are Aimia’s shareholders as ever more cash is diverted by this board from operations to frivolous lawsuits to counter legitimate shareholder concerns, protecting no stakeholder except for the directors and CEO,” Mittleman added.

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