Aimia sues largest shareholder over alleged breach of contracted truce

Aimia Inc. has filed a lawsuit against its largest shareholder that accuses the dissident investor of violating a contracted truce, the latest move in a battle over control of the company’s board of directors.

The loyalty rewards company said in the lawsuit filed Monday that Mittleman Brothers LLC agreed in March 2018 to a number of terms, including to refrain from seeking control of the board. However, it claims the New York investment firm, which owns 23.3 per cent of Aimia shares, began violating the terms almost immediately.

Aimia board chairman Bill McEwan said in an interview that the lawsuit provides a way to tell shareholders the full story about what Aimia’s board sees as an attempt by Mittleman to take over the company.

“We think the statement of claim is legitimate, appropriate, the right time, and provides us with a platform to illuminate all of the shareholders on the real intentions of the Mittleman agenda that we strongly believe do not represent the interests of all shareholders.”

Mittleman began to accumulate shares of Aimia in 2017 after Air Canada said it would not renew its partnership with Aimia’s Aeroplan business. Aimia sold the Aeroplan business to Air Canada earlier this year for $450 million, leaving it with significant cash on hand but also questions about its future.

The 2018 “standstill” agreement, which expired at the start of July, saw Mittleman agree to support Aimia’s board slate in 2018 and 2019 and refrain from advocating publicly for changes. In exchange, Mittleman was given two board seats at Aimia.

In the lawsuit filed with the Ontario Superior Court of Justice, Aimia accuses Mittleman of continuing to advocate for radical change at Aimia throughout the truce, and attempting to orchestrate a covert campaign to encourage other shareholders to withhold their support for Aimia’s nominees at the 2019 annual meeting.

Christopher Mittleman, chief investment officer of the investment firm, said in an emailed statement that the legal claims were baseless and the lawsuit is “appalling in its wastefulness and reprehensible for its falsities.”

“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.”

He said the firm will vigorously defend itself and respond more fully soon.

A separate group of shareholders has raised objections to how the company conducted its annual meeting and have called for it to be done again.

The group, dubbed Aimia Shareholders for Accountability, said the chairman refused to conduct votes or take questions and allowed security guards to intimidate shareholders who attempted to speak, with one being “forcibly” removed.

At the time of the meeting, Mittleman Brothers was subject to the standstill agreement with Aimia that required it to vote in favour of Aimia’s director nominees and all other matters recommended unanimously by the board, the investment firm said. However, it noted that without its assent, nominees aside from Phil Mittleman would not have received support from the majority of shares voted.

Mittleman warned that Aimia should not assume continued support following the standstill agreement, which ended July 1.

Aimia’s legal action seeks to prevent Mittleman from taking steps to remove or replace directors at Aimia that were elected at the 2019 annual meeting, as well as asking for $50 million in damages.

The lawsuit comes days after Mittleman publicly objected to how Aimia appointed two board members just weeks after the annual meeting, where new board members are routinely elected.

Mittleman said the company did not consult it on the appointed directors, who increase the board size by a third, seemingly at odds with the company’s previously stated goal of reducing the board from nine members to six to cut costs.

McEwan said the late appointments were simply a result of not having enough time to vet all board candidates before the meeting.

“There was no effort to get around shareholder democracy,” he said.

Aimia also launched a lawsuit in U.S. court earlier this year against its former president, alleging Nathaniel Felsher emailed trade secrets to his father, a New York-based investment adviser.

The past two years have been turbulent for the Montreal-based company. Rupert Duchesne, Aimia’s previous CEO, stepped away from the job in January 2017, replaced by Jeremy Rabe in May 2018. Former president and chief strategy officer Nathaniel Felsher left in November, less than three months after he took the job.

Aimia’s other assets include a 48 per cent stake in Aeromexico’s loyalty program, PLM, and a 20 per cent share of AirAsia’s loyalty program, Think Big.

-With files from Christopher Reynolds

Companies in this story: (TSX:AIM)

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