When Air Canada announced that it would drop Aeroplan and start a new frequent flyer program, Aimia (the company that owns the Aeroplan) saw its stock fall from about CAD$8.80 down to as low as about CAD$1.50 per share.

Activist shareholders replaced Aimia’s leadership, and they quickly announced aggressive plans to offer a competitive program that might continue to be attractive to customers. That gave the stock a bit of a bounce. But when Air Canada made their offer to buy the Aeroplan program from Aimia, Aimia’s stock shot up.

Overnight we learned that,

• Air Canada (and financial partners) had upped the offer for Aeroplan from $250 million plus assumption of liabilities to $325 million.
  
• Aimia rejected the offer, seeking $450 million.
  
• Aeroplan would have a deal with Canada’s Porter Airlines for earning and redemption once their Air Canada tie-up expired

So what’s happened to the stock this morning? Despite news of ‘no deal’ at the deadline Air Canada had set, the stock is up. And shares are higher not because Aimia has a deal with Porter and its turboprops. The market learned that Air Canada, CIBC and TD were willing to raise their price.

Prior to market open I wrote “my view of probabilities will be heavily influenced by what happens to AIM shares” this morning. And they’re up, rather than crashing. I view the move as ‘more money but also pricing in a little more risk’.

Since the initial spike the stock backed off a bit but still up materially since open. We should be within the zone of possible agreement here. The offer for Aeroplan would give Aimia as much cash as the company’s entire market cap prior to the offer, and Aimia would still own 49% of Aeromexico’s program.

The market seems to believe that the deal is still far more likely than not and that if it occurs it will be more valuable to shareholders than initially thought. New information could change all of this, but based on what we know now it sure seems like a deal will occur.