ACE Shares Rise 5.6% on Milton's Spinoff Plans for Air Canada
bloomberg.com
May 10 (Bloomberg) -- "ACE Aviation Holdings Inc. shares rose 5.6 percent, their biggest gain in almost six months, after the chief executive officer said he may spin off Air Canada, which one analyst said would be worth C$2 billion ($1.82 billion).
ACE may spin off Air Canada, the country's largest carrier, because the parent company's stock price doesn't reflect the airline's value, Chief Executive Officer Robert Milton said in an interview published in the Globe and Mail today. His comments echoed those he made in a Feb. 10 call after reporting a fourth- quarter loss of C$103 million.
`If you take ACE's share price, and you take away Jazz and Aeroplan and other remnants of it, you get Air Canada basically for free,'' Research Capital Corp. analyst Jacques Kavafian said. ``Definitely separating Air Canada would unlock that value.''
Aeroplan rewards loyalty program represents about half the value in ACE's stock today, or about C$17.33 a share, according to Kavafian. Its Jazz short-haul airline is worth about C$8.67 a share and the maintenance division is valued at C$5 a share.
``Based on our estimates, we think the airline alone would be worth C$17.50 a share if it was trading separately,'' Kavafian said. ``It would be about a $C2 billion airline,'' he said.
ACE rose C$1.81, or 5.6 percent, to C$34.31 at 11:43 a.m. in trading on the Toronto Stock Exchange. It's the biggest gain since Nov. 24.
Sales of Businesses
Milton identified the Montreal-based parent company's Aeroplan rewards loyalty program, its Jazz short-haul airline and maintenance unit for sales last year because he said the Montreal-based company's stock didn't reflect the combined value of the businesses.
Since then, ACE has sold 25 percent of Aeroplan and 20 percent of Jazz Air as income trusts, which distribute most of their cash flow to investors. The Air Canada Technical Services maintenance unit, which Milton planned to sell this year, has been delayed.
``Dependent on the situation, dependent on the values, we would consider selling any or all of any of the companies,'' Milton said in the Feb. 10 conference call when asked if he'd sell Air Canada. ``Nothing will be ruled out if we believe it will enhance the value for the ACE shareholder.''
Kavafian, who doesn't own the stock, said an Air Canada spinoff may happen before a sale of ACE's maintenance unit, which lost C$12 million in the fourth quarter. Because that business isn't ``doing as well as they thought it would,'' any sale is likely to be ``far in the future.''
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