Groupe Aeroplan to acquire Carlson Marketing

GROUPE AEROPLAN TO ACQUIRE
CARLSON MARKETING

COMBINATION CREATES THE WORLD'S LEADING LOYALTY MANAGEMENT PROVIDER

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MONTREAL, CANADA and MINNEAPOLIS, MINNESOTA, November, 3, 2009 - Groupe Aeroplan Inc. (TSX: AER), a leading international loyalty management corporation, headquartered in Canada, today announced that it has entered into an agreement with Carlson Companies, Inc. (CCI) to purchase Carlson Marketing, a privately-owned, US-based loyalty marketing services provider for a net purchase price of US$175.3 million (Cdn$188.0 million), including transaction costs of US$6.5 million (Cdn$7.0 million) and subject to certain working capital adjustments. In addition, Groupe Aeroplan expects to incur one-time costs of approximately US$15 million (Cdn$16.0 million), primarily related to the migration of technology infrastructure in the US out of CCI's systems. The acquisition is subject to customary closing conditions and standard antitrust approvals in the United States and Canada. The transaction is expected to close by early December 2009, and will be financed with cash on hand and bank facilities.

Carlson Marketing's solid US presence secures an important footprint for Groupe Aeroplan in the largest consumer market in the world. Moreover, the transaction provides Groupe Aeroplan with immediate geographic diversification and accelerates the company’s international expansion strategy into the G20 countries.

Carlson Marketing is widely recognized for its leading-edge global knowledge of loyalty marketing services, and engagement and events management. Carlson Marketing has strong client relationships, which include some of the world’s most respected brands in important sectors including financial services, automotive, high tech, consumer packaged goods and pharmaceutical. Carlson Marketing is truly global with a presence in North America, Europe, Asia Pacific and the Middle East, and over the last 18 months, has successfully positioned itself for growth.

"This acquisition is a logical extension for our company, as we diversify our business model to include a broader range of services within the loyalty management space in the US and internationally," said Rupert Duchesne, President and CEO of Groupe Aeroplan. "Acquiring a proven leader in the loyalty marketing space is the most cost effective and timeliest route to broadening our loyalty services offering. Carlson Marketing is widely recognized for their innovative thinking when it comes to understanding consumer behaviour, rewards and data analytics, areas that are pivotal to driving future growth in the global loyalty arena."

Groupe Aeroplan's businesses and Carlson Marketing will continue to operate separately and independently. Carlson Marketing's experienced and well-respected management team, led by President and CEO Jeff Balagna, will continue to run the operations. The two companies, with solid leadership and highly capable workforces, will benefit from leveraging intellectual capital across the entire corporation.

"This transaction is good news for the employees and customers of Carlson Marketing and a great opportunity for Groupe Aeroplan," declared Carlson President and CEO Hubert Joly. "It also frees up resources for Carlson that the company can deploy to accelerate the growth of its hotel, restaurant, and travel businesses at a time when significant opportunities exist in these markets."

"We look forward to joining forces with Groupe Aeroplan and significantly strengthening the scope of our loyalty marketing, program management, and engagement and event offering for customers, employees and distribution channels,” stated Jeff Balagna. "Together we become the world's leading loyalty management provider, able to offer a vastly-expanded network of loyalty marketing capabilities.”

"This acquisition makes good business sense," said Chief Financial Officer of Groupe Aeroplan, David Adams. "It will be immediately accretive to adjusted net earnings and free cash flow per share as Carlson Marketing is expected to generate positive free cash flow. In addition to substantially diversifying our revenue base, we will grow our consolidated top line by approximately 45% to over Cdn$2 billion. Through careful evaluation, we have concluded that this transaction truly represents a superior use of capital - even when excluding any potential synergies and including one-time transition costs related primarily to technology and infrastructure."

The Corporation will deploy a dedicated team, supported by external advisors, to pursue all forms of synergies and to identify potential collaborative initiatives to be rolled out over a period of 12 months.

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About Groupe Aeroplan
Groupe Aeroplan Inc. is a leading international loyalty management corporation. Groupe Aeroplan owns Aeroplan, Canada's premier loyalty program and Nectar, the United Kingdom's leading coalition loyalty program. In the Gulf Region, Groupe Aeroplan owns 60 per cent of Rewards Management Middle East, the operator of Air Miles programs in the United Arab Emirates, Qatar and Bahrain. Groupe Aeroplan also operates LMG Insight & Communication, a customer-driven insight and data analytics business offering international services to retailers and their suppliers. For more information about Groupe Aeroplan, please visit www.groupeaeroplan.com.

About Carlson Companies, Inc.
Carlson is a global hotel, restaurant and travel company headquartered in Minneapolis, Minnesota. Carlson brands and services include: Regent Hotels & Resorts®, Radisson Hotels & Resorts®, Park Plaza Hotels & Resorts, Country Inns & Suites By Carlson, Park Inn® hotels, T.G.I. Friday’s® and Pick Up Stix® restaurants, and Carlson Wagonlit Travel®. Carlson brands and services employ more about 150,000 people in more than 150 countries. For more information about Carlson, please visit www.carlson.com.

About Carlson Marketing
Carlson Marketing is the world’s leading relationship building company. Carlson Marketing designs and delivers loyalty, engagement and event programs for some of the world’s best known brands. Carlson Marketing’s two global service offerings – Brand Loyalty and Engagement & Events– are supported by six core capabilities: Strategy & Brand Planning; Creative and Communications; Decision Sciences; Award Services; Technology Services and Customer Service. Headquartered in Minneapolis, MN, Carlson Marketing has large regional offices in Toronto, London and Sydney. For more information about Carlson Marketing, please visit www.carlsonmarketing.com

Caution Concerning Forward-Looking Statements
This news release contains forward-looking statements. Such statements may involve but are not limited to comments with respect to Groupe Aeroplan's and Carlson Marketing's strategies, expectations, planned operations, future actions, anticipated financial performance and business prospects. Forward-looking statements, by their nature, are based on assumptions and are subject to important risks and uncertainties. Any forecasts or forward-looking predictions or statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business and its corporate structure. Results indicated in forward-looking statements may differ materially from actual results for a number of reasons, including without limitation, risks related to the business and the industry, Air Canada liquidity issues, dependency on top four commercial partners that purchase loyalty marketing services, including Aeroplan Miles, Air Canada or travel industry disruptions, airlines industry changes and increased airline costs, reduction in activity, usage and accumulation of Aeroplan Miles, retail market/economic downturn, greater than expected redemptions for rewards, industry competition, supply and capacity costs, unfunded future redemption costs, failure to safeguard databases and consumer privacy, consumer privacy legislation, changes to the Aeroplan and Nectar Programs, seasonal nature of the business, other factors and prior performance, regulatory matters, VAT appeal, reliance on key personnel, labour relations and pension liability, technological disruptions and inability to use third party software, failure to protect intellectual property rights, currency fluctuations, interest rate and currency fluctuations, leverage and restrictive covenants in current and future indebtedness, dilution of the Corporation's shareholders, uncertainty of dividend payments, level of indebtedness-refinancing risk, managing growth, as well as the other factors identified throughout the Management Discussion & Analysis on file with the Canadian Securities regulatory authorities. Material factors and assumptions that were applied in drawing a conclusion or making a projection or forecast are also set out throughout this document. We believe that the expectations represented by our forward-looking statements are reasonable, yet there can be no assurance that such expectations will prove to be correct. The purpose of the forward-looking statements is to provide the reader with a description of management’s expectations regarding the matters described in this news release and may not be appropriate for other purposes. The forward-looking statements contained in this discussion represent the Corporation’s expectations as of November 3, 2009, and are subject to change after such date. However, the Corporation disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.

Media Contacts:
Groupe Aeroplan:	Michèle Meier	514-205-7028	michele.meier@aeroplan.com
	JoAnne Hayes	416-352-3706	joanne.hayes@aeroplan.com
Carlson Marketing:	Mike Kust	763-212-1797	mkust@carlson.com
Carlson Companies Inc.:	Sam Macalus	763-212-2477	smacalus@carlson.com
Investor Contact:
Groupe Aeroplan:	Trish Moran	416-352-3728	trish.moran@aeroplan.com

Don Peppers responds

From Don Peppers: Just to clarify, what I said was that Coles (or any other retailer) should use a loyalty program primarily to bujild and maintain ongoing, one-to-one relationships with individual customers. Data is indispensable for this. Coles could continue with FlyBuys, but only IF the supplier were to make available to Coles all of the shopper data - and this is something I've been told either isn't possible or wouldn't be considered.

And yes, I was hired by Woolworths for a series of appearances this week and last. But I gave them the exact same advice more than two years ago. Whether my advice was influential or not, the fact is that they have now implemented a very good program. - @DonPeppers

"Coles Should Ditch FlyBuys" Loyalty marketing Guru Don Peppers

Loyalty marketing and customer strategy guru Don Peppers of the Peppers & Rogers Group described FlyBuys as ''trinkets and trash'' program that offers little value to the merchants or the shoppers. Peppers recommend that Coles Supermarkets in Australia exit FlyBuys and "get their own program".

Peppers & Rogers Group, which used to be a Carlson Marketing group company, introduced the marketing strategy of 1to1 10 years ago with their book "The One to One Future".

The Sydney Morning Herald reports on "Supermarket Sleuth" Peppers, who helped Coles competitor Woolworths with their new Qantas loyalty program partnership in Australia. Peppers readily admits that he is biased.

As we've discussed before - Peppers likens the supermarket and loyalty program battle that FlyBuys finds itself in to the experience of the UK market. Sainsbury's, who use a scheme similar to FlyBuys called Nectar, was overtaken as the leading supermarket chain in Britain by Tesco less than three years after Tesco launched its Clubcard scheme in the mid '90s.

Peppers said Coles should ditch FlyBuys and find a program that gives it control over customer purchasing data, otherwise it risks losing more market share to Woolworths.

''FlyBuys isn't the right program as they [Coles and teh other partners in FlyBuys] don't own the data,'' said Mr Peppers. ''It's just a trinkets and trash program. We pay you for loyalty and you know what, we don't pay you too much.''

The Sydney Morning Herald also reports [which we've discussed here] that Coles dumped the frequent flyer mechanism of FlyBuys this year so shoppers could accrue points and get discounts on their shopping.

Points expiry - short, long or evergreen?

One of the key questions we're asked when designing loyalty programs is - what should the life of the points be (or how quickly should they expire)? Our analysis frequently shows that performing programs with a three year points life generally perform as well as programs in which points are evergreen or never expire.

Research into a retail loyalty program by Yuping Liu, Ph.D presented at June's INFORMS Marketing Science Conference in Michigan USA ( http://www.yupingliu.com/wordpress/2009/06/15/loyalty-programs-and-crm-insights-from-marketing-science-2009-conference/) may have found a different trend. In a piece of research that looked at a single convenience store moving from no points expiry to monthly expiry and found that participation in the program as well as sales increased.

Consumers told - don't let your shopping rewards program change your behaviour

A news item on Australia's 9 Network titled "Free Shopping Rewards Programs in Australia" (http://www.youtube.com/watch?v=bcXux06jNBQ) carried some comment from industry watcher Cannex.

The item reviewed Myer 1, Woolworths Everyday Rewards (and their Qantas partnership) and the Fly Buys programs. Cannex was interviewed and advised viewers not to let the various programs they participate in change their shopping habits. Specifically Cannex was talking about not shopping for more than you needed or paying more than you should. Sound advice.

But the fact that these programs do indeed change shopper's habits, albeit it in slightly subtler ways. Clearly none of these program providers would want their customers to buy more than they need or pay over the odds.

They do though want customers buy what they need from their own stores (rather than a competitor's) and also they'd appreciate customers paying full price on as many items in the basket as possible. The more successful the program - the more frequently these two things will be happening.

A new 800lb gorilla in Australian Loyalty gets into grocery

For many years Fly Buys in Australia was held up as a shining example of a coalition loyalty program. Along with Aeroplan in Canada and Nectar in the UK, Fly Buys was the top of the coalition program foodchain in Australia.

Now it seems Qantas Frequent Flyer is challenging that position. This month Qantas has tied up a deal with Woolworths' Everyday Rewards Program. Customers who spend more than $30 can earn a Qantas point for every dollar they spend in store over the initial $30. Shoppers at Woolworths who are not Qantas members today can get membership free through Woolworths Everyday Rewards (an $80 saving). Going forward the Qantas points for spend offer will also be available at other Woolworths group stores.

Richard Umbers of Woolworths told The Australian Financial Review that 300,000 new customers had joined Woolworths Everday Rewards program in the first month - a 10% growth of their registered customer base.

Coles have run a gift card promotion recently which garnered them 78,000 new Fly Buys customers to their base of some 8 million - a 1% growth.

Interestingly - the May Coles gift card promotion cleverly delivered an "on us" shopping reward. Customers earned Coles gift cards whcih of course turn into more transactions in Coles rather than Fly Buys points which turn into rewards transactions across the network of Fly Buys participants.

Australian Food News observed "the Woolworths-Qantas announcement does raise the interesting prospect of a winged EveryDay Rewards offer versus a flightless FlyBuys".

What's the future for coalition programs?

Fly Buys in Australia is going through some changes as leading tenant Coles looks to take on its competitor's Woolworths tie up with Qantas Frequent Flyer.  Woolworths now has 2.7 million customers in its Everyday Rewards program while Qantas Frequent Flyer has 5.4 million members.  Their tie up is expected to come to market in the middle of 2009.

Woolworths customers will be able to earn points in the Qantas Frequent Flyer program.  The revamped Qantas Frequent Flyer program now offers more than just flights.  Since the middle of 2008, it has become a one stop shop offering merchandise, gift cards and experiences.for redemption.

 

In New Zealand, long time tenants of the Fly Buys coalition program Telecom and Ezibuy (who were part of the program when it launched in 1996) left the program in 2008.  Now Shell, which owns 25% of the Fly Buys company, is looking to sell it's stake along with 230 petrol stations and it's investment in the New Zealand refining Company at Marsden Point.  There are 4 shareholders of Fly Buys New Zealand; Shell, Foodstuffs (operator of New World), IAG (State Insurance and others) and BNZ. 

Arguably, Fly Buys customers spend more on food (Foodstuffs - New World) and more often than they spend on credit cards (BNZ) and insurance (IAG).  Even allowing for the host of other places customers might earn Fly Buys points, food purchases at New World must be a significant source of most customer's accrued points balances. 

New Zealand's other major supermarket group (about 50% market share) Progressive Enterprises has grown the chains at which it's competing OneCard earns discounts and points from Foodtown in the early days to incorporate Woolworths and now Countdown.   One of the potential buyers of Shell's quarter share in Fly Buys is none other than the owner of Progressive Enterprises - Woolworths Australia (according to ABN Amro Craigs broker Peter McIntyre on 14th May).

To keep this interesting, Shell New Zealand has the fuel discount offer (earn cents off per litre) with the Progressive Group.  

With such a lot happening to Fly Buys on both sides of the ditch, it's difficult to find any precedent globally that might be instructive for us.  The best I've been able to find is the long running battle between Tesco in the UK and it's rival Sainsburys.   

The Tesco Clubcard (the Grand Daddy of all grocery loyalty programs) might be likened to Progressive's Onecard program.  Points and discounts are earned by shopping in the store and convert to vouchers and coupons which the customer spends in the store.  New World's use of Fly Buys might be likened to Sainsbury's use of the Nectar loyalty program - a coalition program like Fly Buys. Points earned by shopping at any Nectar outlet convert to benefits like those in Fly Buys - gift vouchers, goods and other rewards.

Verdict Research in the UK believes that the Sainsbury's Nectar card has not worked well.  However their senior analyst Malcolm Pinkerton reckons with Tesco upping the stakes "That should change now"