Analyst Note| Michael Miller |
We were not too surprised to see the board at no-moat Alliance Data Systems vote in favor of the proposed spin-off of the company’s LoyaltyOne segment into an independent, publicly traded company that will be called Loyalty Ventures. As part of the plan, current shareholders will receive 81% of the new company and Alliance Data Systems will retain the remainder, with the intention being to monetize the rest later. The spin-off means that ADS will lose its Air Miles business, the largest airline miles program in Canada, which we view as a relatively attractive asset due to its reliable cash flow and steady growth. That said, the plan will make the firm a consumer finance pure play, with only its credit card and buy-now, pay-later businesses remaining. ADS is in a weak position competitively and financially. As such, we expect the spin-off will benefit the firm in the long run as it will allow management to focus its attention and resources on its core businesses.