|Shares Out. (in M):||152||P/E||0||0|
|Market Cap (in $M):||456||P/FCF||0||0|
|Net Debt (in $M):||0||EBIT||0||0|
Thesis Summary: Aimia has successfully completed the sale of their Canadian business (Aeroplan/Aimia Canada) and has paid down all of its debt. As a result, they have C$600m of unrestricted cash on their balance sheet and reported on their new plan last Thursday, March 28th. As part of this announcement, they disclosed that they plan to initiate a tender offer of up to C$150m CAD by mid-April, with the completion of this offer occurring by end May. Mittleman Brothers (“Mittleman”) has provided their SOTP in the Q4 letter and their NAV is C$7.82/share, significantly above the current share price of C$3.99. Given Mittleman’s involvement (they own 18% of the shares and have a Standstill Agreement (“Standstill) in place through July 2019) as well as Laughing Water’s recent board letter on March 27, 2019, I expect Aimia will need to tender substantially above the current share price in order to complete this tender.
Re-introduction: Aimia was first written up in 2013 and has subsequently been written up in ’16, ’17, and ’18. The original thesis was a focus on the NOLs of the business and has changed to become an activist situation with a board fight.
Activist recap: Mittleman Brothers (“Mittleman”) first became involved in 2017 and entered into a Standstill in March 2018. As part of this, Mittleman selected two nominees (Philip Mittleman and Jeremey Rabe) and added a third, independent nominee, Brian Edwards. Jeremy Rabe then became CEO of Aimia in May 2018. Per the Standstill, (https://www.sedar.com/GetFile.do?lang=EN&docClass=35&issuerNo=00027127&issuerType=03&projectNo=02744787&docId=4281534) Mittleman is restricted until July 1 of this year and until then, they’ve agreed to vote entirely with management. However, their original analysis shown here in their Q2 2018 letter (https://www.docdroid.net/5kBJvGL/mittleman-brothers-q2-2018-letter.pdf#page=4 ) focused on a transaction, with Aimia either selling off their individual businesses to capture the sum-of-the-parts or selling the business in its entirety. In their Q4 letter (https://www.valuewalk.com/2019/02/mittleman-brothers-4q18-clear-media/ ), Mittleman highlighted their SOTP value at C$7.82/share, which doesn’t given Aimia any credit for their NOLs. Given the price is currently C$3.99, the company needs to offer a meaningful premium to current prices in order to incentivize Mittleman and others to participate in the tender.
Last Wednesday, Laughing Water Capital wrote a letter to the board (https://web.tmxmoney.com/article.php?newsid=8932180817296562&qm_symbol=AIM ) suggesting that the non-Mittleman board representatives resign in advance of the upcoming AGM. In this letter, they highlight that these board directors would have failed to receive the necessary majority votes without the Mittleman required votes. As a result, they posit that Mittleman will likely call a special election in July and remove these directors.
Tender: On Thursday of last week, Aimia announced their plan to focus on consolidating the loyalty industry instead of a plan to realize the SOTP. However, they also announced, via their presentation (https://www.aimia.com/wp-content/uploads/2019/03/Aimia_Q4-2018-Highlights-FINAL.pdf ), that they plan to initiate a tender offer up to C$150m (25% of the shares outstanding) by, “mid-April” and that they expect the offer will expire, “before the end of May 2019.” Given the short timeline to the announcement, the contentious nature of the board, the soon to expire Standstill Agreement, and the activist focus, Aimia is incentivized to offer a meaningful premium to the current share price in order to successfully complete the repurchase of these shares.
Risks: The most immediate risk is that management go off the rails and announces a large acquisition. In addition, a large double digit+ broad market decline in the next two weeks could cause Aimia to delay the tender. Longer term, the biggest risk is that the company continues with their legacy of squandering their excess capital.
- Company initiates a tender offer in the next two weeks at a meaningful premium to the current share price
- Company receives a takeover bid over the course of 2019 to capitalize on the ~C$800m of NOLs that are currently in place
- Mittleman Standstill Agreement expires in July 2019, which would all Mittleman to hold a special election and potentially focus on selling the company