|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
|Subject||Re: Tender price and possible take-out|
|Entry||04/03/2019 10:29 AM|
abcd - i'd just note that i believe the majority of mittleman's business is seperately managed accounts, so you really can't read to much into the transactions. they have been net sellers, but they have also bought shares YTD, which seems to suggest the buying and selling is business as usual for SMAs
|Entry||04/08/2019 08:53 AM|
range of $3.80 to $4.50 and "Mittleman Brothers has notified Aimia that it does not intend to participate in the Offer."
|Entry||04/08/2019 11:44 AM|
New to this name - so I may just be missing something - but I'm suprised to see no one referring to the 'insights and loyalty' business in their SOTP. This seems to be the biggest chunk of revenue and is burning substantial cash despite shrinking top-line. Any thoughts?
|Subject||Re: ILS Business|
|Entry||04/08/2019 01:30 PM|
in the words of jon taffer, "shut it down"
|Subject||Re: Author Exit Recommendation|
|Entry||04/10/2019 09:22 AM|
curious on the quick exit - were you expecting a higher range?
With the stock trading at $4.17 yesterday i have to imagine this will go off at the top of the range ($4.50). That is only 8% upside from recent trades, and I don't think arbs would be playing this for ~3% given the uncertainty on pricing.
|Subject||Re: Re: Author Exit Recommendation|
|Entry||04/10/2019 10:09 AM|
I was surprised the range was so wide, especially that the low end was below the undisturbed price. Also, I agree with you on expectation of pricing at the max but didn't think I could participate as a US investor given the withholding issues so as I wrote, this thesis was really about the pop, which was disappointing.
|Subject||Re: Re: Re: Author Exit Recommendation|
|Entry||04/10/2019 10:21 AM|
think i'm out of my depth here - i'm not sure exactly what you mean about not participating as a US investor given withholding issues? ty
|Subject||Re: Re: Re: Re: Author Exit Recommendation|
|Entry||04/10/2019 07:39 PM|
not a tax expert, and clearly not super familiar with canadian tenders, and recommend you speak with your tax advisor, but my understanding is that this tender will not be taxable because the funds behind the tender are the result of actions outside the course of ordinary business. in other words, they sold aeroplan, and are returning cash from that sale. situations such as return of capital following the sale of a division are not taxable under a carve out. i am sure we will get more details when the actual docs are made public (expected tomorrow 4/11) but i think we are good here.
|Subject||Re: Re: Re: Re: Re: Author Exit Recommendation|
|Entry||04/11/2019 04:33 PM|
Thanks for looking MJS. I'm not an expert either or super familiar but I'm not sure the return of capital idea is right. This looks like there's tax slippage because the tender proceeds are coming through as a dividend, despite being a return of capital. But, I'm with you that I'm far from an expert on this stuff.
A Non-Canadian Resident Shareholder who sells Shares to Aimia pursuant to the Offer will be deemed to receive a dividend equal to the excess of the amount paid by Aimia for the Shares over their paid-up capital for Canadian income tax purposes. Aimia estimates that the paid-up capital per Share on the date hereof is approximately $0.01 (and following the Expiration Date, Aimia will advise Shareholders of any material change to this estimate). As a result, Aimia expects that Non-Canadian Resident Shareholders who sell Shares pursuant to the Offer will be deemed to receive a dividend for purposes of the Tax Act. The exact quantum of the deemed dividend cannot be guaranteed. Any such dividend will be subject to Canadian withholding tax at a rate of 25% or such lower rate as may be substantiated under the terms of an applicable tax treaty. For example, a dividend received or deemed to be received by a Non-Canadian Resident Shareholder that is a resident of the United States for the purposes of the Canada-United States Income Tax Convention (the “U.S. Treaty”), is eligible for benefits under the U.S. Treaty, and is the beneficial owner of such dividends will generally be subject to withholding tax at a treaty-reduced rate of 15%.
|Subject||Aeromexico takes the gloves off|
|Entry||07/17/2019 01:36 PM|
From today's Aeromexico earnings release. The fun never seems to stop with this thing - I honestly can't recall a more turbulent situation in my career.
"PLM Grupo Aeroméxico discloses that, following the recent removal of the Chief Executive Officer of its 51.145% partially-owned subsidiary PLM Premier, S.A.P.I. de C.V. (“PLM Premier”), Grupo Aeroméxico has written to Aimia Inc. (“Aimia”), the holder of the other 48.855% of PLM Premier, and placed Aimia on notice regarding what Grupo Aeroméxico believes have been irregularities and potential breaches of the relevant contractual arrangements governing PLM Premier. Grupo Aeroméxico has advised Aimia that Grupo Aeroméxico will take all actions reasonably required to protect its interests and those of its customers including a full evaluation of all possible legal remedies available to Grupo Aeroméxico. Grupo Aeroméxico has also advised Aimia that, given recent events, Grupo Aeroméxico is re-evaluating all aspects of its customer loyalty strategy with a view, wherever possible in compliance with the relevant contractual arrangements, to minimizing reliance on PLM Premier going forward and ensuring a seamless transition away from PLM Premier as soon as possible in accordance with the legal rights and obligations of Grupo Aeroméxico and Aerovías de México, S.A. de C.V. Grupo Aeroméxico is ensuring that its customers will continue to receive outstanding services and loyalty rewards."
|Subject||Re: Re: Aeromexico takes the gloves off|
|Entry||07/17/2019 02:19 PM|
my guess is that Aeromexico realizes that the current board has a long string of disasterous divestitures that illustrates a defiency in understanding intrinsic value, and Aeromexico is thus likely to be able swindle them out of a fair price for PLM, whereas if Mittleman et al put in place a board comprised of grown ups, those grown ups might insist on fair value for the asset.
it is interesting to see this move though - and the previous firing of the PLM CEO - from Aeromexico shortly after Aimia CEO Rabe talked up how positive the relationship with Aeromexico was, and how Aimia was increasing their influence. At the very least I would say that this suggests that either 1) Rabe is out of touch with reality or 2) Rabe has been attempting to mislead shareholders since it seems like his go-forward plan with Aimia is tied to the dividends from PLM (if i remember correctly his stated goal is to be adjusted EBITDA breakeven inclusive of PLM dividends on a run rate basis by the end of 2020).
in my opinion, the fact that Rabe crowed about Aimia now having 3 board members on PLM when one of those board members was formerly the CEO of lala group, which is controlled by a guy who is on the board of Aeromexico suggests number 2. i mean, can Aimia shareholders really claim the guy as "their" board member when his former boss is on the board of Aeromexico? completely misleading in my opinion.
|Subject||Re: Re: Re: Aeromexico takes the gloves off|
|Entry||07/17/2019 02:37 PM|
I have no strong view - we are watching from the sidelines these days...
Aimia looked attractive, took her out a few times, but she turned out to be a pain the butt...fortunately, we met her smoking hot older sister, Air Canada, and got married.
|Subject||Re: interesting again|
|Entry||08/08/2019 05:11 PM|
Azia - many thanks for bringing this back to the front of the board. Can you please elaborate how you get to your '$50m until breakeven' cahs burn number? my impression (looking at recent filings but not being completely up to date) is that the legacy businesses (non PLM, etc) are still burning a lot of cash on a run-rate basis and it was unclear to me how those losses would be ameliorated...
as an aside they clearly caught lightning in a bottle w Cardlytics and the recent rally; assuming they sell shortly, do you know if they can use their NOLs to minimize/remove the tax hit on that stake?
this may seem intuitive but this seems like something that clearly works if Mittleman gets a new slate through but probably doesn't if the incumbents remain. how are you thinking about handicapping the likelihood that a) Mittleman moves to replace the current board; and b) that this approach finds favour with a majority of holders?
|Subject||Re: Re: Re: interesting again|
|Entry||08/09/2019 08:48 AM|
hi Azia - many thanks for the detailed thoughts (and also the link to the Mittleman letter, that was super helpful and contained a couple other names worth researching too!)
I don't disagree with much of your logic. I guess on the $50mm placeholder for neg cash burn until resolution, I would probably default to a higher number - cognizant that it doesn't change the NPV very much as you stated.
Having seen the Mittleman interview (as you said they seem clearly to be prepping a slate), and knowing how much of the co they now control (close to 25%), it does seem they have a good shot at taking control here. yes the legal suit is a delaying/set back but given the other shareholder outrage (domestic, in Canada) was on Mittleman's side, effectively, this is not a situation really where the (local) Canadian courts would side with the company to block an outsider coming in to take control (at least this is my impression). it may indeed delay the timeframe for resolution however.
actually the more i think about it, the bigger risk is perhaps the PLM/Aeromexico relationship being strained beyond fixing before this is all resolved. clearly current mgmt knows how to destroy value (!) and we would want Mittleman stewarding whatever gets done with that asset. have you assessed the merits of Aeromexico's claims re their ability to break the PLM contract early? how does this play into your valuation of the PLM asset (if at all) given that this is the vast bulk of the value left in the entity?
agree re CDLX (and hopefully they just decide to monetize that pronto).
overall it is very interesting even given all of the above - but I do wonder slightly what I'm missing given someone has been selling it down aggressively of late.