AIM.TO - Aimia

[movys]

Things heating up.

 

Imminent submission of 5% requisition demand for a special meeting by the other group of shareholders with a slate of 4 new directors.  Company then has 140 days to call the meeting (late Dec / early Jan).

 

Mgmt would be replaced and loyalty business shut down asap.

 

Only question is why give this interview before doing it and give mgmt a heads up?  Do it first, then start the PR blitz.

 

https://www.bnnbloomberg.ca/company-news/video/ceo-jeremy-rabe-needs-to-go-aimia-shareholder-charles-frischer~1757536

[mateo999]

CEO Jeremy Rabe needs to go: Aimia shareholder Charles Frischer

 

https://www.bnnbloomberg.ca/company-news/video/ceo-jeremy-rabe-needs-to-go-aimia-shareholder-charles-frischer~1757536

[Cigarbutt]

^I'm not sure what to think of Mr. Frischer. He sounds like a short-term-minded activist which is not, by itself, necessarily a bad thing but I would like to hear more about  the alternative(s) when he says 'something' has to be done.

 

It seems to me he's still in the gathering-forces period and the interview may have been pre-emptive, in the sense, for instance, of potential developments referred to in the interview (short segment starts at 4:01) when he describes that, "over the weekend", he heard that the looking-for-further-entrenchment management was in "discussions" to sell 25% of the company to an "investment firm". That sounds very much like what wabuffo described vs the potential preferred to common 'swap'. So, mostly conjectures but Mr. Hamdami could possibly negotiate temporary support in exchange for an interesting and opportunistic entry point into non-stranded ownership.

[movys]

This is, indeed, very fascinating.  If Frischer had knowledge of an internal plan to swap the preferreds for common, I'm not sure he would've used the phrase "sell 25% of the company." 

 

Does anyone understand what limitations there are around such a transaction?  Does the prospectus of the preferreds even allow for such a swap?  Would mgmt need agreement of 100% (or some lower threshold) of preferred holders?  Do common holders have to approve something so dilutive?

 

Even if something like this were possible, I'm skeptical this would be in Mamdani's interest.  He would then be a common shareholder of a company with an even more deeply entrenched mgmt team whose interests would no longer be aligned with his own, making a quick liquidation and, by extension, an closure of the gap between the current price and fair value even less likely.  Sure, Mamdani would get "liquidity," but liquidity in a security suddenly likely to be worth less isn't necessarily good, especially when he would have a very hard time exiting the investment without crushing the stock on his way out.

[wabuffo]

This is, indeed, very fascinating.  If Frischer had knowledge of an internal plan to swap the preferreds for common, I'm not sure he would've used the phrase "sell 25% of the company." 

 

He was awkward and stiff during the interview.  He also used hyperbole and stretched his language - like saying his action was being undertaken "by Canadians for Canadians " because his wife is Canadian and his kids dual-citizens while teleconferencing in from Seattle.  LOL.  Let's be honest - he's trying to mobilize shareholders to his side - "sell 25% of the company" (cue ominous music) is better for him to say than "equity exchange in liquidation-value neutral swap".  He wouldn't be the first activist to try to scare shareholders in order to win them over.

 

Does the prospectus of the preferreds even allow for such a swap?

 

The prospectus that I looked at allowed Company management to pay preferred dividends in common shares, in lieu of cash.  It didn't explicitly say that they couldn't redeem the preferred in common shares.  But how far of a stretch is it to redeem the preferred in common shares, in lieu of cash, if they can do it for the dividends.

 

Even if something like this were possible, I'm skeptical this would be in Mamdani's interest.

 

Why not?  If his preferreds can get redeemed in exchange for common shares at something close to par value ($25 per share), when they are currently trading at ~$18, why wouldn't he take the deal (or a deal for a portion of his preferreds).  He's smart and probably agrees that at current prices, the common shares he gets in exchange are likely undervalued. 

 

Mgmt could easily "sell" this idea to current shareholders by explaining:

 

        1) that there is no loss or dilution because total equity (preferreds valued at par + common at fair mkt value) doesn't change, and

        2) it stops a cash drain in the form of the ongoing preferred dividends. 

 

I'll admit, when I heard Frischer's comment, I too, like CB, thought "Mamdani!"  Of course, we don't know what's going on - but I haven't had so much fun with one stock in a long time.  It's never boring being an AIMIA shareholder! (and I again am one now  :( )

 

wabuffo

[movys]

Why not?  If his preferreds can get redeemed in exchange for common shares at something close to par value ($25 per share), when they are currently trading at ~$18, why wouldn't he take the deal (or a deal for a portion of his preferreds).  He's smart and probably agrees that at current prices, the common shares he gets in exchange are likely undervalued. 

 

Mgmt could easily "sell" this idea to current shareholders by explaining:

 

        1) that there is no loss or dilution because total equity (preferreds valued at par + common at fair mkt value) doesn't change, and

        2) it stops a cash drain in the form of the ongoing preferred dividends.

 

Yes, but that analysis assumes Aimia's share price will be unchanged after such a transaction is announced, and that is a big assumption.

[Pref User]

This is in the prospectus (it won't let me post an image), Page 9 of the Series 3 prospectus, it is also in the Series 1 prospectus as well.

 

"Shareholder Approvals as a Class

 

Subject to applicable law, any approval of amendments required by law or by the articles of the Corporation in respect of the rights, privileges, restrictions and conditions attaching to the Preferred Shares, as a class, and any other approval to be given by the holders of Preferred Shares, as a class, may be given by a resolution passed by an affirmative vote of at least two-thirds of the votes cast as duly called and held meeting of the holders of the outstanding Preferred Shares. At any meeting of holders of Preferred Shares as a class, each such holder will be entitled to one vote in respect of each Preferred Share held." 

 

I interpret this like this, RBC guy can go to the board and say pay me face value in common and I will vote for you. They instantly would get series 1 & 2 because RBC has 71% of the outstanding, series 3 only 55% so other preferred shareholders would need to get on board too. But why wouldn't they,  series 3 around 18 and they instantly get par at 25 in more liquid security and could participate in the upside. The NAV slightly changes because there are more shares to split the pie with. RBC guy would love this because liquidity is huge for him, the most liquid preferred share would take him a year to sell out of where the common it would take half a year. RBC guy could also take a beating on the common share price and be better off. I've done the math on the dividend-adjusted cost base and the RBC guy could have the common share price cut in half and still be breakeven on the investment, which i think he would be happy with since sweating so much on what's been going on and his thesis breaking.

 

Aimia would love this too because they would carry the day no problem. I recalculated the last vote switching Mittleman over and all of the preferred shares convert to common but only the RBC guy votes for the management.  The person with the least votes for would be Mittleman with 54% of the vote if that helps give you an idea.

 

Wabuffo is right, this could be the backdoor dealing that management does to protect themselves.

[wabuffo]

Wabuffo is right, this could be the backdoor dealing that management does to protect themselves.

 

Its very diabolical.  >:(

 

If they don't do it to entrench themselves, then mgmt is even stupider than I thought (a low bar to begin with).

 

wabuffo

 

[Cigarbutt]

^You may want to consider the possibility that, in addition to the entrenchment issue, management may want to strengthen their negotiating position vs Aeromexico.

 

They are defining a very credible threat (against Mr. Mittleman and opportunistic Aeromexico) and the dilution issue could be lessened by a redemption cash component coming form monetization of Cardlytics.

 

The big question is to determine if the dumb or the shrewd part will prevail. I continue to think that a negotiated and reasonable exit for all remains the best option.

[movys]

^You may want to consider the possibility that, in addition to the entrenchment issue, management may want to strengthen their negotiating position vs Aeromexico.

 

They are defining a very credible threat (against Mr. Mittleman and opportunistic Aeromexico) and the dilution issue could be lessened by a redemption cash component coming form monetization of Cardlytics.

 

The big question is to determine if the dumb or the shrewd part will prevail. I continue to think that a negotiated and reasonable exit for all remains the best option.

 

Could you elaborate on how a preferred/equity swap constitutes a threat to Aeromexico and strengthens Aimia's negotiating position?

[Cigarbutt]

^You may want to consider the possibility that, in addition to the entrenchment issue, management may want to strengthen their negotiating position vs Aeromexico.

 

They are defining a very credible threat (against Mr. Mittleman and opportunistic Aeromexico) and the dilution issue could be lessened by a redemption cash component coming form monetization of Cardlytics.

 

The big question is to determine if the dumb or the shrewd part will prevail. I continue to think that a negotiated and reasonable exit for all remains the best option.

 

Could you elaborate on how a preferred/equity swap constitutes a threat to Aeromexico and strengthens Aimia's negotiating position?

The underlying assumption implies that Aeromexico wants to repatriate the loyalty unit and then the Air Canada playbook is the most helpful reference point. I assume the buying decision will be influenced by their own capital flexibility, by the amount of cooperation thay they may get from partners (Delta or credit card issuers) AND also the vulnerability of the prey.

The substance of the preferred shares, in this specific case, is defined by a fixed income nature, a potentially permanent status, a tax-potentiated dividend, a disproportionate position in the equity structure and basically are majority-held for voting purposes.

 

During the Air Canada saga, both Air Canada and Aimia defined and reported a plan B in order to maximize the outcome of plan A: the change in ownership of the Aeroplan franchise. I would submit that what Aimia did (real and potential partnerships with Porter, Air Transat, One Alliance and others) came with real costs (8.6M termination fees according to purchase documents) but the real and projected investments in plan B were worth it.

 

This time around, if Aeromexico has any wherewithal to go ahead, I would say the price paid will be in correlation to the perception of how long Aimia could wait before letting go of the crown jewel. The described swap could go a long way in building a structure made to last and could allow Aimia to play hard to get, to a certain degree.

 

In the summer of 2018, things started to really get going when Aimia made it clear that it was ready to go separate ways. At the time, I thought it was somewhat reckless but, in retrospect, I now think that it was the right thing to do.

https://nationalpost.com/pmn/news-pmn/canada-news-pmn/newsalert-aimia-porter-airlines-form-new-aeroplan-points-partnership

 

Yogi Berra would have said, considering decision-making: When you come to a fork in the road, take it.

[wabuffo]

CB - great analysis.

 

I would only add that these negotiations are always described as two-way (between the airline frequent flier point issuer and the loyalty company that owns the program).  But in reality its a three-way and must include the banks whose credit cards are tied to the program.  The banks have invested hundreds of millions to sign up credit card customers and get their card to the front of the wallet.

 

The front of wallet credit card position is the most valuable position to be in for a bank (especially with high-spend consumers who correlate with frequent flier travellers).  The bank gets most of the spend fees charged to merchants and a portion of the interchange fees (along with some interest income from consumers who run a balance).  But most importantly they also get very low delinquencies.  Where you don't want to be as a bank is in the second or third position credit card in a consumers' wallet.  You get little spend and oversized delinquencies (because a consumer will start to use this card when they're maxed out on the front-of-wallet card) - making these cards losers for the banks.  That's why banks really pay up for these 'pole-position' cards.  They are hugely profitable for the banks because consumers really use them to the max.

 

What I never see discussed is that the loyalty company kind of holds the banks hostage because unless a deal happens the consumer's points are stranded.  This is a winner for the loyalty company because they can gate and devalue the points if they are going to lose the airline agreement.  This buttresses CB's point about staying power.  If you are in the loyalty business, you must view the deferred revenue as float and ensure that you are allocating this capital wisely in order to build up a pool of investment assets with high returns.  When you arrive at these negotiation points in the loyalty contracts, you are in a strong position like Buffett was with Blue Chip Stamps.

 

But a torn up loyalty contract is disastrous for the banks.  Their credit cards are taken hostage and their bank customers are pissed.  The banks then have to replace the loyalty card with marketing spend to retain their customers (though many of their former customers will be lost to competitor cards as other banks poach them in the FUD created by the broken deal).  Thus, the banks have the most to lose AND the most money available to broker a deal.  AIMIA needs to make them the pinata in the Aeromexico dispute.

 

Right now, AIMIA has to do two things:

1) Demonstrate staying power in terms of balance sheet strength, (something they didn't do during their absolute panic after the AC/aeroplan announcement - ie, cutting a common dividend days after they announced a record date for it).

2) Willingness to walk away from a deal and burn down the points via gating and devaluation.

 

It is point no 2 that puts them in a weaker position here than in the Aeroplan negotiations.  They don't have control of the PLM structure.  PLM and Banco Santander/AMEX could negotiate a wind-down deal for PLM that Aeromexico could force onto AIMIA.  AIMIA would then get liquidation proceeds in 2030 when the PLM structure is liquidated using the cash proceeds from the "sale" to Aeromexico and the banks of the Club Premier program.  Meanwhile Aeromexico would get their share of the PLM liquidation equity plus payments from the banks for taking on the transferred loyalty points balances.

 

Might this be an ok deal for AIMIA?  If I were Aeromexico and its banks I would paint the financial picture (chart of dividends to 2030 and final liquidation) and let AIMIA figure out the NPV of what would be equivalent net proceeds today. 

 

So just for giggles, let's model it. 

 

I'll use $20m USD of dividends every year from today to 2030.  Then I figure Club Premier (and its deferred revenue liability) gets purchased from PLM for $300m USD (using AC's purchase of Aeroplan as a benchmark) in 2030 and ignore liquidation costs (severances, leases, executive plan windups, etc).  Aimia gets 49% of that and let's discount the cash flows at a 7% rate.  I get a DCF of $220m USD - which is what I have currently plugged into my Net Liquidation Asset Value model.  You might argue $300m is too low for PLM - but remember Aeromexico would make the same argument as Air Canada - its actually $300m USD plus the assumption of maybe a billion USD of points liabilities.

 

wabuffo

[Cigarbutt]

^OK, let's walk through the wind-down deal that you are proposing as a potential alternative.

 

Loyalty programs in general (not in the airline industry) often fail and are then stopped or put in run-off but voluntarily winding down what appears to be such a growing and profitable program would be very unusual, especially 11 years before potential expiration. From reported numbers, all aspects of the loyalty program seem to show positive results: customer acquisition, retention, wallet share of relevant spenders, customer insight about behavior and preference, quite predictable and recurring cashflows as well as market-leading position.

 

-Notwithstanding the legal aspect, would the PLM program be stopped immediately or phased out slowly?

Stopping now seems to be a no-go from the start. Aeromexico could initiate their own program from scratch (sounds like a risky and expensive alternative, with additional risks of losing customer loyalty) or could? transition to another existing program such as the Delta loyalty platform, raising the possibility of an easier transition for the customers but the transition would likely be over within 2 or 3 years, at the most, given the typical half-life of points and the awkwardness related to having two concurrent programs. Also, this 'strategy' means that all relevant commercial partners and merchants as well as the financial partners would go along... The customers could continue to redeem old points but would need to accumulate points or miles with the new program. I don't see how starting winding down PLM now could last until 2030. If 2030 is the deadline, this wind-down scenario may start to apply around 2027. In the meantime, incentives seem to be aligned for continued profitable growth. There would be a price linked to early killing of the goose that lays the golden eggs.

 

-The legal aspect has uncertainty because shareholders' agreements are complex and subject to interpretation and litigation in this case would involve many jurisdictions, including Mexico. But I suspect that Aimia has secured basic transfer restrictions for both the operations and ownership. When siamese twins are separated, it sometimes means that one of them has to die. The dying siamese twin does not decide and cannot ask for reparation. But Aimia can. This was, after all and in substance, a joint partnership agreement with so-called joint control.

 

I agree that Aimia should not be blindfolded to the fact that Aeromexico could use the proceeds of an early piñata fiesta.

[wabuffo]

Perhaps - I didn't explain the scenario fully.

 

1) Aeromexico makes a decision today that at the end of the contract with PLM in 2030, it will not renew and, instead, Aeromexico will terminate/let expire the contract with PLM for the Club Premier program. 

2) It informs PLM that starting in 2030 after the contract expires, it will operate its own in-house program that will replace Club Premier.  It will respect the contract til then and will not take any actions to initiate its own in-house program until two years prior to the expiry date.

3) As a consequence, starting in 2028, Aeromexico will transfer its voting rights in PLM (but not its economic rights) to AIMIA. 

4) Aeromexico offers as an alternative that it will negotiate a possible transaction with PLM/AIMIA in order to purchase the Club Premier program, trademark and its points liabilities.  This is the reason for transferring its voting rights to AIMIA - so that it is not conflicted during the negotiations.  Its votes are AIMIA's to vote on any deal.

5) If the two parties can reach a deal (which includes a transfer of Club Premier as well as a liquidation plan for PLM), then this is the preferred option.  If not, the two partners will own a loyalty company with no airline affiliate and AIMIA can maintain its ownership of Aeromexico's voting rights (though Aeromexico continues to maintain its economic stake). 

6) Under a no deal scenario, Aeromexico sees its ownership stake in PLM fall in value.  But it benefits from the one-time cash inflows that come from rebuilding the deferred revenue liability to steady-state and negotiates one-time significant payments from the credit card companies who are bailing from PLM.  In my mind - either option A (deal) or option B (no deal) offer similar cash economics to Aeromexico.

 

This is basically a replay of Air Canada's attempt - but on a slow motion track.  I think this is why Aeromexico is threatening legal action against the current contract and also making noises about starting up its own in-house frequent flyer program.  If Aeromexico follows the plan laid out above, they don't breach the current contract and are within their rights to terminate the deal at the end.  But in this approach they retain ownership rights and get to share in the liquidation of PLM while being in a position to buy out the Club Premier assets/liabilities like Air Canada did. 

 

This approach also squeezes AIMIA hard because Aeromexico doesn't have to buy out PLM (which was the assumption all along by the bulls). Instead Aeromexico creates a situation where they buy the asset and take on liabilities (which cost pennies to the dollar to them vs accounting value) and don't have to pay much for it.

 

I think this would be a hardball approach and I think it would work towards getting lower expectations from AIMIA in terms of a deal today.  If not, Aeromexico would just follow the plan laid out and endure a frosty partnership til 2030. 

 

I'm trying to envision how I would play the situation if I was Aeromexico's lead on negotiations....

 

wabuffo

[Cigarbutt]

...

I'm trying to envision how I would play the situation if I was Aeromexico's lead on negotiations....

wabuffo

I see what you mean and am just (temporarily) trying to think like the negotiator on Aimia's side.

Basically you're discounting a bearish base case scenario for expected cash flows including a terminal value that would correspond to an entity put in run-off while glossing over transition operational costs and risks that Aeromexico would have to face in 10 years, maintaining in the interim a joint structure with a partner to whom you just explained what the partnership is really about.

 

I see the picture and the problem with the airline anchor partner but still prefer the Aeromexico scenario over the Air Canada scenario. I wonder if Air Canada was not better prepared (already had a small in-house program, had worked with the Aeroplan intangible assets under their corporate umbrella before and they still put aside the positive cashflows coming with a new program and transferred a mountain (even if discounted) of deferred liabilities). I also submit that the distant 2030 deadline increases the odds that present valuation, if applicable, will involve an input related to present free cashflow generation and growth in the interim. If I were the Aimia representative facing such a position now, I would tell the Aeromexico partner to re-evaluate the PLM ownership situation in two or three years (don't call me, I'll call you) and would then speak to the CFO to strengthen the balance sheet. :)

[Pref User]

I think the one thing wabuffo you should consider is that I believe I read on the Aeromexico call that their bank and credit card contracts are up for renewal in 2025. This could possibly allow Amerixco to wait to breach the contract or void it much sooner than 2030, as Aeromexico breaks the deal and they then negotiated with banks and card companies to start something in 2026. 

 

Wabuffo I agree with what you wrote about the front of the wallet comment in Canada, but I think for Mexico it would be different. Canada is a saturated market with only two competitors in travel, so screwing over the Aeroplan customers and the banks in Canada would have been bad and plays into what you wrote. But in Mexico, this could just be a temporary blip on the radar and not be an issue in the long run. I couldn't find income level by population data to say how big the market is for the loyalty card, but with a country of 130 M or so and a growing middle-class thesis like all emerging economies I don't think pissing off the 6.5M members right now would be that bad when evaluating just breaking away. As well consumers are really short term minded and in a couple of years could switch over to whatever the new Aeromexico program is.

 

The other thought going back to my opening comment, if Aeromexico negotiates a deal to leave with the banks in 2025 and PLM is left stranded the margin of safety to at least realize some value is US airlines. US airlines have actually been stealing share domestically and internationally from Mexican airlines. Aeromexico is the biggest and I am guessing people flock to them because of their international reach compared to peers, making a US loyalty partner very attractive to Mexican members for the same reach, again assumption we'll have to see. The international reach is what made Aeroplan so attractive to members in canada.

 

Also I agree that converting the preferred shares over would help with negotiating power. From my simple cash burn model in 2021 if there is no preferred dividend and the taxes related to in, then the cash flow turns slightly positive. With a no cash burn scenario like everyone is saying Aeromexico loses its position of power. My only counter to this is that my estimates are slightly positive but with the PLM dividend, so if Aeromexico cuts the dividend off then Aimia would be back in a cash burn scenario and change the power back to Aeromexico.

 

A final thought in this ramble, if the value of PLM is capped around $250 M USD is everyone scared that management and whoever takes over Aimia is wasting money on buybacks? The buybacks to me essentially are long out of the money call options on the company, and what we know about options most expire worthless. I put the share right around fair value at these prices, which means at 152M shares they were over paying, yes I know they had excess cash then and it changes somethings, but I get it is fairly valued right now on a $250 M USD PLM. I think a lot of people have a flaw in their NAV with BIG loyalty, again i wish i could post images, go look up Air Asia's annual report for 2018. In December 2018 Air Asia bought a 10% chunk of BIG from another owner to increase their ownership to 80%, the transaction valued  BIG at $120 M USD, if you are using Mittleman's valuation of $80 M USD you are really overstating the valuation in your NAV. Based on this recent transaction for BIG Aimia's stake is worth $24 M, and maybe you say they pay a control premium and you can boost it up to $40 M. The overall effect on your NAV for the shares is a $0.50/share swing in valuation.

 

 

[Cigarbutt]

https://corp.aimia.com/news/

I would say a step in the right direction.

 

[movys]

I'm surprised they couldn't get the shares off at a price closer to the current quote, but this is definitely a positive.  Balance sheet even stronger now.

 

I continue to think Aeromexico has much less flexibility than they are being given credit for.  Wabuffo's point about this really being a 3-way negotiation is spot on, and the reality is that the banks are highly unlikely to go anywhere.  The banks have spent millions acquiring these customers and they are highly profitable for the banks (someone has to pay for the miles given away when you get a new credit card).  If banks were to cancel the relationship with Club Premier and move those customers to another loyalty program, the banks would become liable for the deferred liability to their customers when they cancel the Club Premier points.  Banks do not want to pay twice for the points they've issued and they do not want to deal with lawsuits for refusing to issue new points.

 

Imagine you're a customer with a Banco Santander PLM credit card and your bank tells you that you now have a Banco Santander platinum card.  So you call Santander and ask what happened to your PLM points.  Well, you still have them over at PLM and you can spend them, but you don't have enough for a flight and you have no way to earn any more to get the flight.  So your 2 options are leave those points stranded (which most people won't do) or don't spend on your new platinum card and instead get a new PLM card with its new bank partner so you can keep accumulating PLM points. 

 

I think what's getting lost here in all the analysis about how Aeromexico can "break" the contract early is that while it may be easy to get people to sign up for a new card, it is well nigh impossible to get them to actually put that new card in the “front of wallet” position for spending. The average PLM customer has been with the program for several years now, and their default credit card for all online and recurring purchases is PLM.  It’s inconvenient to earn points through more than one program as it is harder to ever earn enough to get any rewards.  No one wants to leave stranded rewards when switching cards and there are practical inconveniences in switching cards.  Therefore, it’s highly doubtful that Aeromexico can build its own new program without spending an enormous amount of capital (which they don't currently have) over a long period of time.  And they are even less likely to successfully target existing PLM members for the reasons stated above.

 

This is why when a loyalty program changes, the bank either gives new points equal to the existing points (huge added expense of moving a program) or the banks don't move in the first place.

Remember how TD came in with the Aeroplan card for CIBC holders when they took over the card base?  TD probably would have preferred their own redemption option, but it was impossible if they wanted to keep the cardholders.  Same deal here.

 

So...adjusting for all the post-quarter activity (completion of NCIB and CDLX monetization) and the C$65m restricted cash release expected any time now from the CRA tax audit, Aimia now effectively has C$400m in cash on their balance sheet, or C$3.66/share vs a C$3.25 stock price.  In addition, they still have 1.5m CDLX shares currently worth another C$0.62/share.

 

So we now have:

current px - 3.25

shs - 108.5m

equity - 353m

 

PF cash - 398m

remaining CDLX value - 68M

preferred - (317m)

 

Total observable value excluding PLM / Think BIG Digital / NOLs - 148m

 

implied value of PLM / Think BIG Digital / NOLs - 204m

 

Let's call Think BIG Digital a zero even though it has 16m members.

 

At Aimia's 48.9% stake, an implied value of 204m grosses up to 314m USD for all of PLM.  I think this figure is absurd given the difficulties / complexity of Aeromexico trying to "go-it-alone."  It's even more absurd when you consider the fact that Aeromexico and Aimia agreed to a valuation of $518m USD for PLM when Aimia increased their investment back in 2012, when membership in the program and gross billings were half of what they are now.  Indeed, there were rumors in 2015 of Aeromexico planning to IPO PLM at a valuation of $1B.

[movys]

Also, Wabuffo...in your liquidation scenario for PLM (20m USD in divs from 2020 - 2030 plus add'l 300m in 2030) I get pv of $300m at a 7% discount rate, not that I think that approximates fair value... 

[wabuffo]

Also, Wabuffo...in your liquidation scenario for PLM (20m USD in divs from 2020 - 2030 plus add'l 300m in 2030) I get pv of $300m at a 7% discount rate, not that I think that approximates fair value... 

 

Movys - the $300m terminal value in 2030 is the total net liquidation assets.  Its split between the equity holders, so in my analysis, AIMIA gets 48.9% of the $300m (~$147m).  Sorry about the confusion. 

 

wabuffo

[movys]

Also, Wabuffo...in your liquidation scenario for PLM (20m USD in divs from 2020 - 2030 plus add'l 300m in 2030) I get pv of $300m at a 7% discount rate, not that I think that approximates fair value... 

 

Movys - the $300m terminal value in 2030 is the total net liquidation assets.  Its split between the equity holders, so in my analysis, AIMIA gets 48.9% of the $300m (~$147m).  Sorry about the confusion. 

 

wabuffo

 

ok that's clear, thanks.

[wabuffo]

AIMIA really took a haircut in order to sell CDLX, eh?  Not including today, average price of CDLX since the last earnings release (12 trading days) was $33 per share.  If I take the numbers from the press-release ($44.9/1.5m shares), they got $29.93 per share.  That's a 10% "liquidity" discount that needs to be factored into the "fair market value" of the last tranche to be sold. 

 

wabuffo

[movys]

I agree it's surprisingly low.  I wonder if this was already in the works before CDLX reported a couple weeks ago.

 

In the end this is a rounding error on whether this idea works out.  Knocking 10% off current value of CDLX for their remaining stake reduces value by 8 cents/share...

[Cigarbutt]

AIMIA really took a haircut in order to sell CDLX, eh?  Not including today, average price of CDLX since the last earnings release (12 trading days) was $33 per share.  If I take the numbers from the press-release ($44.9/1.5m shares), they got $29.93 per share.  That's a 10% "liquidity" discount that needs to be factored into the "fair market value" of the last tranche to be sold. 

 

wabuffo

I agree it's surprisingly low.  I wonder if this was already in the works before CDLX reported a couple weeks ago.

 

In the end this is a rounding error on whether this idea works out.  Knocking 10% off current value of CDLX for their remaining stake reduces value by 8 cents/share...

I get it that it is important not to forget the downside but the IPO price in February 2018 was 13$ and the stock has traded above 30$ only about 3% of the time since the IPO and all in the last 18 days. Also, when the S-3 was recently filed, the proposed maximum price was 27.02$. It is hard to come up with a precise valuation for Cardlytics and maybe this is only the beginning but a related message may be that it is better to decide the timing of asset sale in order to maximize the outcome.

 

To keep a close eye on the downside and potential turbulence, it looks like Mexican winds may not be favorable for cashflows emanating from operations as Aeromexico seems to be going through a soft patch. Aimia may have to wait for the right pitch.

https://centreforaviation.com/analysis/reports/latin-american-aviation-gol-and-aeromexico-uneasy-about-capacity-487864

[Pref User]

I think I screwed up with my analysis and one thing I overlooked was yes I saw the value in the bloomberg article in 2015 valued PLM at $1B USD, and Mittleman talked about 10 EBITDA valuation but I never considered if Aeromexico had the financial capacity to actually offer $485M USD to buy Aimia's PLM stake. I just looked at this now and Aeromexico Debt/EBITDA is 7.6 times, for reference Air Canada is at 2.9, Delta at 1.9 and Latam 4.2. Investors must also adjust the cash on the balance sheet, yes they have $500M USD+ in cash but of that amount what is actually free to spend is $60M - $75M.

 

For reference Latam bough out their publicly traded loyalty program in Brazil for $290M-$315M I saw. Latam again has almost half the leverage as Aeromexico and Latam's average FCF over the last 5 years is $116M compared to Aeromexico's of $61M. Aeromexico's current market cap is $525 M USD, so if they were to actually pay $485M USD for PLM, someone needs to tell me where the hell the money is coming from because they would be fools to raise equity and taking on debt to buyout PLM only slightly helps the leverage figure going down to 7 times the combined company EBITDA. Paying $180 M USD the consolidated company leverage goes down to 5.1 times leverage. For refence my earlier numbers do not include Aeromexicos share of PLM EBITDA, so for reference, it goes down to 5.2 times from 7.6, and then if they paid $485 M USD it means the leverage actually jumped from the current level by almost two turns.

 

I know some will say that Delta could buyout Aimia's stake, but Delta knows everything that I just wrote. Why would they pay anything higher than what Aeromexico is offer +$1? By Aeromexico saying they are canceling the PLM contract when it is over essentially makes it a two-horse race if that between Delta and Aeromexico. What other buyer is going bet they can convince Aeromexico they can change their strategy.

 

With what Cigarbutt posted about the market also concerns me. I use to think well PLM could try and pivot and combine with one of the other Mexican airlines, but checking financials now they are no different with 6 times Debt/EBITDA. If overcapacity is coming, some of these airlines will disappear. What then? I think the only out then is an American Carrier wants to take share in Mexico, but once again the carrier will be the one with the power.

 

So maybe $180 M USD - $250M USD is truely the fair value based on what players can pay. If that is the case I stick to my earlier post that management buying back shares are essentially bets that they get a price higher than this, and I don't know who can offer that. Obviously, management knows more than me, but I would like to hear someone break my thesis on this.