AIM.TO - Aimia

[samwise]

I guess we'll just have to see and the next few weeks may provide some answers.

 

Yes. July 1 is when the standstill expires. We will find out what their next move is.

 

BTW, here are some plans of Mittelman about Rabe, in case you haven't seen them.

 

https://stockhouse.com/companies/bullboard?symbol=t.aim&threadid=29669782

 

So far this is what I understood about the tax. The effective rate for borrowing is 40% higher than the coupon rate. But it could still be deferred along with the dividends. The tax seems to be paid, when preferred dividends are paid. Just makes for a higher hurdle rate in stranding the preferred: you'd want your investments to beat the cost of borrowing.

 

They could always try to tender for preferreds. Mr. Mamdani might be happy to sell for $18, about a 50% profit. On a position that must be very hard to sell. Unless he sold over the last few months. This is less valuable than stranding them and using the "float", but it might be more palatable and invite less lawsuits.

[Cigarbutt]

I guess we'll just have to see and the next few weeks may provide some answers.

Yes. July 1 is when the standstill expires. We will find out what their next move is.

The preferred capital is technically permanent but distributions in that direction will continue to be relatively unavoidable especially if further deemed capital distributions are considered and if the entity becomes focused on the management of other people's money.

 

In the meantime and for the foreseeable future, the cost of the stranded float will be between 6.3 and 8.4% per year.

 

Last I heard, Mr. Mamdani had 60% of preferreds and, given trading volumes lately, it's unlikely that this % has changed significantly.

I assume the key players are talking together and not simply waiting to start a fight this summer.

FWIW, with Mr. Rovinescu out of the picture, it may be easier to get a more balanced end game.

[samwise]

The tender was oversubscribed, and the rejected shares were sold down aggressively last week. I used the opportunity to buy some more.

 

Meanwhile the company has announced

1. More cash received for aeroplan due to working capital adjustments.

2. Release of restricted cash as the CRA issues are resolved.

3. An share buyback, starting June 6.

 

https://www.newswire.ca/news-releases/aimia-finalizes-post-closing-adjustments-resulting-in-final-aeroplan-sale-price-of-516-million-810652133.html

 

https://www.newswire.ca/news-releases/aimia-announces-normal-course-issuer-bid-to-repurchase-up-to-8-9-million-shares-840974945.html

 

[NewbieD]

Nice to see the buyback; I also increased position last week. Would guess they implement this at the maximum allowed rate.

 

Thanks for sharing the link on the case, samwise - entertaining read, and informative. After reading about the IT deptmt disorg I want them to sell assets even more. Mittlemans shouldn't be happy about Felschers fate given they seemingly loved the guy.

[wabuffo]

Nice to see the buyback...

 

More "cowbell", LOL 

 

wabuffo

[wabuffo]

This is weird news.  It's also a very weird communication process to announce that the PLM Premier CEO has been removed from his job.

 

https://www.newswire.ca/news-releases/mittleman-brothers-confirms-removal-of-plm-premier-ceo-801844467.html

 

Its weird because:

1) it happened on May 15th (over a month ago).

2) there is no announcement from AIMIA (PLM is its biggest remaining asset so one would think this is material news).

3) the decision to remove the CEO came from the airline Aeromexico (which owns 51% vs AIMIA owning 49%).

4) the organization announcing it is AIMIA's largest shareholder.

 

How to read the tea leaves here?  CEO being fired portends bad news at PLM - or - Mittleman is angling to cut a deal with Aeromexico to sell PLM to the airline over the heads of AIMIA's CEO and BOD? What does this mean for AIMIA's strategy to be a 'curator' of loyalty programs?  In fact, what does this mean for AIMIA's CEO, Jeremy Rabe?

 

Seems to me that perhaps there is a major disagreement over strategy between Mittleman and the BOD of AIMIA - and Mittleman's standstill agreement expires next month, IIRC, so they are free to go activist again.

 

Very interesting and very weird. 

 

wabuffo

 

[Homestead31]

This is weird news.  It's also a very weird communication process to announce that the PLM Premier CEO has been removed from his job.

 

https://www.newswire.ca/news-releases/mittleman-brothers-confirms-removal-of-plm-premier-ceo-801844467.html

 

Its weird because:

1) it happened on May 15th (over a month ago).

2) there is no announcement from AIMIA (PLM is its biggest remaining asset so one would think this is material news).

3) the decision to remove the CEO came from the airline Aeromexico (which owns 51% vs AIMIA owning 49%).

4) the organization announcing it is AIMIA's largest shareholder.

 

How to read the tea leaves here?  CEO being fired portends bad news at PLM - or - Mittleman is angling to cut a deal with Aeromexico to sell PLM to the airline over the heads of AIMIA's CEO and BOD? What does this mean for AIMIA's strategy to be a 'curator' of loyalty programs?  In fact, what does this mean for AIMIA's CEO, Jeremy Rabe?

 

Seems to me that perhaps there is a major disagreement over strategy between Mittleman and the BOD of AIMIA - and Mittleman's standstill agreement expires next month, IIRC, so they are free to go activist again.

 

Very interesting and very weird. 

 

wabuffo

 

taken together with the link that samwise posted previously, i think that this means that mittleman is going to go to war when their standstill expires.  personally i have serious doubts about this board of directors and their plans.  as samwise pointed out, allegations have been made that they covered up self dealing, and now we learn from mittleman brothers - not the company - that the CEO of PLM was fired.  why wouldn't the company tell shareholders taht when aeromexico told shareholders?  to me it seems like Aimia has been trying to talk up things with PLM as being better than they really are because their plan is dependent on dividends from PLM.

 

mittleman said in one of their earlier letters that they hoped to hold PLM forever, so i don't think this means they want to sell it.  i more think it is just them wanting other shareholders to know all the facts before the vote for the board of directors because the board doesn't seem to be sharing the whole truth.

 

i  know that personally i will not be voting for the board.  i can't give advice to anyone else about how they should vote, but this board has been awful in the past, doesn't own any stock, and it seems like they have been hiding facts. at least mittleman owns a lot of stock so should at least care about the stock price.

[gokou3]

Don't know what to make out of the CEO firing news, but shares did shoot up today..

 

anyways, just writing to mention that I have voted against all the directors except Mittleman and Rabe.  (I believe the latter was brought in by Mittelman).

[NewbieD]

I would like to vote against everybody but Mittleman. But I have no idea how to? Is there a form somewhere?

[Sunrider]

I would like to vote against everybody but Mittleman. But I have no idea how to? Is there a form somewhere?

Your broker should give you that option - at IB you get emails with links for electronic voting, but your broker may be different,  or may be sending you the proxy/voting card in the mail.

[wabuffo]

personally i have serious doubts about this board of directors and their plans.

 

I generally agree with this statement as this BOD has been surprisingly free and easy with incinerating cash.  I also notice that they have not repurchased any shares yet on their NCIB (despite paying much higher prices in their dutch auction tender). 

 

But I'm also skeptical about what Mittleman can accomplish here.  I think their SOTP has been surprisingly amateurish and they have made a number of mistakes and omissions in their intrinsic value calculations.  The lower cash balance (and still to be felt exit costs for much of the current bloated headcount and fixed costs) really limits their degrees of freedom if they want to build a growth platform from the ashes of the Aeroplan business.

 

I think the PLM Premier CEO dismissal is potentially bad news to the thesis as it signals a potential deterioration to this business (and its ultimate value). 

 

wabuffo

 

 

[NewbieD]

I would like to vote against everybody but Mittleman. But I have no idea how to? Is there a form somewhere?

Your broker should give you that option - at IB you get emails with links for electronic voting, but your broker may be different,  or may be sending you the proxy/voting card in the mail.

 

Thx for the info. I have a european broker that doesn't send these things. I feel bad if my passivity is helping this ****show perpetuate itself. Will try to read up on how to do this.

 

[Cigarbutt]

...

But I'm also skeptical about what Mittleman can accomplish here…

 

I think the PLM Premier CEO dismissal is potentially bad news to the thesis as it signals a potential deterioration to this business (and its ultimate value). 

 

wabuffo

On a weighted probability basis, a CFO "removal" is negative but there are many potential reasons that may not be related to the valuation of PLM. It seems that the voluntary interested party disclosure was the most noise that could be made which respected the standstill agreement.

 

I remember having an interesting discussion with you, during an earlier phase, about the value of loyalty liabilities even when the future of core Aimia was in doubt. Having followed Club Premier for a long time and seen it grow profitably, it seems that the future is still positive. In Q4 2018, Aeromexico took a non-cash hit from a downward adjustment in breakage at PLM which may have been a negative surprise at head office and a way to interpret this development is that the loyalty program was too "generous" with customers but changing the assumption to lower breakage is a long-term sign of strength (engagement) of the program and they can progressively "tweak" the variables to make the program less "generous" (and more profitable) over time. So I wonder if you have specific reasons to question the value of PLM except for the recent CEO announcement.

 

Aeromexico has strong ties with Delta who has a very strong loyalty program and Delta management is possibly available to assist in operational or financial matters.

[wabuffo]

I remember having an interesting discussion with you, during an earlier phase, about the value of loyalty liabilities even when the future of core Aimia was in doubt.

 

Yes - I remember that.  It was a great discussion and caused me to research the economics of Blue Chip Stamps in greater detail.  I still am a fan of these businesses, but I've realized that it takes a very special capital allocator to run them correctly.  Unfortunately, the culture of Aeroplan's management team was such that they really didn't understand how to manage the capital structure properly.

 

I have no idea what is happening at PLM, but that whole announcement looks very dysfunctional and just has me wondering if there is more bad news coming.  Perhaps not, we'll see.

 

I will admit that I no longer have a position in AIM so I'm just watching from the sidelines.

 

wabuffo

[Homestead31]

...

But I'm also skeptical about what Mittleman can accomplish here…

 

I think the PLM Premier CEO dismissal is potentially bad news to the thesis as it signals a potential deterioration to this business (and its ultimate value). 

 

wabuffo

On a weighted probability basis, a CFO "removal" is negative but there are many potential reasons that may not be related to the valuation of PLM. It seems that the voluntary interested party disclosure was the most noise that could be made which respected the standstill agreement.

 

I remember having an interesting discussion with you, during an earlier phase, about the value of loyalty liabilities even when the future of core Aimia was in doubt. Having followed Club Premier for a long time and seen it grow profitably, it seems that the future is still positive. In Q4 2018, Aeromexico took a non-cash hit from a downward adjustment in breakage at PLM which may have been a negative surprise at head office and a way to interpret this development is that the loyalty program was too "generous" with customers but changing the assumption to lower breakage is a long-term sign of strength (engagement) of the program and they can progressively "tweak" the variables to make the program less "generous" (and more profitable) over time. So I wonder if you have specific reasons to question the value of PLM except for the recent CEO announcement.

 

Aeromexico has strong ties with Delta who has a very strong loyalty program and Delta management is possibly available to assist in operational or financial matters.

 

i think the firing of the CEO of PLM is a signal from Aeromexico that they are not happy with how Aimia has been talking up their influence on PLM.  Quite frankly, I think that Jeremey and Aimia have been misleading shareholders.  For example, Jeremy talked about how Aimia now has 3 board members at PLM.  What he didn't mention is that one of them - Scot Rank - was CEO of Lala Group, and the Chairman of Lala Group is on the board of Aeromexico.

 

is this guy really an Aimia-loyal director if his boss is on the board of Aeromexico? 

 

in my opinion this is just another example of the Aimia board putting their own interests in front of the interests of shareholders.

[Cigarbutt]

I remember having an interesting discussion with you, during an earlier phase, about the value of loyalty liabilities even when the future of core Aimia was in doubt.

 

Yes - I remember that.  It was a great discussion and caused me to research the economics of Blue Chip Stamps in greater detail.  I still am a fan of these businesses, but I've realized that it takes a very special capital allocator to run them correctly.  Unfortunately, the culture of Aeroplan's management team was such that they really didn't understand how to manage the capital structure properly.

I have no idea what is happening at PLM, but that whole announcement looks very dysfunctional and just has me wondering if there is more bad news coming.  Perhaps not, we'll see.

 

I will admit that I no longer have a position in AIM so I'm just watching from the sidelines.

 

wabuffo

I partly disagree with the bolded part. The conclusion I come up with is that Aimia then distributed way too much capital while wildly underestimating the risk of Air Canada not renewing. The sustainability of the business and truncated capital structure relied on the maintenance of the tie with Air Canada. I would say Mr. Rovinescu understood that part very well.

This is a reason why the PLM 49% joint venture structure with Aeromexico and 2030 management contract offers more value protection.

[wabuffo]

I partly disagree with the bolded part. The conclusion I come up with is that Aimia then distributed way too much capital while wildly underestimating the risk of Air Canada not renewing.

 

We're agreeing.  When I say capital structure, what I mean is that Aeroplan was a float-business and as such, they needed to use the float as capital (and not income).  While the float lasts, you have to conserve cash and build up the asset side of the business with high ROI investments.  It helps if the universe of investments isn't limited to other loyalty businesses.

 

Instead, this management team came out in an investment trust public company structure which forced distribution of an extremely high percentage of the float-based free cash flows.  Then the Aeroplan BOD/mgmt team used debt and preferred issuance to make mediocre investments in other loyalty businesses.

 

Whether one needed to plan for Air Canada coming back and not renewing, that's an open point for me.  But if the balance sheet was properly set up with quality investment assets that produced their own free cash flow, then Aeroplan's negotiating stance would've been stronger.  I also think an astute Aeroplan mgmt team would've squeezed the banks since they stood to lose their investment in Aeroplan cards that had achieved front-of-wallet spending status for the consumers that had them.  Instead there was all this panic-selling and squandering of assets.

 

But that's all Monday-morning QB-ing now.

 

wabuffo

[Homestead31]

Also interesting to note that they changed the director's skills matrix in the proxy.

 

last year there was a column for M&A experience.  Neither the CEO nor the Chairman checked off that they had M&A experience.

 

Now the company has announced that they are going with a strategy that is entirely tied to M&A if it is going to succeed, and magically the director skills matrix in this years proxy has changed so that M&A is lumped together with Capital Markets  experience.  This allows the Chairman (McEwan) to check the box.

 

In my opinion this is another example of a board that owns basically no stock putting their own interests ahead of shareholders.  its really kind of unbelievable.

[movys]

personally i have serious doubts about this board of directors and their plans.

 

I generally agree with this statement as this BOD has been surprisingly free and easy with incinerating cash.  I also notice that they have not repurchased any shares yet on their NCIB (despite paying much higher prices in their dutch auction tender). 

 

But I'm also skeptical about what Mittleman can accomplish here.  I think their SOTP has been surprisingly amateurish and they have made a number of mistakes and omissions in their intrinsic value calculations.  The lower cash balance (and still to be felt exit costs for much of the current bloated headcount and fixed costs) really limits their degrees of freedom if they want to build a growth platform from the ashes of the Aeroplan business.

 

I think the PLM Premier CEO dismissal is potentially bad news to the thesis as it signals a potential deterioration to this business (and its ultimate value). 

 

wabuffo

 

Wabuffo, would you mind clarifying what mistakes/omissions you believe Mittleman has made in their SOTP?

 

Best,

Movys

[wabuffo]

Wabuffo, would you mind clarifying what mistakes/omissions you believe Mittleman has made in their SOTP?

 

Movys - I thought Mittleman made several errors - some small, some big -- but, that in total, caused me to think they were always too optimistic in their SOTP.  Some examples:

 

1) they omitted the common dividend payable of $30m CAD (which was clearly spelled out in the notes to the financial statements) and generally ignored other liabilities that would have to be paid.  It's a nit - but every little bit is important in the SOTP balance sheet analysis.

 

2)they never provided an estimate of operating cash flow losses that would be incurred to get from point A to point B in whatever plan they were proposing.  This is always something you have to focus on in any restructuring or turnaround.  What will be the cash burn and for how long?  We can already see it since the Aeroplan sale.  AIMIA mgmt are burning $30-$40m CAD per year.  Mittleman was silent on this - but one could see $60m+ of operating cash burn before restructuring expenses. 

 

3) the most important error, in my opinion was Mittleman's estimate of the value of Aeroplan to Air Canada.  They kept using other situations where the entire business (including deferred revenue liability) was sold in its entirety.  But in Air Canada's case, they were looking at the situation as a make vs buy decision.  This is important because Air Canada would get a one-time cash inflow from building new deferred revenue liability (float) from scratch in a make-their-own Aeroplan scenario.  This one-time cash inflow needs to be reduced from the Aeroplan acquisition offer from Air Canada's perspective.  Sure there's risk to Air Canada trying to build Aeroplan v2.0 - but it's clear they had a viable alternative that generated cash as it started up and this amount (which was significant) needed to be netted out of Mittleman's Aeroplan value to Air Canada.  Especially, since no one else was going to buy it.  It was just a big item that made their SOTP flawed, IMO.

 

One has to take this sloppiness into account with any new business plans they come up with.

 

wabuffo

[movys]

Thanks. 

 

The question of the value of Aeroplan to Air Canada is debatable I suppose, but it's now moot and Aimia's remaining assets are much easier to value. 

 

See Mittleman's Q4 2018 investor letter.  The $30m common dividend is included in the liabilities.  Your point about an estimate of cash flow losses while getting from point A to point B is fair, but note that Mittleman ascribed zero value to Aimia's substantial tax assets (650m in Canada; 150m in USA) as well as no control premium, so it's probably a wash, or close to it.

 

Any way you slice it, the true NAV is much higher than the current price and with a week to go until the standstill expires, I think this value will get unlocked one way or the other.

[gokou3]

Does anyone know when is the AGM this year?  Previous years' happened in May.  Don't see an announcement yet, although the ballots are out..

[wabuffo]

See Mittleman's Q4 2018 investor letter.  The $30m common dividend is included in the liabilities. 

 

I know I'm picking a nit.  But it was nowhere to be seen in his letters of Aug 6 and Aug 21, 2018 -- despite its mention in the footnotes of the year-end 2017 annual report.

http://www.mittlemanbrothers.com/wp-content/uploads/2018/08/AIM-CN-open-letter-to-BOD-08-06-18-FINAL.pdf

http://www.mittlemanbrothers.com/wp-content/uploads/2018/08/MB-PR-comments-on-Aeroplan-sale-08-21-18.pdf

I was doing my own due dily around that time and was posting in the comments section of Seeking Alpha and here at COB&F  I hadn't seen any mention of it so I posted on Sept 6, 2018 in response to a Seeking Alpha article about AIMIA.

https://seekingalpha.com/article/4204305-impact-air-canadas-offer-aimias-shareholders#comment-79594807

From then on, Mittleman started to add it as well.  Coincidence and/or sloppiness?

 

Regardless - I think the situation is a mess, there are still significant cash exit costs to be dealt with in trying to change strategy (or even execute the current strategy) and everyone is still overvaluing PLM.  But that's what makes a market.  Good luck - this situation no longer makes sense for me but it could still work out, though the degrees of freedom are shrinking rapidly.

 

wabuffo

 

 

 

 

 

[movys]

Does anyone know when is the AGM this year?  Previous years' happened in May.  Don't see an announcement yet, although the ballots are out..

 

June 28th, 10:30 AM EDT

[Cigarbutt]

See Mittleman's Q4 2018 investor letter.  The $30m common dividend is included in the liabilities. 

 

I know I'm picking a nit.  But it was nowhere to be seen in his letters of Aug 6 and Aug 21, 2018 -- despite its mention in the footnotes of the year-end 2017 annual report.

http://www.mittlemanbrothers.com/wp-content/uploads/2018/08/AIM-CN-open-letter-to-BOD-08-06-18-FINAL.pdf

http://www.mittlemanbrothers.com/wp-content/uploads/2018/08/MB-PR-comments-on-Aeroplan-sale-08-21-18.pdf

I was doing my own due dily around that time and was posting in the comments section of Seeking Alpha and here at COB&F  I hadn't seen any mention of it so I posted on Sept 6, 2018 in response to a Seeking Alpha article about AIMIA.

https://seekingalpha.com/article/4204305-impact-air-canadas-offer-aimias-shareholders#comment-79594807

From then on, Mittleman started to add it as well.  Coincidence and/or sloppiness?

 

Regardless - I think the situation is a mess, there are still significant cash exit costs to be dealt with in trying to change strategy (or even execute the current strategy) and everyone is still overvaluing PLM.  But that's what makes a market.  Good luck - this situation no longer makes sense for me but it could still work out, though the degrees of freedom are shrinking rapidly.

 

wabuffo

What 'makes a market' has a lot to do with opinions about valuation.

 

The annual meeting voting results are out and, given typical institutional apathy and the largest shareholder's expired commitment, the situation is ripe for change and there is potential for market value convergence to intrinsic value.

 

The Cardlytics stake has done very well lately but a key part of the puzzle is the value of PLM's Club Premier. The CEO removal, the Q4 breakage adjustment, the unusual Q1 distribution and the new reported terminology about potential disagreements in joint ventures raise valid questions but a humble and long-term assessment of PLM suggests that it is really an equivalent to Aeroplan for Mexico: the leading coalition unit with a contract until 2030 and a 48.9% "joint control" stake, with an anchor most significant airline and very high free cash flow margins.

 

Aimia has made poor investments while issuing debt and preferred shares but I still contend that PLM was a very good investment. The first 28.9% interest cost them 35.1M USD in 2010 and 2011. In 2012, they were able to complete a pre-negotiated discounted addition of capital to raise their interest to 48.9%, with a cost of 89.1M USD (PLM enterprise valued at 518M then). Since then Aimia has received 119.1M USD in regular distributions and today's valuation of AIM's interest IMO (taking various inputs: multiple of gross billings, multiple of adjusted EBITDA, price per coalition members) has a relative floor at about 300M USD. Using these assumptions, the IRR since 2010 is about 20 to 21%. I would say it was a good deal especially given the disclosed fact in 2012 that the 89.1M USD capital used to increase their stake came from a debt issue maturing in 2018 with an interest rate of 4.35%. Since 2011, the number of members has doubled (now about 5,7M members), gross billings (CDN) has more than doubled (119.8M in 2011 to 328.8M in 2018 and projected about 350M in 2019). Since 2014, valuation of comparables (Smiles, Multiplus etc) has come down but frequent flyer programs continue to be very profitable and valuable for airlines.