AIM.TO - Aimia

[wabuffo]

PLM is a growing asset in an under-penetrated market and Aeromexico has no real leverage over Aimia here.  In an absurdly draconian case, you could assume that PLM disappears in 2030, and the pv of the cash flows Aimia will receive until then are over $350m (assumes LDD Ebitda growth for next couple years and then MSD growth after that).

 

Let me ask you - did you think AIMIA received fair value for their Aeroplan asset?  Mittleman had values of $1B+ for Aeroplan in his SOTP.  What did AIMIA actually receive? $450m (I'm excluding w/c adjustments which are just dollar-for-dollar liquidations of an asset for cash). 

 

What does Mittleman think AIMIA's stake in PLM is worth in his SOTP -- $489m USD ($1B USD total)?  What will AIMIA/Mittleman actually get in a hostile, bare-knuckled negotiation based on their track record?  I'd say $220m USD based on their historical track record.  AIMIA relies on the distributions from PLM to cover part of their operating cash shortfalls.  What if that is shut off by Aeromexico/PLM during negotiations?  Who will have more leverage?  And all of this $1B USD fair value is before potential issues at PLM (of which we can't be certain about their materiality to the business's intrinsic value).

 

At $220m USD of net proceeds for 48.9% of PLM, there is barely $4 CAD per share of net liquidation value per common share after taking into account operating cash losses and exit/liquidation costs.

 

The history of AIMIA has been overly-optimistic forecasts by Mittleman et al and very poor actual execution in receiving fair value for these 'wonderful' assets.

 

But of course, I could be (and often am) wrong about this situation.

 

wabuffo

[movys]

PLM is a growing asset in an under-penetrated market and Aeromexico has no real leverage over Aimia here.  In an absurdly draconian case, you could assume that PLM disappears in 2030, and the pv of the cash flows Aimia will receive until then are over $350m (assumes LDD Ebitda growth for next couple years and then MSD growth after that).

 

Let me ask you - did you think AIMIA received fair value for their Aeroplan asset?  Mittleman had values of $1B+ for Aeroplan in his SOTP.  What did AIMIA actually receive? $450m (I'm excluding w/c adjustments which are just dollar-for-dollar liquidations of an asset for cash). 

 

What does Mittleman think AIMIA's stake in PLM is worth in his SOTP -- $489m USD ($1B USD total)?  What will AIMIA/Mittleman actually get in a hostile, bare-knuckled negotiation based on their track record?  I'd say $220m USD based on their historical track record.  AIMIA relies on the distributions from PLM to cover part of their operating cash shortfalls.  What if that is shut off by Aeromexico/PLM during negotiations?  Who will have more leverage?  And all of this $1B USD fair value is before potential issues at PLM (of which we can't be certain about their materiality to the business's intrinsic value).

 

At $220m USD of net proceeds for 48.9% of PLM, there is barely $4 CAD per share of net liquidation value per common share after taking into account operating cash losses and exit/liquidation costs.

 

The history of AIMIA has been overly-optimistic forecasts by Mittleman et al and very poor actual execution in receiving fair value for these 'wonderful' assets.

 

But of course, I could be (and often am) wrong about this situation.

 

wabuffo

 

Your points about historical value-destructive behavior are valid, but it's illogical to make a prediction about the outcome of a negotiation when an entity is in a position of strength based on previous negotiations when that entity was in a position of extreme weakness.  Think back to the Aeroplan negotiations.  Air Canada's threat to go it alone was more credible, Aimia was on the clock, and there were confusing issues around how to treat the liabilities within Aeroplan.

 

Aimia is a much cleaner company today and is under no time pressure as it relates to PLM.  If Mittleman runs a slate and refreshes the current board, who would presumably move quickly to wind down ILS and any other loss-making operating assets, any sense of urgency totally evaporates and Aimia's negotiating position re PLM strengthens further.

 

And while there's certainly no love lost between Aimia/Aeromexico, virtually every negotiation in the real world is "hostile and bare-knuckled."  I think the biggest near-term risk is a massive operational slow-down at PLM, but there are currently no signs of that.  I don't know what PLM is worth, but what would you pay for a rapidly growing, high-ROIC business with negative working capital and massive tax advantages that continues to dividend its excess "float" and income to you?  If PLM were a standalone public company I think it would fetch well north of 10x.

 

Your estimate of $220m for Aimia's stake in PLM is ~5.5x EBITDA and is comically low for a business of that quality.  But as you point out, if somehow everything goes wrong for Aimia...if Mittleman can't refresh the board despite broad shareholder support for this, if the incumbent board gives PLM away at 5.5x in a bewildering display of insanity...you're still left with a liquidation value of something above the current share price.  So it's basically heads I win, tails I don't lose, and the probability of landing on tails is more like 10%, as opposed to 50%.  We have the ultimate margin of safety here and I can understand why Mittleman has decided to make this relatively illiquid investment its largest holding.

 

movys

[movys]

and don't forget about the $650m in NOLs.

[Cigarbutt]

^

1-As far as 'issues' at PLM, anything is possible but Aimia published today a standard rebuttal which strengthens the noise thesis. I wonder if this not about a relatively minor questioning about consulting services that an Aimia sub charged separately, which amounted to about 6M per year and for which disclosure seems to have changed in 2018.

2-The higher expected valuation by Mr. Mittleman was related to the fact that redemption liabilities were discounted to essentially zero. Opinions varied on the extent of the discount but it was an unrealistic assumption. This factor is much less of an issue with PLM because the deferred revenue to gross billings or adjusted EBITDA is much lower (even after the 106.4M addition because of the changed breakage assumption), given the fact that growth, if it continues, will be associated with growing cashflows matched by a growing liability with a float component and high margins when deferred revenue will eventually recognized. Earlier in these pages, wabuffo had explained how this was a potential advantage for a nascent in-house Air Canada program vs the mature redemption liability laden Aeroplan.

3-Again comparing previous transactions and comparing the degree of negotiating leverage, I agree that Aimia is not in the driver's seat (as the short-serving Scandinavian CFO had alluded to in a conference call). But it appears that the PLM scenario is the most favorable. At 220M USD, the price tag would correspond (slightly lower) to the value attributed to PLM in 2012 (independent valuation) when members were half of now and gross billings less than half of now. I think 220M is too low but upside may be limited given a souring relationship.

[Pref User]

and don't forget about the $650m in NOLs.

 

For this, the company said $400 M of Canadian capital loss from selling Aeroplan. From talking to tax people this is not an NOL, it cannot be used against operating income. They could use the $400 M to help shield any capital gains taxes that would be realized from any of the sales of assets be it PLM, BIG or Cardlytics.

 

This means you cannot include this $400 M in a valuation. For example, they sell PLM, the capital loss is used to shield the capital gain. If you include the capital loss you've double-counted the value. Or you need to reduce your PLM value for after tax and then you can include the Capital losses value in your valuation.

 

Also since it is a capital loss if Mittleman tried to take over Aimia the capital loss would be canceled/lost in the transaction under Canadian tax law, which would be value destructive.

[movys]

and don't forget about the $650m in NOLs.

 

For this, the company said $400 M of Canadian capital loss from selling Aeroplan. From talking to tax people this is not an NOL, it cannot be used against operating income. They could use the $400 M to help shield any capital gains taxes that would be realized from any of the sales of assets be it PLM, BIG or Cardlytics.

 

This means you cannot include this $400 M in a valuation. For example, they sell PLM, the capital loss is used to shield the capital gain. If you include the capital loss you've double-counted the value. Or you need to reduce your PLM value for after tax and then you can include the Capital losses value in your valuation.

 

Also since it is a capital loss if Mittleman tried to take over Aimia the capital loss would be canceled/lost in the transaction under Canadian tax law, which would be value destructive.

 

Understood, but there is also ~$250m in non-Canada NOLs.  The other angle is that the value of the NOLs could be realized by acquiring a business with operating losses.  In other words, it's additional optionality you are currently getting for free.

[Cigarbutt]

There are important distinctions between Aeroplan and PLM in favor of Aimia.

There are two levels of analysis. First, Aimia lately has received, per year, about 6 to 7M of revenue (consulting services) from PLM and this revenue historically has accrued to a US sub from PLM operating expenses. Until proven otherwise, this contractual arrangement is good until 2030. Second, the 48.9% ownership is permanent.

 

Why would Aeromexico jettison an entity that was valued at 518M USD in 2012, that was rumored to be valued around 1B later when an IPO was discussed?

 

With the Air Canada playbook, the contract was close to renewal and AC had 0% ownership of the loyalty entity. Apart from potential reputational damage and a wave of disgruntled passengers during the transition, AC had every reason to directly and indirectly threaten the asset and liability values of the loyalty entity. By raising the possibility of starting its own loyalty program, Aeroplan intangible assets were on their way to lose significant value while raising the possibility of shortening the time for redemption ('run on the bank') for deferred revenue on Aimia's books.

 

For PLM, Aeromexico owns 51.1% of the assets and liabilities. The present value of PLM includes the expected distributions as well as the terminal value expected in 2030, whether the Aimia consulting service agreement is renewed or not. Anything is possible, but, since 2011, all reported numbers at PLM suggest that it's been growing successfully, has kept high margins, has teamed up with the major and relevant credit card issuers and financial partners and has captured the premium credit card market (holders of credit cards who spend ++ and whose commercial transactions drive cashflows for the airline).

 

Why would Aeromexico shoot itself in the foot while trying to run away from Aimia?

 

Aeromexico is in the driver's seat but, if they want 100% of PLM now, I would say they will have to pay close to fair value. Fair value is in a range that is lower than when the IPO idea was floated (perhaps by 20 to 30% IMO) but PLM has continued to grow profitably since then. Both parties could always get independent valuations. I would be happy to obtain a good price for the investment but would also be fine if it would be held forever.

 

Note: The consulting service revenue has been paid by PLM to an Aimia US subsidiary and this disclosure can be found (except for 2018) in the latter parts of the financial notes when transactions with related entities are listed.

Revenues per year in CDN

2011: 2.2  2012: 1.7  2013: 5.2  2014: 5.4  2015: 6.7  2016: 6.5  2017: 6.5  2018:?

[wabuffo]

Note: The consulting service revenue has been paid by PLM to an Aimia US subsidiary and this disclosure can be found (except for 2018) in the latter parts of the financial notes when transactions with related entities are listed.

Revenues per year in CDN

2011: 2.2  2012: 1.7  2013: 5.2  2014: 5.4  2015: 6.7  2016: 6.5  2017: 6.5  2018:?

 

CB - thanks for this!  I somehow missed this disclosure. 

 

I know I am currently agnostic on AIMIA, but isn't PLM an important source of cash right now for AIM (when they are bleeding cash everywhere else - including the resumption of preferred divs.)  You say that AIM has a stronger negotiating position vis-a-vis Aeromexico (vs Air Canada), but I would argue that Aeromexico can shut down dividends and consulting revenue (if its still occuring).  This actually places AIM in a weaker position because at least with AC they still had the operating cash flows from Aeroplan.

 

It could also be that Aeromexico is also trying to reset its contracts with its banking partners (AMEX, Santander) by threatening to dissolve PLM and start anew (though I agree that its hard to envision them walking away from their investment).  Witness what the Canadian banks paid AC to retain their Aeroplan relationships.

 

wabuffo

[wabuffo]

First, Aimia lately has received, per year, about 6 to 7M of revenue (consulting services) from PLM and this revenue historically has accrued to a US sub from PLM operating expenses. Until proven otherwise, this contractual arrangement is good until 2030.

 

I think this consulting agreement was with AIMIA's US CEL division which was sold in mid-2017.  There was no revenue disclosure in 2018 because this biz is gone.

 

wabuffo

 

 

[Cigarbutt]

Note: The consulting service revenue has been paid by PLM to an Aimia US subsidiary and this disclosure can be found (except for 2018) in the latter parts of the financial notes when transactions with related entities are listed.

Revenues per year in CDN

2011: 2.2  2012: 1.7  2013: 5.2  2014: 5.4  2015: 6.7  2016: 6.5  2017: 6.5  2018:?

 

CB - thanks for this!  I somehow missed this disclosure. 

 

1-

I know I am currently agnostic on AIMIA, but isn't PLM an important source of cash right now for AIM (when they are bleeding cash everywhere else - including the resumption of preferred divs.)  You say that AIM has a stronger negotiating position vis-a-vis Aeromexico (vs Air Canada), but I would argue that Aeromexico can shut down dividends and consulting revenue (if its still occuring).  This actually places AIM in a weaker position because at least with AC they still had the operating cash flows from Aeroplan.

 

2-

It could also be that Aeromexico is also trying to reset its contracts with its banking partners (AMEX, Santander) by threatening to dissolve PLM and start anew (though I agree that its hard to envision them walking away from their investment).  Witness what the Canadian banks paid AC to retain their Aeroplan relationships.

 

wabuffo

On 1-, this is one of the reasons Aeromexico can push the envelope to the extent they do and the threat is real.

On 2-, airlines, like many others, tend to follow the institutional imperative and they likely look at each other and see how credit card partners are ready to cough up huge amounts. I hope this dynamic plays out and wonder if Aimia can force more transparency there.

 

US CEL is gone but there was still likely a material amount of revenue recognized somewhere within Aimia from PLM.

[wabuffo]

US CEL is gone but there was still likely a material amount of revenue recognized somewhere within Aimia from PLM.

 

CB - say more...  Do you think Aimia tried to double-dip in 2018 after selling the US CEL biz to CM Insights in 2017?

 

wabuffo

[wabuffo]

see how credit card partners are ready to cough up huge amounts.

 

This is what originally got me excited about AIMIA's negotiating position vs Air Canada and why I was posting about that here in 2018.  Rabe left a lot of money on the table if you look at it as a three-way negotiation (including TD, CIBC, AMEX) vs a two-way (AIM vs AC).

 

Look at AC's disclosures in their Q1 cash flow statement after the transaction closed (pay attention to the cash flow statement).

https://www.aircanada.com/content/dam/aircanada/portal/documents/PDF/en/quarterly-result/2019/2019_FSN_q1.pdf

 

Card Agreements.............................$1212

Aeroplan Miles prepayment proceeds...$ 400

Acquisition of Aeroplan............... .....($ 497)

 

In effect the banks paid AC to acquire the business by offsetting much of the assumed redemption liability and validating the total value of Aeroplan to the bank's credit card profitability.  If you assume that AC's marginal cash cost of providing seats as rewards is a lot lower than AIMIA's cost to purchase those same seats from AC, AC was paid to take on a profitable business with ongoing positive cash flows beyond the initial acquisition.  The NPV to AC was huge.  AIMIA was unfortunately the patsy at the poker table with the banks and AC.  Rabe should've extracted part of the banks' payment to maintain their Aeroplan association vs letting it all go to AC.

 

wabuffo

[Cigarbutt]

^I am not suggesting or saying anything specific about consulting services revenue disclosure and there a few possibilities. Maybe, it was felt to be non-material in 2018 or was merged, from the accounting point of view, in the corporate reshuffling. Historically, I assumed that those consulting revenues (which were likely quite profitable) were allocated to unprofitable US segments (there seemed to be ample room there and it wasn't always the US CEL segment), for tax reasons.

 

For the hidden or unrecognized value from credit card partners, it looks like Aeromexico learned from the AC maneuver. So, hope is warranted that present Aimia or those in the corridors of power have had their lessons too. And yes "The NPV to AC was huge".

[wabuffo]

First, Aimia lately has received, per year, about 6 to 7M of revenue (consulting services) from PLM and this revenue historically has accrued to a US sub from PLM operating expenses. Until proven otherwise, this contractual arrangement is good until 2030. Second, the 48.9% ownership is permanent.

 

Again - I don't think this is quite right.  The US sub was sold (US CEL) and it is unknown as to whether AIMIA continues to receive any consulting revenue from PLM (the lack of related-party disclosure in 2018 to that effect seems to indicate that it currently does not).

 

Second the contractual agreement that runs til 2030 is between Aeromexico (the airline) and PLM (the loyalty program) and not with any US sub providing consulting services to PLM.  While its true that AIMIA's 48.9% ownership of PLM is permanent - after 2030 (or sooner - see next paragraph), it could be 48.9% of an orphaned loyalty program with no Aeromexico as sponsor.

 

It appears to me that Aeromexico is announcing that they will sue to terminate this contractual agreement with PLM ASAP due to breach of contract.  The fact that the PLM CEO was dismissed points to some potential smoking gun.  Perhaps the PLM CEO was too close to Rabe and Aeromexico is furious about the huge one-time dividend ($20m CAD) from PLM to AIMIA in Q1.  The firing seems to overlap with the change in approach by AIMIA in terms of being more "hands-on" with PLM after the Aeroplan sale.  I am quite a bit concerned that AIMIA's mgmt never disclosed the PLM CEO firing as it seems a material event and we had to hear about it from Mittleman and later Aeromexico.  It adds to the suspicion about AIMIA's behavior and incentives regarding more aggressive management of PLM results that is consistent with other behavior clues in the way they conducted the AGM/new BOD member announcement.

 

Whether this is a negotiating ploy by Aeromexico or not doesn't matter.  It is a declaration of war against AIMIA - a war AIMIA can ill afford right now if it loses access to the PLM dividend income while it has a bloated cost structure and is bleeding cash everywhere else.  During the Q4 2018 conference call, AIMIA made a big deal of the fact that could/would wring out more cash dividends from PLM and used those projections to massage their lack of operating cash generation.  They now face a money-losing ILS business, expensive overhead, preferred dividend commitments as well as sending cash out the door via buybacks with the prospect of potential legal expenses and a multi-year fight with Aeromexico.

 

Their track record in these stand-offs is not a cause for optimistic valuation scenarios.  The fact that AIMIA management didn't husband their cash after the Aeroplan sale (ie, keep the preferreds stranded, not distribute cash to shareholders via tender/NCIB, and drastically cut operations down to the bone to preserve cash) means that they have less degrees of freedom right now from which to negotiate.

 

wabuffo

[Cigarbutt]

First, Aimia lately has received, per year, about 6 to 7M of revenue (consulting services) from PLM and this revenue historically has accrued to a US sub from PLM operating expenses. Until proven otherwise, this contractual arrangement is good until 2030. Second, the 48.9% ownership is permanent.

 

Again - I don't think this is quite right.  The US sub was sold (US CEL) and it is unknown as to whether AIMIA continues to receive any consulting revenue from PLM (the lack of related-party disclosure in 2018 to that effect seems to indicate that it currently does not).

 

Second the contractual agreement that runs til 2030 is between Aeromexico (the airline) and PLM (the loyalty program) and not with any US sub providing consulting services to PLM.  While its true that AIMIA's 48.9% ownership of PLM is permanent - after 2030 (or sooner - see next paragraph), it could be 48.9% of an orphaned loyalty program with no Aeromexico as sponsor.

 

It appears to me that Aeromexico is announcing that they will sue to terminate this contractual agreement with PLM ASAP due to breach of contract.  The fact that the PLM CEO was dismissed points to some potential smoking gun.  Perhaps the PLM CEO was too close to Rabe and Aeromexico is furious about the huge one-time dividend ($20m CAD) from PLM to AIMIA in Q1.  The firing seems to overlap with the change in approach by AIMIA in terms of being more "hands-on" with PLM after the Aeroplan sale.  I am quite a bit concerned that AIMIA's mgmt never disclosed the PLM CEO firing as it seems a material event and we had to hear about it from Mittleman and later Aeromexico.  It adds to the suspicion about AIMIA's behavior and incentives regarding more aggressive management of PLM results that is consistent with other behavior clues in the way they conducted the AGM/new BOD member announcement.

 

Whether this is a negotiating ploy by Aeromexico or not doesn't matter.  It is a declaration of war against AIMIA - a war AIMIA can ill afford right now if it loses access to the PLM dividend income while it has a bloated cost structure and is bleeding cash everywhere else.  During the Q4 2018 conference call, AIMIA made a big deal of the fact that could/would wring out more cash dividends from PLM and used those projections to massage their lack of operating cash generation.  They now face a money-losing ILS business, expensive overhead, preferred dividend commitments as well as sending cash out the door via buybacks with the prospect of potential legal expenses and a multi-year fight with Aeromexico.

 

Their track record in these stand-offs is not a cause for optimistic valuation scenarios.  The fact that AIMIA management didn't husband their cash after the Aeroplan sale (ie, keep the preferreds stranded, not distribute cash to shareholders via tender/NCIB, and drastically cut operations down to the bone to preserve cash) means that they have less degrees of freedom right now from which to negotiate.

 

wabuffo

You state the bear case really well for the PLM piece of the puzzle (large and essential piece).

There is an interesting catalyst coming from the Aimia website this morning.

I now stand with the Mittleman team (opportunistic point of view) and if one is here from a valuation standpoint, I guess the Board is saying to quit beating around the bush.

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

 

 

[wabuffo]

There is an interesting catalyst coming from the Aimia website this morning.

 

I think this is strictly a legal maneouvre to prevent Mittleman from calling for an AGM in order to replace the BOD.  If they can find a friendly judge to rule that Mittleman breached the standstill agreement then they will keep Mittleman sidelined.  I don't think he has the capital to take up AIMIA's offer.  Mittleman's is not a savior - they have run a very poor activist campaign.  I'm inclined to write them off as having any influence on the outcome here.

 

What a mess... more cash being burned paying for legal bills.

 

wabuffo

 

 

[wabuffo]

https://business.financialpost.com/investing/rbc-takes-rare-step-and-throws-support-behind-aimia-in-battle-against-largest-shareholder

Hanif Mamdani, head of alternative investments for RBC Global Asset Management, said the bank strongly disagrees with the criticisms that have recently been directed at the company’s board.  In a statement to the Financial Post, Mamdani called the loyalty rewards firm’s board of directors “seasoned” and “capable” while appearing to brush aside the concerns of New York-based investment firm Mittleman Brothers LLC.

 

In this case, Mamdani is delivering payback for Mittleman's advocating stranding the preferreds in his letters to AIMIA last year.  Mamdani is sharp and owns 35% of the AIMIA preferreds (though he may have traded some/all of that position into the common once the preferreds paid off their accrued dividends and the value of the preferreds was restored). 

 

It doesn't feel like Mittleman is winning....

 

wabuffo

[Pref User]

He actually owns way more than 35%, he owns 63% as of the end of 2018. I would be surprised if he was able to get down to 35%. When he was accumulating in the second half of 2018 there was a ton of volume due to the sale of Aeroplan. There hasn't been that much volume since then so don't know how he would have easily sold out of the position.

 

https://integra.com/wp-content/uploads/AFS/PHN_All_Funds_AFS.pdf  Page 339 for a quick look up

 

Wabuffo do you mind providing the letter to Aimia about stranding the preferreds? I don't think I came across it. Thank you

[Cigarbutt]

He actually owns way more than 35%, he owns 63% as of the end of 2018. I would be surprised if he was able to get down to 35%. When he was accumulating in the second half of 2018 there was a ton of volume due to the sale of Aeroplan. There hasn't been that much volume since then so don't know how he would have easily sold out of the position.

 

https://integra.com/wp-content/uploads/AFS/PHN_All_Funds_AFS.pdf  Page 339 for a quick look up

 

Wabuffo do you mind providing the letter to Aimia about stranding the preferreds? I don't think I came across it. Thank you

Given quite low liquidity in the preferreds since the end of 2018, it would be surprising if ownership has changed significantly since then.

 

For obvious reasons, the risk and reward profile is, at the margin, different vs the commons but but there may be room for common grounds. Interesting to note that Mr. Mamdani is, by far, the largest 'equity' holder in the company and that aspect would make it easier to negotiate an offer if ever a vote is considered for that specific piece of the capital structure.

http://ezine.dmdigital1.com/nov2018ROB/8BB2967FE5A48923238A649AC5749110/Nov2018ROB.pdf

See pages 44-5.

It's still unclear what the end game will be.

 

[Pref User]

This guy was talking out of his ass, his cost base could not have been $10-$12 if he was admitting to owning 60% then. His coast base for series 1 $15.84, series 2 $15.99 and series 3 $18.40. If we do a dividend-adjusted cost base then the series 1 $13.59, series 2 $13.52 and series 3 $15.29.

 

Now using the 6-month volume-weighted average because of that's the highest figure it would take the series 1 683 days, series 2 580 days and series 3 309 days for the position to be sold out of. The real question now is how he must be asking to himself is how much would he move the each preferred trying to sell out of them. And I think he has come to a conclusion it would be below his cost base by quite a lot.

 

If we did see this kind of price action it would be because of him and at these price levels even if the preferred become stranded because of Mittleman it means the company isn't rudderless anymore and you would be getting paid fairly well. Over time investors should come back to the preferred shares because at these price levels the series 1 yield is 8.3%, series 2 yield 10% and series 3 yield 10%. This isn't a Dundee or Bombardier situation, so the preferred shares wouldn't justify trading at those yields. But I could be wrong.

[wabuffo]

He actually owns way more than 35%, he owns 63% as of the end of 2018. I would be surprised if he was able to get down to 35%.

 

I stand corrected.  I had not thoroughly researched his position and was going by an old article that quoted his position size at 35%.  Thanks for the link to the RBC mutual fund reports.  That's very helpful.

 

Wabuffo do you mind providing the letter to Aimia about stranding the preferreds? I don't think I came across it. Thank you

 

I'll try to find it, but I thought I read somewhere that Mittleman Bros were not happy with the preferred dividends.  The only reason to do it was to begin the tender offer (in which Mittleman didn't participate.)  Look - perhaps I'm reading between the lines, but I think Mittleman wanted to trap the maximum amount of cash inside this company and begin investing in unrelated businesses to earn good risk-adjusted returns. 

 

If one's goal is not to liquidate the business (and I'm infering that it is for Mittleman) there is significant value in the preferreds by turning them into trapped equity.  They become a cheap source of capital given their perpetual nature.  There are no protections from what I can tell -  one can just keep the dividends turned off forever.  There is penalty, no accrued interest on top of the cumulative dividends payable, so the cost of capital mathematically declines with time.  There's been many examples of shrewd investors taking over control and stranding preferreds.

 

for obvious reasons, the risk and reward profile is, at the margin, different vs the commons but but there may be room for common grounds.

 

I'm not sure that there is common ground - there may be too much water under the bridge.  As you noted, Mamdami's position is too big and he can't easily get out.  Even if it wasn't explicity stated by Mittleman, Mamdami clearly understood the terrain and would be concerned about this risk.  The fact that he is siding with management is protection against predation by Mittleman if they take control of the capital structure.  As you've noted, Mamdani seeks a clear and present danger and his incentives and outcomes are aligned against Mittleman.  Mamdami wants (and needs a liquidation), he gets none of the upside if Mittleman takes over and hits homeruns (doubtful).  Mamdani's best case scenario from a DCF/NPV perspective is a quick liquidation.  Since preferreds are a form of equity, Rabe can argue that Mamdami owns much more equity than Mittleman.

 

It's certainly is interesting to watch (as a spectator, not investor).

 

wabuffo

[Tomahawk25]

Correct me if I'm wrong, but there seems to be an assumption, at least among retail investors in Aimia (coming from blogs and posts all over the internet), that the Mittleman Brothers intend to come the rescue for shareholder value.  That Mittleman in control means closing the spread between the stock price and cash & liquidation values. 

The Board of Aimia clearly thinks not, this large preferred shareholder thinks not, and I am wondering if that assumption should be challenged as well.

 

Is this a battle between various factions, none of them "the good guys", with minority shareholders just risking themselves in a bloody crossfire?  What do you think?  If Mittleman just wants control of the capital structure to invest the cash in their pet projects, why would any investor want to tag along?  Do any of these factions intend to liquidate (Wabuffo just mentioned Mamdami wants that)

 

Note: I have traded the stock in and out a few times, no position now as of Thursday, 7/25/19, stock at 3.83 CAD.  Would consider it around 3.40-3.50ish, hoping that's enough margin of safety in case of ever more serious Board conflicts. 

[wabuffo]

For obvious reasons, the risk and reward profile is, at the margin, different vs the commons but but there may be room for common grounds.

 

One way they could stop the cash going to the preferreds, but not the dividends, is contained in the Series 3 Preferreds Offering Memorandum.

The holders of the Preferred Shares shall be entitled to receive, as and when declared by the Board of Directors, in  preference and  priority to  any dividends on  the  Common Shares and any  other shares of  the Corporation ranking junior to the Preferred Shares, dividends which may be paid in money, property or by the issue of fully paid shares in the capital of the Corporation

 

Its not clear if the preferreds could be called by AIMIA and the par value ($25) also be paid out by the issue of fully paid shares in the capital of the Corporation.  That would be something, eh?  Kind of a tactical nuclear strike that would blow Mittleman out of the water and make Mamdami a ~50% holder of the larger amount of common shares outstanding.

 

I doubt though that Mamdani wants that.

[Pref User]

Little confused on your math how Mamdani would have 50% of the shares in your outcome. Current market cap $449.7M preferred share face $322.5M. Mamdani has 63%, so $203.2 M face value new market cap if shares issued $772.2 M, leading to 26.3%. Mittleman then goes down too 13.6%, and the number of people who voted against the board is 15.5% combining with Mittleman this is 29.1% of all shares.

 

If we say all of that Mamdani votes with the other people who voted for the board and management and everyone who would vote against management it would the same way as the AGM it would be a very tight vote at 56% for the management and 44% against management. So if anyone flip flops on the vote or other people actually vote their shares this time who knows what could happen.

[wabuffo]

Little confused on your math how Mamdani would have 50% of the shares in your outcome.

 

Math is hard  ;D

 

Its a hypothetical situation and I wonder if Mamdani could even agree to it on behalf of all preferred holders with his 63% ownership of all the preferred class.  Would the common shareholders get a vote at all in being diluted? 

 

Its clear the BOD is is willing to pull out all the stops.  It might be interesting for Mamdani to, ahem  8), do the math.  Does he get more (given he now shares in the upside) as a full common shareholder in a liquidation than what he would get as a preferred shareholder ($25 par + any accrued dividends per share).  I guess it depends on what the net asset value per share in a liquidation scenario.  You could see the outlines of a deal between Mamdani and the BOD - but I don't really think its happening.

 

Makes for an interesting soap opera now that Mamdani has been flushed out into the open in this drama.

 

wabuffo