AIM.TO - Aimia

[wabuffo]

it is worth a listen, with a few new nuggets of information.

 

I listened to it - some of my thoughts.  Let me be the devil's advocate.

 

- the new mgmt team "pumps" relentlessly.  I'm glad they're accessible.  But they are pushing too hard.  A bit of modesty is in order.  When Lehman (sp) called out Mittleman's investing record as impressive and one of the best in the biz, he's clearly not looking at the same 10-year record that I'm looking at.  Its a bit of a red flag when a mgmt exec says the sky is blue (when it is verifiably cloudy just by looking out the window).

 

- They also really danced around the Mittleman Investment Partnership selling by their LPs due to the deal. 

 

- Kognitiv sounded like it was on the rocks (failed funding round, cutting price to save it, etc) before it was pitched to AIMIA.  I wonder exactly how much time they spent on how to operationally put this together.  Doesn't sound like much.  Instead it sounds like Kognitiv was desperate for funding, AIMIA was desperate to jettison ILS - hey, let's put our two failing ventures together - I'm sure that will work.  ILS brings in a shit-ton of personnel and overhead, Kognitiv doesn't appear to have much in revenue (they are a B-2-B loyalty market where Kognitive takes a cut - can't be more than a few million in annual revenues).  What happens when there is another capital call (which there will be given the cash incineration here).  Will AIMIA answer that bell?  That will be telling, I think.

 

- I still think Aeromexico took AIMIA to the cleaners on their deal.  I've said enough on this matter.  Redomiciling isn't a show-stopper.  Aeromexico was in weak position and desperate for cash.  AIMIA had the "nuts" and checked down.

 

- they are clearly not going to retire the preferred shares, probably ever.  No intention to buy out - even if there is an event of liquidity (like a PLM buyout by Aeromexico of AIMIA's) stake.

 

This is a bit of a race with time.  They are rapidly spending their cash on buybacks, plus illiquid investments with no incoming dividend stream (ClearMedia, Kognitiv), PLM is on the shelf with no dividends.  Yet they still have expensive overhead and preferred dividends (plus tax) to pay out.  They need an event of liquidity and have too small a capital base to take something completely over in order to use their NOLs. 

 

I think this is a single-digit return over the next five years (which I assume will have a PLM liquidity event at the end of that five year period - if things work out best case).  I'd be happy to be wrong about that.

 

wabuffo

[Philbert77]

What do you mean by "stiff the preferred dividends"? Like stop paying them like happened a couple years ago?

[wabuffo]

What do you mean by "stiff the preferred dividends"? Like stop paying them like happened a couple years ago?

 

Sorry - poor wording on my part.  Basically they are leaving them outstanding forever while paying the dividends.  Even though they can make another tender offer at below par - they were pretty clear they are never doing that.

 

wabuffo

[Pref User]

Listen to the call. I followed up by talking to a tax expert, granted not a lot of experience with Mexican tax law. But from their experience when a Canadian company change domiciles it is considered a sale, which triggers capital gains. Now I have no clue if Mexico has this law in place, but if it does it means that a dividend recap might not be worth it.

 

It also has me wondering if Aeromexico knew this and took advantage of Aimia in this respect. Just something to think about.

[wabuffo]

https://www.wsj.com/articles/aeromexico-files-for-debt-restructuring-under-chapter-11-11593560968

 

Aeromexico Files for Debt Restructuring Under Chapter 11

 

MEXICO CITY—Mexican airline company Grupo Aeroméxico SAB said Tuesday it has filed for voluntary restructuring under chapter 11 of the U.S. bankruptcy code to confront the crisis brought on by the coronavirus pandemic.

 

Aeromexico says thank you AIMIA & PLM for the $100m and then files.  ???

 

wabuffo

[bizaro86]

That's tough. It seems the normal thing for loyalty programs when their airline goes BK would be to give them some cash for an extension and prepay miles. But they just did that, so their capacity to pay is way lower.

 

What's to stop AM from starting a replacement program now? Seems like the contracts where you already have all the money would be the type you'd want to repudiate to me...

[Cigarbutt]

ha ha ha.  well, i think filing for chp. 11 anytime soon after making that declaration could have worse repercussions than losing a few season ticket holders over a quick turnabout on a head coach, including maybe a securities fraud charge.

 

clearly, Aimia went above and beyond to help AM avoid bankruptcy, to reboot the partnership from the brink of lawsuits back to some form of symbiosis, extend the deal, remove prospect of an Air Canada / Aeroplan level of unfairness, and get leveraged recap done.  but if AM files anyway and that delays the leveraged recap for an extended period than yes, a major sought benefit goes out the window for the time being, and the new team gets a ribbon of shame.

 

- Dr(?) Aybolit

i'm no longer in this name and don't really plan to comment here although i suspect the thread will continue to be managed.

[Dr. Aybolit]

I was clearly very wrong in my expectation that Aeromexico would not likely file for chp. 11 in the near term. 

 

But my expectation was sincere, so I don't see how my being wrong in that regard, however embarrassing to me personally, is somehow an indication that this message board discussion is "managed" as suspected by Cigarbutt... I think I see a fair representation of both bullish and bearish arguments amongst the various postings. 

 

Joining the bullish camp was U.S brokerage firm Jefferies which initiated coverage on July 2nd with a buy rating and a C$9.50 price target (their estimate of NAV, which is higher than my own).  I normally don't put too much credence in sell-side brokerage reports, unless they agree with my point of view of course, haha, but in this case I think it's noteworthy mainly because it's the first U.S. broker to pick up coverage I believe, whereas before only TD and RBC had ongoing coverage.  So that should help get the story out to a broader audience i think.

 

If anyone has access to Jefferies research and can post the report or at least a significant excerpt here, I, for one, would not turn you in.

 

- Dr. Aybolit

 

 

[wabuffo]

Important context about this Jefferies report:

 

1) Jefferies LLC has a banking relationship with the Mittleman Bros.  For example, Jefferies advised Mittleman/AIM on the Kognitiv deal.

2) Aeromexico files on June 30, Jefferies report comes out July 2 (1st day that Canadian markets are open after Aeromexico files - July 1st was a holiday).

 

;)

 

wabuffo

[Dr. Aybolit]

1)  it is understood that investment banking fees, or the prospect thereof, garner research coverage, especially with small caps.  that's part of the reason why i view sell-side research in general with heightened skepticism.  But RBC has been reaping banking fees from Aimia far longer and in vastly larger amounts than Jefferies has, and that didn't stop RBC from having a C$2.00 price target when the stock was $2.70 to $3.00 a couple of years ago.  Now RBC rates it "out-perform" with a C$5.00 target, and RBC's fee prospects from Aimia probably much lower now than they were then.  So fees may drive coverage, they don't always dictate the quality or bias of that coverage. 

 

2) hard to fathom something unusual went on with the timing of the report release.  did Jefferies know in advance of AM's impending bankruptcy filing, and deliberately wait to release the report to mute the impact of that bad news on Aimia's stock price?  maybe i'm naive, but i find any of that very difficult to imagine.

[wabuffo]

did Jefferies know in advance of AM's impending bankruptcy filing, and deliberately wait to release the report to mute the impact of that bad news on Aimia's stock price?  maybe i'm naive, but i find any of that very difficult to imagine.

 

I also forgot that AIM also announced (...for a second time) their buyback program on June 30th (the day Aeromex filed).  I keep looking for actual repurchases in the open market...

 

 

I do recall one of the Mittlemans on the TD Fireside chat talking about dreading the "waking up to headlines" with AIMIA.  Its clear that "managing the headlines" is a key Mittleman strategy, IMHO.

 

I don't think they need to keep doing this.  Just focus on strategy and execution would be my advice.

 

wabuffo

[Dr. Aybolit]

the June 30th announcement was not a repeat, it was to disclose new information, that they had put the previously announced NCIB on auto-pilot.  so rather than the hypsterism that you ascribed to it, i think they actually made a legally required disclosure there.

 

NCIB buys are reported 10 days after the end of each month. 

 

 

 

 

[wabuffo]

NCIB buys are reported 10 days after the end of each month.

 

Are you sure about that?  In Canada, open market purchases by the Company are published the next day, I thought.  Could be wrong about that.

 

wabuffo

 

 

[SafetyinNumbers]

NCIB buys are reported 10 days after the end of each month.

 

Are you sure about that?  In Canada, open market purchases by the Company are published the next day, I thought.  Could be wrong about that.

 

wabuffo

 

The good doctor is correct that NCIB buys must be reported within 10 days after the end of each month

[wabuffo]

American Airlines is also looking to extract cash from its frequent flyer program - but facing difficulties because they never separated it from the airline in its own legal entity structure.

 

wabuffo

Derek J. Kerr, American Airlines Group Inc. - Executive VP & CFO:

 

... But I think it's -- as we've seen, if it is not a forward miles transaction on top of that, as you know, our competitor [wabuffo: he means United Continental] was very successful and did a really nice transaction to take their frequent flyer program and take it to the market that is available. It probably would take us a little bit of time to do that just because our company is -- our Freedom Flyer program is not set up as a separate company, which our competitors was for them the ability to do that transaction. So that ability is there. They -- I mean we're at $4.75 billion. We have a bigger program. And I think they raised $6.8 billion, $6.9 billion against it. So I think in the future, that transaction is there. It's not there today for us, but it is there in the future. So if we cannot utilize the room underneath the government loan, that transaction is available in the future.

[wabuffo]

https://www.newswire.ca/news-releases/aimia-announces-deferral-of-filing-second-quarter-financial-statements-and-business-acquisition-report-for-kognitiv-transaction-882055040.html

 

Huh?  Aimia is delaying the filing of Q2 results.  Given they sold their last operating business before quarter-end and are now just a holding company of investment stakes in other companies, how hard is it to close the books?  There seems to be a separate point about not being able to file a BAR about the Kognitiv merger on time that needs to be pushed out til Oct.  Not sure I understand what's going on.

 

Weird. 

 

wabuffo

[wabuffo]

The delayed filing by AIMIA and the mention of Kognitiv reminds me of a recent deep-dive I did on Kognitiv.  It's an interesting deal - but one with more questions than answers given the lack of details about Kognitiv and its business.  Many investors just take as gospel the post-merger $525m CAD valuation as they compute their Sum-Of-The-Parts (SOTP) analysis of AIM.  I always like to sharpen my stock research and analytical skills so I tried to see what I can find out from digging further through public filings.

 

The first thing to note about Kognitiv is that even though it is described as a late-stage venture capital company, it doesn't appear to have a lot of revenues for a company that says it has 220 employees.  The AIMIA presentations keep referring to the fact that it “processed over $1.3b in transactions last year” – but from what I can tell it operates a peer-to-peer marketplace and doesn’t actually own those transactions.  It probably just takes a tiny cut as the digital marketplace owner.  That would mean its actual revenues are probably a single-digit percentage of that $1.3b.  Indeed, a quick check on Dun & Bradstreet says its annual revenue is $16.7m USD ($22.4m CAD).  It doesn't say if this is for the latest fiscal year and it says the revenue is "modelled".  But it adds to the circumstantial evidence that Kognitiv's revenue is in the low tens of millions.  I don't think people have made that connection.

 

https://www.dnb.com/business-directory/company-profiles.kognitiv_corporation.4bc9eb3635d05c147cef4526f6d4eb5f.html

 

It is also appears to be consuming cash.  Again, from the AIMIA presentations, it has raised $142m throughout its existence, did a private placement in October 2019, and was trying to do another in Q1, 2020 but failed before it approached AIMIA.

 

Recently a number of new filings were posted on SEDAR related to the merger with AIMIA’s Solutions businesses (ILS/ISS). In particular, there is a 206-page SEDAR filing from June 28 that is labelled “Transaction Agreement – May 30, 2020”.  It's basically the contract for the merger but it does contain some details about the quantity (and in some cases), price of the Kognitiv securities that AIMIA is receiving from the merger.  I'll spare everyone the details of pulling this together, but here is a post-merger summary of Kognitiv's capital stack and the portions belonging to AIMIA and Kognitiv investors.  Fortunately, all of my numbers worked out exactly the same with the original term sheet when the deal was announced. (Keep in mind Kognitiv's securities seemed to be priced in USD and the conversion to CAD for the press releases uses the $1.40 CAD-to-USD forex rate at the time the deal was announced.)  You can click on the table to see it full-size for better readability.

 

 

My table backs up the term sheet.  Initially, when the deal was announced in late April, AIM and Kognitiv investors each put up $5m USD ($2.5m each) for Notes that will convert to Series A-2 preferreds when the deal closes.  The Series A-2 preferreds pay 12% and are convertible into Kognitiv common 1-for-1 (since each has a $9.11 USD price).  In addition, AIMIA puts up another $12.5m USD to invest in some Series A-2 preferreds at the close in June. Kognitiv investors do as well at a different amount.  Adding the note and the preferreds, AIMIA is putting up $15m USD ($21m CAD).  Finally, AIMIA contributes its Solutions business and gets a bunch of Kognitiv common equity in return.  Adding up the total capital, fully converted to common and converted to $CAD gives us the $525m CAD post-merger valuation that everyone kicks around in the press releases.

 

Given Kognitiv's previous funding was done at a $400m CAD valuation (as per the AIMIA deck announcing the deal), it's clear that pre-merger equity investors are taking a hit.  Is this because of the deal or is the poor economy affecting Kognitiv's valuation?  If only we had a historical view of Kognitiv's equity valuation over time.  Fortunately we do.

 

There is a Canadian public company investment management firm (Urbana Corp – URB.TO) that has owned a tiny stake in Kognitiv for a few years.  We can compare Urbana’s quarterly $CAD valuations since we now know that the Kognitiv common share price is quoted in $USD.  Everything begins to fall into place.  Let us construct a quarterly look at Urbana’s Kognitiv common investment per their recent quarterly filings.  Since the merger closed before June quarter-end, I'll go ahead and proactively mark URB.TO's Kognitiv investment for the June Q. 

 

[EDIT:  I didn't realize URB.TO posts weekly NAVs completed with holdings on their IR website.  My June estimate matches their June 30 mark exactly!  Also - it appears that Urbana was part of the Kognitiv investor group that added capital via the investment in the Series A-2 Preferreds.  It looks like they purchased $250K USD of the Convertible Notes when the deal was announced in late April and converted them to preferreds at the close at $9.11 USD per share]

 

 

It looks like the October 2019 equity raise was at a price of $17.50 USD per common share (and a raise from $15 USD as the previous mark) since Urbana was using “recent transaction prices” in its private market value calculations.  There is no change in their mark between Q3 and Q4 when looking at their mark in USD.  Then comes Q1, 2020 and Urbana abandons its “recent transaction prices” methodology and marks it down by 25%. Urbana writes in their Q1, 2020 report:

“During 2020, the Company changed the primary valuation technique for Kognitiv Corporation from a methodology based on a recent market transaction to a methodology based on an average TEV/Revenue multiple because it is anticipated that COVID-19 will have a significant impact on Kognitiv’s operations and the recent market transaction is no longer expected to be a good indicator of fair value.”

During the TD Fireside chat, Phil Mittleman implied that COVID didn't damage Kognitiv and financing fell through because investors stopped investing in all kinds of deals because of COVID.  But Urbana's commentary seems to disagree.  Hard to know what really happened.  But ask yourself - when (and under what circumstances) do private marks get ever get reduced in public companies' disclosures?

 

Another argument some folks make for the reduction in Urbana's Q1 report is that it came out in May so they were already aware of the new marks on Kognitiv common and they were just acknowledging them in their accounting.  But the table above disputes this because their mark for Q1 is still way above the post-merger pricing of the common.

 

Ok - now comes the uncomfortable part.  Everyone seems to acknowledge the hit to valuations that Kognitiv investors took to make the deal with AIMIA.  But look at the exchange being made.  Kognitiv investors are selling almost half of their business to "buy" AIMIA's Solutions Business for a mark of $236m CAD.  Does anyone who has followed AIMIA here really think these declining-revenue and money-losing businesses are worth almost half of the PLM put value (established in the recent Aeromexico agreement)?

 

Did the Kognitiv investors not read the AIMIA financials nor the Alexander Capital report?  Did the Mittleman’s oversell this?  Do the Kognitiv investors think that little of their own business?  Or does this deal unlock unbelievably large synergies to both businesses?  I'm sure there are some synergies but this is a large gap.  Of course, Alexander Capital's valuation could also be way too low.  Some or all could be true to some degree.

 

Here's the thing.  If we take the high-end value estimate of the Solutions biz from the November, 2019 Alexander Capital report ($30m CAD) as the economic value of the exchange, rather than the deal mark value, then the value of the Kognitiv shares received in the merger exchange-of-equals falls precipitously.

 

 

In real terms then, Kognitiv shares have fallen from $17.50 USD in Oct., 2019 (albeit a private mark value) to $1.16 USD in the merger.  Of course, this is a private market valuation and the two companies might find revenue and cost synergies to make this combination work.  Or, an AIMIA investor may say - well this gets a money-losing operating business off our books and its just a call option now.  We can mark it at zero in our SOTP and its not our problem anymore because the overall AIMIA investment thesis still works.

 

I note with interest that there's been a tiny change that hasn't been publicized.  The initial term sheet (and the press releases) highlighted that Kognitiv investors were also putting in $10.5m CAD of new capital to buy alongside AIMIA the Series A-2 preferreds.  But after the deal closed in late June, there was a Material Change Report filed in conjunction with the close that said:

Pursuant to the transaction, Kognitiv received $21 million in funding from Aimia and approximately $8.2 million from Kognitiv’s investors in the form of 12% convertible preferred equity, at a combined post-money and post-merger equity valuation of $525 million.

 

Hey wait a minute.  Why did the $14m CAD drop to $8.2m CAD?  And why was the change not spelled out in the actual press release announcing the close?  The total value of the deal didn't change ($525m CAD) so perhaps this is just some fine-tuning adjustments in the capital structure.  Or it could be that some of the Kognitiv investors who had pledged to invest alongside AIMIA either could not or would not invest for their own reasons.

 

But the other part of this deal to think about is what happens if the Solutions business starts to see more financial challenges due to the COVID impact to its customers and markets.  This post is already very long so I'll stop here for now.  But its important to note that the merger includes an additional $29m CAD in "Other related Kognitiv merger transaction items" in the AIMIA Q1, 2020 cash waterfall chart.  I think this is mainly letters of credit posted for possible working capital and customer contribution margin shortfalls in the Solutions business.  The merger contract has language on remedies for that unfortunate possibility:

 

If an AIMIA Customer Revenue Deficit is determined to exist as of such date, within ten Business Days following such determination, Aimia Parent shall subscribe from Kognitiv Parent for a number of Series A-2 Preference Shares having an aggregate issue price (determined at $9.11 per Series A-2 Preference Share) equal to 50%... of the amount of the Aimia Contribution Margin Deficit.

 

This seems to be saying that if there are shortfalls, AIMIA has to basically meet a capital call (more Kognitiv preference shares).  I'm guessing that's what the $29m of restricted cash is for.  I still haven't tried to calculate what happens in a theoretical worst-case scenario if that $29m has to be used by AIMIA to invest more capital into the deal and what happens to the 49%/51% ownership mix if/when that happens.

 

Sorry for the long and rambling report.

 

wabuffo

[samwise]

Thanks for sharing wabuffo. Fascinating.

 

That business was a cash drain. This transaction seemed to be like paying for someone to take it away. Now you have pointed out a promise to pay more later. Is that an open ended promise with 29$m as a current best guess? I hope it’s not open ended.

 

 

 

 

[wabuffo]

This transaction seemed to be like paying for someone to take it away. Now you have pointed out a promise to pay more later. Is that an open ended promise with 29$m as a current best guess? I hope it’s not open ended.

 

SW - I don't know for sure. I think there is a limit but, as you'll see below, it may create other problems if that limit is hit.  I'm still trying to read this 206-pg agreement to understand what's in the fine print. 

 

There is no breakdown for that $29m CAD in the cash waterfall related to "Other Kognitiv Items".  But I'm guessing because its not in the investment numbers, this is cash to plug any holes in the AIMIA Solutions business.  It indicates $5m for working capital, $22m restricted cash and $2m for which that there's no description.  The contract is written like this is/was a concern.

 

The contract defines terms like:

"Aimia Contribution Margin Deficit" means (a) the amount of Aimia Customer Revenue Deficit, if any, multiplied by (b) [commercially sensitive agreement terms redacted]. [wabuffo - I'm assuming this redacted portion is a gross profit percentage]

"right to recover all Losses due to an AIMIA Indemnitee pursuant to Article 8"

"an amount equal to 50% of the AIMIA Contribution Margin Deficit, if any" [wabuffo - this is one of the items listed in Article 8]

It is important to note that there does not appear to be a reciprocal commitment towards protections from Contribution Margin Deficits on the Kognitiv side.

 

To summarize, AIMIA appears to have made some guarantees against margin deficits in the Solutions business. I have no idea what the baseline to measure these might be (vs. 2019 Actuals?, vs. 2020 Budget?, vs. 2020 Pro-Forma ex-COVID impact?).  It appears, though I'm not sure, that AIMIA has posted Letters of Credit (Restricted Cash) against this commitment post-closing.  If there is a Deficit, then AIMIA has to use this restricted cash to buy more Series A-2 Preferreds equal to 50% of the Deficit Gap.

 

I also remember something in the original Letter of Intent Term Sheet:

Kansas [Kognitiv]Claims for Indemnification – The indemnification threshold under the Definitive Agreements for claims by Kansas will equal 1.0% of the value ascribed to the Alaska [AIMIA] Businesses, after which Kansas will be entitled to recover losses from dollar one for breaches of representations and warranties up to 15% of the value ascribed to the Alaska Businesses.

Once again, there is no equivalent 15% guarantee from the Kognitiv side.  15% of the value of what Kognitiv is paying for the Solutions business is .15 x $236m CAD = $35.4m CAD.  50% of that would be $17.7m CAD which is pretty close to the $22m letter of credit total (could be some other things the LOCs are covering too).

 

Of course, I'm not a lawyer and I could be very badly misunderstanding the terms in this merger contract.

 

But here's where it gets interesting...  Suppose the margin shortfall happens at the maximum amount.  In addition, to a capital call on AIMIA (which in fairness is already factored out of their $190m CAD post-investments cash balance because it was moved to restricted cash), this could tip the ownership balance if Kognitiv investors don't step in, too (and why would they?).  It's particularly acute because of the Kognitiv investor shortfall at close for the Series A-2 investment (remember only $8.2m CAD of the $14m CAD that was part of the LOI term sheet showed up at close).  I will re-run the capital stack based on a worst case scenario and incorporating the shortfall on the Kognitiv side.

 

 

See what happens?  There's a risk that AIMIA could back into a control position with more than 50% ownership.  Now I want to caution, I'm just playing with numbers here and I have no idea what I'm doing trying to interpret the contract.  It's also possible that this is an outcome that neither side wants, so they would re-negotiate the issue and come to a different resolution mechanism in a worst-case scenario.

 

----------------------------------------------------

Just a few other random observations about this AIMIA Solutions-Kognitiv Corp merger that popped up for me as I re-listened to the Phil Mittleman/Michael Lehmann TD Fireside Chat during the part where they are talking about the Kognitiv deal:

 

1) Phil Mittleman mentioned a couple of things that I took note of.  First, he mentioned that "over $300m CAD" had been invested in the Solutions business over the years by AIMIA.  I know the Mittleman's don't care about accounting book value, but I wonder how much that played into the $236m post-merger valuation for the exchange. Second, he said (note that I'm transcribing by hand, so any errors in this transcript are mine):

"But on top of that, now we had agreed to invest $15m [$USD] into this new entity and these guys went and said look can we piggyback you on top of that with this $10m [$USD].  And I, uh, you never see that. You just don’t see that.  I’ve been in venture capital a long time and you just don’t see existing...uh,... who have been investing a long time, 8 years.  They have investor exhaustion, in a Covid panic, and a financing at a high valuation"

Now there's a lot to unpack in that statement, but I will glide by the "investor exhaustion" and "high valuation" throwaways and focus on the $10m comment.  With all due respect to Phil, I'm gonna call bullsh*t on this statement.  At the valuation exchange established for the Kognitiv common equity/AIMIA solutions exchange, without the Kognitiv additional investment, AIMIA would be buying control based on using the above capital stack and x-ing out the Kognitiv investors' piece.  That's why they bought in - they bought just enough to keep 51% control.

 

2) I also noted what they didn't say.  Did you know that one of the new AIMIA Directors brought on as part of the new Board (Karen Basian) was COO at Kognitiv Corp for a time (started in July 2018 - see attachment)?  Neither did I.  I mean its not like this was hidden - its in her bio, but I had never made the connection until now.  I have no idea of her involvement in the deal, but you'd think as Mittleman is talking about Kognitiv he would have said something about the fact that an AIMIA Board member had/has a connection to Kognitiv Corp (and in fact was at one time the no 2 to the Founder there).  Listening to the Fireside Chat, you'd think this was a cold call from Kognitiv and their bankers. (which it might have been).  There just seems to be all these former investments that this Board is bringing with them into the "new" AIMIA. 

 

Very fascinating situation and it'll be interesting to see how this merger turns out.

 

wabuffo

Pages_from_FLWR_CN_Basian.pdf

[Homestead31]

wabuff - i have to give credit where credit is due.  you have done some great sleuthing on this name.  i would bet that less than 10 people in the world that were not involved with the drafting of those documents have read them in their entirety, so kudos to you.

 

that being said - i continue to be puzzled as to why you always seem to conclude that everything is done with nefarious intent?

 

i mean, as i said, probably 10 people in the world that were not involved with the drafting of those documents have read them...  but the people who WERE actually involved with the drafting of those documents have dozens of millions of dollars at stake, and fought a very hard battle to be in the position to draft those documents.  Is it your view that they deserve no benefit of the doubt, on anything, ever?

 

to be clear - they should not just get a free pass - but there is A LOT of room between a free pass and always assuming they are out to screw equity holders or cover something up, especially when they are the largest equity holders, and they have been actively buying shares on a regular basis.

 

in your view, what possible theory could explain the behavior behind this apparent contradiction?

 

and if you are indeed correct in your constant assumption that the largest equity holders / management are in fact up to no good, then why do you own the stock? 

 

i am honestly puzzled.

[wabuffo]

Homestead1 - I truly appreciate your feedback.  Thanks.

 

I am trying to tone down the negativity in my posts - although I continue to believe this will be a ho-hum investment at current prices.  I thought my detailed post on Kognitiv, while detailed, tried to be fair. 

 

My main bug-a-boo with the Kognitiv deal is that it is opaque and too many people take the post-merger equity value and plug it into their models.  So I thought it would be helpful to everyone to drill down into Kognitiv a bit more and deliver some data on which investors can draw their own conclusions. 

 

Again - I am long (not a big position) and definitely not short.

 

I have another post coming on potential taxes that will be owed to the UK authorities on any capital gains from a potential PLM disposition.

 

AIMIA is just my new favorite toy, what can I do?  8)

 

wabuffo

[samwise]

Kognitiv is a venture capital investment, and 10% of those work out, anecdotally. So the headline valuation should be heavily discounted unless it gets sold soon at this valuation.

 

This business was a cash burner before.  If all this transaction achieved was cap the cash burn at the 15 million already sent out the door and a contingent -20 to -30 million , then I count that as progress.

 

No CEO says “good riddance” publicly when selling the division they really wanted to get rid of. Instead they talk of what a great deal it was and hopes for the future. That’s appropriate for both morale and to ensure no legal troubles. So wabuffo, the disconnect you see in the public statements and the contract is not unexpected. Nothing nefarious. Not the moral high ground.

 

Finally let me add my compliments to Homesteads. This is exceptional sleuthing.

[Dr. Aybolit]

appreciate the legwork on Kognitiv, wabuffo, i did not know a lot of that info.

 

and I don't pretend to know what it's likely worth, but I was thinking those legacy loyalty solutions businesses at Aimia were worth $0 before this merger, and now I'm thinking it's more likely something significantly positive.

 

looking back at Aimia's Cardlytics (CDLX) investment, that thing had significantly negative EBITDA and FCF for years, and still does, and then it IPO'd at $13 in 2018 and then Aimia sold their stake at just over US$30 in 2019 if memory serves, which was about C$132M in cash, from a cash burning speculative VC investment (now CDLX is $73 per share, US$1.9B EV, 10x sales of $190M est. for 2020., EBITDA still negative).

 

if they can show some growth at ALS+Kognitiv, and some synergies realized, we might have a similar outcome meaning an IPO / liquidity event.  loyalty SaaS (Aimia Loyalty Solutions) getting you maybe some SaaS multiple on those sales, and the loyalty network (Kognitiv) getting a decent multiple too due to growth from network effects.

 

not counting on it but i wasn't counting on CDLX contributuing to NAV either, especially so quickly.

 

- Dr. Aybolit

 

 

[wabuffo]

I must give credit where credit is due.  I had doubted the commitment to the buyback program, but the Mittlemans' are in there nearly every day buying back stock since mid-June when the program was announced.

 

By my calculations, through July 29th, they have repurchased 2.673m common shares for $7.981m CAD at an average price per share of $2.98 CAD

 

Good luck to the longs.

 

wabuffo

[Homestead31]

https://www.prnewswire.com/news-releases/aeromexico-files-dip-financing-motion-301112254.html

 

With a billion dollar DIP it seems like liquidation for aeromexico is off the table.

 

I'd expect the stock to re-rate meaningfully on this news.

 

wabuff - when you said, "good luck to the longs" does that mean you are no longer one of the longs?