Author Topic: AIM.TO - Aimia  (Read 114999 times)

wabuffo

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Re: AIM.TO - Aimia
« Reply #460 on: July 19, 2019, 07:51:14 AM »
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

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Re: AIM.TO - Aimia
« Reply #461 on: July 19, 2019, 08:03:33 AM »
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

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Re: AIM.TO - Aimia
« Reply #462 on: July 19, 2019, 09:13:17 AM »
^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

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Re: AIM.TO - Aimia
« Reply #463 on: July 19, 2019, 03:03:16 PM »
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
« Last Edit: July 19, 2019, 03:23:44 PM by wabuffo »

Cigarbutt

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Re: AIM.TO - Aimia
« Reply #464 on: July 22, 2019, 07:48:02 AM »
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

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Re: AIM.TO - Aimia
« Reply #465 on: July 22, 2019, 08:05:23 AM »
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