Author Topic: AIM.TO - Aimia  (Read 105623 times)

Aqul

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Re: AIM.TO - Aimia
« Reply #370 on: November 30, 2018, 09:39:09 AM »
...indicates they are looking to unwind the assets rather than turning it into an investment vehicle. I honestly prefer that...

Do you have a good handle on exit/wind-down costs if they liquidate?  Air Canada will pick up much of the administrative/customer support staff, but will leave in place much of the very expensively-compensated mid-level and senior level management.

Just looking over their financials - there appear to be quite a few one-timers that will add up:
1) they have lease commitments of $67m - perhaps AC will might pick up the call centre lease, but I'm sure they're not picking up the HQ office lease in downtown Mtl or the other satellite office leases around the world.
2) they also have commitments for technology infrastructure of $123m and marketing support of $112m.  From a quick glance, these look like cash costs they are paying every quarter.
3) I'd have to look at the mgmt info circular - but we'll have to factor in executive separation costs as well as stay bonuses for key personnel during the wind-down period.  But a placeholder of $30m-50m might be a good SWAG til those details are released by the company.
4) In pension and other liabilities, it looks like they've booked a dividend accrual for the common dividend they declared but cancelled in mid-2017 of $30.5m.  It makes it sound like this is a cash commitment beyond the unpaid preferred dividend accruals that they will have to pay to shareholders of record at that time before they can make any liquidating distributions to the equity.  So if you bought after June 2017, that cash isn't coming to you but to a shareholder who sold to you.
5) Finally, there's going to be a cash burn while they wind-down.  We'll have to wait and see details on the transition plan to AC, but once the gross billings start flowing to AC, they will have little in the way of incoming cash flows beyond what they get from their investments.

You add all of that up and it could be up to $3 per share BEFORE the debt and preferreds make-whole payments.

Not saying that there isn't potential upside, but all of the sum-of-the-parts that I've seen on VIC, from Mittleman, etc -- ignore all of these costs/expenses because they assume a quick jump from steady-state A to steady-state B.  I'm worried that it's the transition part in the middle that will bleed quite a bit of cash.  This was not a very cost-conscious culture and had a habit of making expensive commitments and poor capital structure/allocation decisions.  I really worry about the cash expense of dealing with those hidden costs in a liquidation scenario.

wabuffo

Good points, but I think you are being overly punitive. If PLM is worth 9x 2017 EBITDA, then you have a buffer of ~325mm CAD between the implied value of the equity and the current market cap. It is EXTREMELY unlikely that you will burn that much cash in a liquidation. Most of the operating commitments should leave with Aeroplan off Aimia's balance sheets, but I guess we will need to wait for final confirmation for management. I have already included both the accrued preferred and common dividends in my SOTP.

Not to mention, ILS might have positive value if it is sold off.


NewbieD

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Re: AIM.TO - Aimia
« Reply #371 on: January 10, 2019, 06:47:46 AM »
So they repurchased 250m. Looks like your extrapolation from the strategy officer leaving was right, Agul.

What's next then - repurchase offer?

samwise

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Re: AIM.TO - Aimia
« Reply #372 on: January 10, 2019, 05:59:00 PM »
Buyback prefs at a discount from the holder who owns 1/3rd of a illiquid issue?

Aqul

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Re: AIM.TO - Aimia
« Reply #373 on: January 15, 2019, 07:11:40 PM »
Retiring the debt was a great move to avoid leakage through interest payments. I guess they need to decide now whether they want to liquidate or deploy their remaining capital. If the latter, it might make sense to keep the preferred in place. I would much rather take the quick return of a liquidation, though.

Cigarbutt

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Re: AIM.TO - Aimia
« Reply #374 on: February 26, 2019, 05:01:55 PM »
Last June 2017, I agreed with management about the dividend cut (both common and preferred) but their CBCA section 42b argument felt fuzzy.
https://www.advisor.ca/columnists_/al-and-mark-rosen/can-a-board-be-legally-forced-to-cut-dividends/

Since then, a lot of water has run under the bridge and, because of insufficient confidence in opposing forces and the potential for value destruction, I left money on the table and didn't get to vote last January but progress has been made and, recently, have voted with my feet in the C, B and A sections. Isn't it supposed to be about buying low and selling high? When facts change...
https://www.aimia.com/newsroom/news-releases/

There is still uncertainty about liquidation versus a new start and the Canadian preferred market has a life of its own but me thinks that the prefs will continue to gravitate to par but what do I know?
https://www.raymondjames.ca/branches/premium/pdfs/preferredsharesreport.pdf

Another interesting feature is that the holders of security of record on June 16th 2017 have some declared and unpaid money to make and it may be a good idea to have a laser eye on accounts as custodians at times "forget" to transfer the old coupons.

Cigarbutt

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Re: AIM.TO - Aimia
« Reply #375 on: March 24, 2019, 05:35:02 AM »
Aimia continues to be, in my view, a liquidation story and the profile has evolved. What may happen can be analyzed through an arbitrage filter.

1-How likely is the liquidation and the preferred redemption at par?
I would say the likelihood is high given that the main asset has been sold and it seems to me that AeroMexico should be able to negotiate a fair price for PLM, which is the other jewel in the crown.

2-How long will the process take?
Since the Aeroplan sale, Aimia has acted rapidly to alter its stated capital rules, has decided to distribute previously declared dividends (June 2017), has re-started capital distribution, including cumulative dividends, and prominent shareholders have asked for a clear path and have a standstill agreement which finishes on July 1st, 2019.

3-Any upside above par value?
Unlikely and limited but a rapid and satisfactory liquidation process may cause them to buy the prefs at a slight premium in order to save on the dividends. 

4-What if Aimia doesn't liquidate for whatever reason including an uncertain path to a "new" Aimia?
That is a tough one in part because it is hard to see the outside appetite for the assets remaining within the corporate structure. However, even without a liquidation, IMO downside is limited for the stranded preferreds because of a quite large margin of safety (even if "transition" costs that wabuffo has described are taken into account) if the preferreds are seen as fixed income and because Aimia, as a going concern, would continue to hold valuable tax assets.

Here's a slightly dated report that focuses on the common shareholder's perspective:
http://www.mittlemanbrothers.com/wp-content/uploads/2018/11/Value-Investor-Insight-Aimia-10-31-18.pdf
« Last Edit: March 24, 2019, 05:38:12 AM by Cigarbutt »

wabuffo

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Re: AIM.TO - Aimia
« Reply #376 on: March 24, 2019, 01:14:28 PM »
I was a little surprised that they paid out the deferred preferred dividends and common dividend without announcing what their business strategy was going to be.  I'm concerned that it just reflects confusion/disagreement by the BOD on the path forward now that the Aeroplan business has been sold.

Mittleman appears to be arguing in favor of a conservation of cash while searching for profitable acquisition candidates that can use the NOLs.  But if they were pursuing that strategy, that would argue against making the preferreds current in order to husband all the cash possible towards an asset purchase.   Stranding the preferreds turns them into a PIK/zero coupon type of liability that will grow with time but that one can payoff or restructure further down the road once the business strategy has been fully implemented.

Otherwise, if you are going to liquidate, then make the preferreds current and pay them off.  Otherwise, every quarter that goes by, you owe more cash that isn't going into a liquidation.   Overall, this feels like a half-a-loaf strategy that burns cash while delaying the decision about which business strategy is going to be pursued.  Very underwhelming performance by AIMIA's BOD so far.

Perhaps we'll learn more this week when 'earnings' are released on the 28th.

wabuffo

samwise

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Re: AIM.TO - Aimia
« Reply #377 on: March 24, 2019, 07:24:34 PM »
I was a little surprised that they paid out the deferred preferred dividends and common dividend without announcing what their business strategy was going to be.  I'm concerned that it just reflects confusion/disagreement by the BOD on the path forward now that the Aeroplan business has been sold.

Mittleman appears to be arguing in favor of a conservation of cash while searching for profitable acquisition candidates that can use the NOLs.  But if they were pursuing that strategy, that would argue against making the preferreds current in order to husband all the cash possible towards an asset purchase.   Stranding the preferreds turns them into a PIK/zero coupon type of liability that will grow with time but that one can payoff or restructure further down the road once the business strategy has been fully implemented.

Otherwise, if you are going to liquidate, then make the preferreds current and pay them off.  Otherwise, every quarter that goes by, you owe more cash that isn't going into a liquidation.   Overall, this feels like a half-a-loaf strategy that burns cash while delaying the decision about which business strategy is going to be pursued.  Very underwhelming performance by AIMIA's BOD so far.

Perhaps we'll learn more this week when 'earnings' are released on the 28th.

wabuffo

Maybe they want to to a tender offer first? I agree that they need to either liquidate fast or invest the cash for a compounded return, while financing with deferred simple interest (i.e. Strand the preferreds). But in either case a buyback will enhance value, and the biggest shareholder has argued for buybacks under a price of 5.

If they don't do buybacks now, then paying the dividends out of cash just reduces value over time.

Cigarbutt

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Re: AIM.TO - Aimia
« Reply #378 on: March 28, 2019, 04:55:38 AM »
Aimia has decided not to liquidate.
I don't like the stranded status but the balance sheet of the equation at least gives some comfort for some time.

The breakage assumption change at PLM crystallizes past cashflows that have occurred and needed to be recognized which hurts present results but points to a growing and active customer base with strong potential recurring revenues. PLM continues to have value but it has a similar risk profile as the previous AC partnership.

The recent announcement has a slight big-bath taste to it which is fair game under the circumstances.

I think the common share buyback announcement is reasonable and leaves residual financial flexibility.

The new team definitely has a different mindset than the previous team and that comes with its own risk and reward profile.
« Last Edit: March 28, 2019, 04:57:18 AM by Cigarbutt »

wabuffo

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Re: AIM.TO - Aimia
« Reply #379 on: March 28, 2019, 09:19:07 AM »
I'm not a big fan of businesses that burn a lot of cash while trying to start up new businesses.   The 'core' business (ex-Aeroplan) appears to have annual outflows of cash = $89m CAD.  While $21m CAD of annual cash interest expense goes away, they have now committed themselves to $17m CAD of preferred dividends.  That pegs go-forward cash burn around $85m per year.

I'm still wondering why they made the preferreds current and paid another $30m for a declared-but-no-paid common.  Was it to allow them to buy back stock?  Why in the world would one buy back stock with a near-$100m cash burn and a desire to use cash to make investments? 

Not sure I trust this management team to execute well.

wabuffo
« Last Edit: March 28, 2019, 09:43:56 AM by wabuffo »