Author Topic: AIM.TO - Aimia  (Read 152289 times)

YVRtrader

  • Newbie
  • *
  • Posts: 4
Re: AIM.TO - Aimia
« Reply #590 on: December 30, 2019, 10:16:12 AM »
Credit Suisse Securities (Canada) has purchased 6,518,330 shares since the announcement of the SIB and you can be sure they'll tender every share.  They did the same thing for the last SIB, then dumped their remaining shares aggressively.  They won't get a 77% proration this time.


Cigarbutt

  • Hero Member
  • *****
  • Posts: 1984
Re: AIM.TO - Aimia
« Reply #591 on: December 31, 2019, 11:49:46 AM »
The oversubscription for both the common and preferred shares has been very high.
Due to the issuer bid with the valuation exercise, I wonder if insiders have not set themselves in a tight spot if Aeromexico submits a bid for the entire enterprise. The new team would try to negotiate and they do hold a relatively significant stake but the infatuation for the common buyback is hard to reconcile with the valuation that MIM reported at the end of Q3 for AIM.

Some numbers:
Total shareholders' equity (-53.2M reported for PLM) is expected to be about 519-125=394M at the end of Q4 2019. Apart from the recurrent stuff, I assume some positive contribution from the last Cardlytics sale during Q4 to balance the residual negative legacy costs.

Given that the retail crowd and the majority owner of preferreds are yelling "we're for sale", here are some possibilities and the resulting price tag for the PLM entity form Aeromexico's point of view.

Offer:     commons: 4.25     preferreds: redo of last bid                 price tag for PLM: 175M (CDN)
Offer:     commons: 4.50     preferreds: redo of last bid                 price tag for PLM: 200M
Offer:     commons: 4.50     preferreds: half-way back to par         price tag for PLM: 231M
Offer:     commons: 5.00     preferreds at par                               price tag for PLM: 311M

I think the new Aimia has set itself up to be an easy target and that may not be the worst case scenario.
The following is sentiment-based, but, if post-buyback AIM's buyback history is any guide, common shares are likely to trade down in the next few weeks.
Happy new year.


wabuffo

  • Sr. Member
  • ****
  • Posts: 306
    • Twitter
Re: AIM.TO - Aimia
« Reply #592 on: January 02, 2020, 12:49:40 PM »
I think the new Aimia has set itself up to be an easy target and that may not be the worst case scenario.

CB - I think you make an astute observation.   Aeromexico's senior mgmt must be watching this and realizing that they could make a bid for AIMIA's common shares at a price not too far from their $180m USD rejected offer for the 49% stake (when you adjust for AIMIA's bag of cash/bonds plus tag-end assets).   They see that at $4.25 they would get a stampede to sell and get control of PLM (albeit through a cumbersome structure) and even strand the preferreds.  I haven't done the math - but I'm sure someone at Aeromexico is doing it.

I fully expect an offer is coming in 2020 and I don't think it will be anywhere near where Mittleman wants it to be.

wabuffo

« Last Edit: January 02, 2020, 12:55:14 PM by wabuffo »

Pref User

  • Newbie
  • *
  • Posts: 25
Re: AIM.TO - Aimia
« Reply #593 on: January 03, 2020, 07:29:46 AM »
Dr. Aybolit, after reading your post on December 14 I now get why you want the dividend recap and it makes a lot of sense. The PFIC rules will really tighten or force Mittleman's hand, especially since they won't have control of the board so they can't just make an acquisition without permission. So does that leave us with three possible outcomes? First, Aimia makes an acquisition which then allows Aimia to sell PLM. Second, Aeromexico acquires Aimia for its PLM ownership. Third, nothing happens and the value continues to dwindle away.

As for the acquisition of Aimia by Aeromexico to get PLM, does anyone know the voting rules for Aimia on transactions? Is it supermajority or is it 50%+1? Cause if it's supermajority Mittleman is back in control as they only need to get another 4% of votes to block anything, or just get the Fisher group on their side. If that is the case we are now all slaves to a new owner who we thought had the same incentives as us but apparently not. 

Cigarbutt

  • Hero Member
  • *****
  • Posts: 1984
Re: AIM.TO - Aimia
« Reply #594 on: January 03, 2020, 08:48:12 AM »
There are various scenarios but the path leading to AeroMexico buying Aimia could be defined quite rapidly. The following is an opinion and legal technicalities (form or arrangement etc) may have an impact but my understanding is that 66 2⁄3% of votes are required for further steps leading to regulatory and, ultimately, legal approval. If this happens, this may be straightforward or complicated, may happen in one or more steps, may alternate between friendly and hostile, may involve parallel dealings between the common and preferred side. The key player is MIM and they have decisive weight but they are in a relatively weak position for many reasons, including the fact that their main holdings (eg REV and AMC) have done poorly (in terms of market quotation and on a relative basis) in Q4.

If interested, it may be relevant to compare to a relatively relevant comparable when Lowe's acquired RONA in 2016.
Timeline
-2/2/16     acquisition agreement announced, offer CS 24$  PS 20$ + accrued interest (par 25)
-31/3/16   CS vote 99.9% yes     PS vote 74.8% no
-agreement 'amended'
-20/5/16    transaction closed, acquisition completed (control)
-decision to keep preferred shares, as stranded, reporting requirements adjusted to new status
-various options considered and main holder of preferred shares 'consulted'
-fall 2016   new offer to buy preferreds because of (presumably) relatively high and tax-inefficient financing costs, listing costs and reporting costs, at 24$ (clean price)
-15/11/16  PS vote 95.2% yes
-done deal
The end

The above (IMHO) helps to gauge the odds and I made my mind for the 'value' that should be offered to CS and PS. I also just sent a detailed letter to relevant boards on the acquirer's side to help balance the 'fairness opinions' that may be asked along the way and to support what I perceive to be weak actors on the acquiree's side.

Homestead31

  • Sr. Member
  • ****
  • Posts: 274
Re: AIM.TO - Aimia
« Reply #595 on: January 03, 2020, 01:02:07 PM »
Cigarbutt- thanks for all your work on this.  i'm not sure i am understanding you though...  are you saying that the PFD shares would get a vote if Aeromexico were to bid for Aimia?  i don't think that is the case?

and do you have a position here?  based on your comments it doesn't sound like you would be long... but it also sounds like you sent a letter to the board of Aeromexico and PLM telling them they should try to buy out Aimia?  and if you did do that, it seems odd that you would do that when it seems like Dr Aboylit's ideas about value would have so much more upside?

and also, if aeromexico were to try to buy Aimia, how would they pay for it?

thanks

Cigarbutt

  • Hero Member
  • *****
  • Posts: 1984
Re: AIM.TO - Aimia
« Reply #596 on: January 03, 2020, 02:07:50 PM »
^I'm long both the preferred and common shares with a similar 'expected' outcome, with the upside and downside magnified for the common exposure and i don't intend to hold for the long term.
If Aeromexico goes for it, I assume that they could obtain financing (plain vanilla debt or through credit card issuers cash 'infusions") given the profile of recent similar transactions. It seems to me that lenders would be more flexible (rate, terms etc) in the case of a parent debt-funded acquisition versus a sub debt-funded dividend (especially given the EBITDA multiple range that would be applied for the acquisition). I would be surprised if Aeromexico goes along with a dividend recap scenario (unless somehow forced to) as it would entrench Aimia's PLM ownership more. I think they want to get rid of them at the lowest possible price.
AFAIK, there is no change of control provision in the preferred share 'indentures', so a vote for control is not necessary. However, i come to the conclusion that, on a weighted basis, the disadvantages of keeping stranded preferreds are more important than the advantages, especially if a formal take-over is contemplated.
But I think it would help if our local dreaming-to-be-investment-banker would write to respective Boards to get discussions going. :)
I also hope that Aimia is proactive and trying to get offers for their legacy loyalty business.


Homestead31

  • Sr. Member
  • ****
  • Posts: 274
Re: AIM.TO - Aimia
« Reply #597 on: January 06, 2020, 10:37:58 AM »
so it sounds like you are willing to sacrifice potential upside in the common in order to protect your investment in the pfds?  because why else would you write to encourage aeromexico to try buy out all of Aimia, and thus "steal" PLM for a low price, rather than root for Dr. Abolyit's plan, which would have much more upside for the common, but probably no impact on the pfds?

That isn't a criticism by the way - that is just level setting.

moving past that, i think you are right to think that Aeromexico wouldn't want to go along with a dividend recap unless they were forced to, but it seems like we are pretty close to that point, no?  i mean, T12M Aeromexico had $7M in EBIT and $96M in gross interest payments...  that isn't a recipe for success, and a cash infusion in the form of leveraging PLM and then dividending cash to the parent would of course help solve that problem.

As for financing a potential acquisition, i don't think they'd want to / be able to take more debt at the parent level as they are already pretty stretched.  the cash infusion from CC partners seems to be an option, but there also seems to be a chicken and egg problem there which i would think makes trying to go after Aimia rather than just PLM more difficult.  In other words, in order to bid for all of Aimia, PLM will need "funding secured" in order to deal with what would likely be a contentious battle...  but i don't think the CCs would be willing to give them that money unless the outcome was predetermined.  that of course leaves equity which could come in the form an equity raise (presumably 50% backstopped by Delta), but that would likely come at a significant discount, or in the form of using equity as currency, which seems unlikely to be supported by Delta since it would dilute their position.

i still think Delta makes sense as a buyer of Aimia's PLM stake rather than Aeromexico.  Simply stated, airline loyalty businesses are much better businesses than the business of actually flying planes.  Mexican stock ownership rules mean that Delta can't own more than 50% of Aeromexico unless they bid for the whole thing (or get an exception granted), and it seems unlikely that AMLO would want the country's flagship airline to be owned by a US company, but as PLM is not public there is nothing i am aware of (i am definitely not an expert here though) that would complicate the idea of Delta bidding Aimia for PLM and thus bringing their economic ownership of PLM to 75%.  Given the control they have at the aeromexico level, it is difficult to see aeromexico doing anything to sabotage Delta if they were to do this. 

 

Cigarbutt

  • Hero Member
  • *****
  • Posts: 1984
Re: AIM.TO - Aimia
« Reply #598 on: January 06, 2020, 03:14:46 PM »
^Simply stated, this is not to obtain a good deal for one side at the expense of the other, it's simply (my perspective) to assess the best risk-reward outcome from a total enterprise value point of view. So, it's a matter of assessing scenarios from a likelihood or possibility point of view. I'm all for it but I don't think a dividend recap is in the cards. I could be convinced to hold this for the long run but that would involve building enough confidence in MIM and acolytes and showing how a delay in monetization of PLM could make sense. The valuation parameters for PLM will lie between Velocity (more on that below) and GOL-Smiles (more towards the latter IMO) and will tend to gravitate towards a Multiplus-like multiple or worse over time.

In terms of Aeromexico (directly or indirectly) buying PLM or Aimia and the financing required, take a look at the link below (the whole document is interesting but especially pdf pages 65-67 and 83).
https://www.morgans.com.au/morgans-assets/PDFs/Virgin%20Australia%20Notes%20-%20Prospectus.pdf
Quite frankly, if MIM et al can negotiate a PLM deal valued at 16.1x segment EBITDA (or a 14.0x, "post cost synergies"), I would be ready to pay these guys a 2-week all-included Caribbean vacation but, with reasonable reserves, I would submit that they apply value precepts that could work under selective circumstances but don't seem to have what it takes to capture the PLM value during this transition and that's why (I'm not sure this makes a difference) I send materials to different parties in order to build some kind of defence (floor in value) as Aimia is IMO relatively vulnerable at this point (buyback with an implied low 'Alexander report' PLM value lower than what MIM accounts for, fund redemption pressures to come etc) but pushback would be welcome here if I'm wrong. Leverage (as far as I can tell, need to dissect fleet financing from 'financial' debt) at Aeromexico is comparable to Virgin Australia (before debt incurred from the Velocity stake buyback) and that did not stop the Velocity buyback. Note that the 700M raised (of the 750M total) has an 8% interest rate to it meaning that the 35% stake has a "pro-forma" interest stripe to it of 56M compared to a segment 3-yr avg EBITDA of 46.3 and a segment 3-yr free cash flow of 42.2, implying that the value from the transaction will not come from interim cashflows but from the terminal value with a starting point at 16.1x EBITDA. Again, if they pull a Velocity buyback trick, I will amend and accept that they are great but I don't think this is a reasonable scenario. So, given the related access to debt for Virgin Australia and the incredible thirst for yield (the Velocity-related debt issue was increased due to significant demand), I don't think access to debt for Aeromexico would be a problem, especially given the absence of debt at PLM and the more reasonable acquisition parameters and related faster payback period. BTW and FWIW, I wake up sometimes and hope that we don't live in a financial Alice-in-Wonderland world but it seems that we do, still. Somebody else seems to think that we live in interesting times:
https://www.livewiremarkets.com/wires/virgin-australia-s-very-junky-debt-raising

And add to that today's announcement that Aeromexico has settled a hanging cloud:
https://business.financialpost.com/pmn/business-pmn/aeromexico-reaches-compensation-deal-with-boeing-over-max-crisis

Dr. Aybolit

  • Newbie
  • *
  • Posts: 12
Re: AIM.TO - Aimia
« Reply #599 on: January 07, 2020, 12:40:49 AM »
Just got back from a nice little vacation in Mexico with my grand children in tow; sadly we did not fly Aeromexico.

the talk on this board seems to continue to center around a sale of PLM or Aimia, neither of which seem to be the most likely outcome here given the size of the two largest shareholders' ownership stakes (combined likely close to the 33.3% needed to block any takeover) and their seeming intent to make Aimia into an investment vehicle, and avoid PFIC designation.

but that doesn't mean the stock doesn't satisfy both the longer term ambitions of those largest shareholders, and the shorter term time horizon of the more vocal message board posters.

i think Aimia here at C$3.53 is an awesome risk/reward ratio, with the Advent-Lifemiles-Avianca model being the most likely path forward.  i reiterate (from my dec. 14th post here):

"PLM has grown membership from 2.7 mil. at inception of the JV in late 2010 to 6.6 mil. as of Q3 2019, a 10.4% CAGR, with gross billings, EBITDA, and FCF growing faster.  The projections in the Alexander Capital report show all key metrics more than doubling over the next 10 years, so call it 7.2% growth going forward.  So unless one believes that Aeromexico would actually blow up Club Premier after 2030 rather than pay a fair price, i think time is on Aimia's side.  Also, selling that 49% stake in PLM would almost certainly make Aimia a PFIC, so I don't think they can do it, at all, at least until they have acquired enough in the way of other businesses to avoid that designation which would be toxic to their now largely U.S. investor base.  That's why I think that rather than attempting to sell PLM they should pursue a leveraged recap to payout a large dividend like LifeMiles did, to the great benefit of both Advent and Avianca."

Aeromexico acknowledged being a little low on cash on their last quarterly conference call, in response to an analyst question, and that they were considering ways to raise capital to cure that.  I would think that leveraging the loyalty program would be the easiest and highest ROIC way of doing so.

Lastly, I am flummoxed by the skepticism about the activists here, and their supposedly misaligned incentives or ineptitude.  Did they not save us, all Aimia stakeholders, from the most odiously disinterested group of non-owner sycophants ever, and at huge cost and risk to themselves?   Would you prefer the old regime remain in place?  I could care less if they get "control" or not, but I am very happy to have major shareholders at the helm who seem reasonably adept with a decent long term record, even if they are not the second coming of Buffett, or the third coming if Prem Watsa was the second.   

But I wonder what skepticism Prem Watsa might have encountered at age 35 when he took control (control! oh no!) of Markel Insurance in 1985 (while he was still running his 1 year old money management firm, Hamblin Watsa) and turned it into Fairfax.  Isn't Aimia a far better risk/reward today than Markel/Fairfax was then?  Markel had blown out their combined ratio (143% in 1984, 127% in 1985) and was losing money and needed a capital infusion from Prem's group to survive.  Their book value per share had fallen from $11.29 in 1983 to $3.65 in 1984 to $2.25 in 1985.  It was a real turnaround situation, whereas even if you assume zero value for the rest of Aimia's businesses, PLM is recession-proof and doing US$90 mil. in EBITDA and converting US$60 mil. into FCF and growing double-digits alongside the flagship air carrier of Mexico.  I'm not saying Aimia will become another Fairfax, but just compare and contrast the starting points of those situations at those moments of change. It should not require an investing genius to at least see this through to a 100% gain from here, and in very short order i would think.

or maybe i just had one too many Margaritas down there...  but I do feel unusually optimistic about this one.

-Dr. Aybolit