Author Topic: AIM.TO - Aimia  (Read 152288 times)

Homestead31

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Re: AIM.TO - Aimia
« Reply #600 on: January 07, 2020, 06:35:28 AM »
thanks for the thoughts from both of you - definitely very interesting game theory here.

it seems like Dr. A's point about PFIC status are under appreciated.  basically, Aimia can't just sell PLM, so Aeromexico's only option to take ownership would be to try to buy all of Aimia, but it seems like there is a blocking position in place.

If that is the case, then Aeromexico's options are to either:
 1) wait a decade and try to build out a competitive offering. 
      -  The operational hurdles here would be very high - note that Air Canada has had problems just making changes to Aeroplan, let alone building a whole new offering from scratch.
      -   this would be status quo, at a time where it seems like aeromexico could use a couple hundred million bucks
      -   ultimately aeromexico is going to want/need 100% control, so it might be worth just waiting it out

or 2) pursue the dividend recap
      -    no operational hurdles
      -    a few hundred million bucks never hurt anyone
      -    perhaps they can structure something where the two sides agree to do the leveraged recap in exchange for aeromexico having an option to buy the whole thing at a fixed multiple at some point in the future.  For example - agree to a dividend recap and agree that aeromexico has a call option at 8x EBITDA in 2028 (just making that up - but you get the point).

it seems like for Aimia shareholders option 1 is not very exciting in terms of near term impact, although assuming the activists can do something with the loyalty business (shut it down/sell?) and really get a tight handle on corporate costs and then make an acquisition to build some excitement then things could still work very well over time.   Option 2 would be a complete home run for Aimia shareholders in the near term.


Switching gears - i think in their Q3 letter MIM said 11x EBITDA for Virgin Australia/Velocity, but the source doc says 16.0x.  Is that just reflective of IFRS 16?  or perhaps backing out the points liability from the EV?


Dr. Aybolit

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Re: AIM.TO - Aimia
« Reply #601 on: January 07, 2020, 07:33:24 AM »
Velocity being quoted at 16x EBITDA by Virgin Australia, but that includes the points liability.  without it should be about 11x.   economically the lower multiple is more reflective of the cash reality and is the industry convention for quoting these multiples.  i think in quoting the higher multiple VA is hoping some of that rubs off on their stock as they own it all now.

Homestead31

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Re: AIM.TO - Aimia
« Reply #602 on: January 07, 2020, 09:28:47 AM »
just rereading the thread here as well as some commentary on other message boards.  there seems to be a view that Mittleman/Frischer were behind the recent buybacks.  The more i think about that, the more I think that view is wrong.  If you go back through Mittleman's letters, in one of them they talk about how attractive the preferred shares are as a way to finance the business.  basically perpetual cheap debt.  yet, the company just did a tender offer for the prefs, which makes absolutly no sense if you are solely focused on the common, as is the case for Mittleman and Frishcher.  I think that suggests that the  old board insisted on the $4.25 price for the common and the repurchase of the prefs as terms of their agreeing to step down. 

in my view, over paying for the common and buying the prefs at all can only be justified if they were deliberate attempts by the old board to weaken the resources and position of the new board.  i realize this isn't any kind of major breakthrough here, but if we have evidence that suggests that the old board was trying to weaken the position of the new board, i think  that the valuation performed by Alexander Capital should be viewed in that light.

in other words, it is totally possible that the old board instructed Alexander Capital to come up with a low ball valuation just to handicap the new board, so keep that in mind when using the Alexander valuation as a reference point.

Cigarbutt

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Re: AIM.TO - Aimia
« Reply #603 on: January 07, 2020, 02:32:42 PM »
^Perhaps useful to think of this exercise as a way to define the best way to unlock value. :)
Looking to be convinced.
From strategy to valuation and back.

-Strategy
Are you suggesting that the valuation report came up with a low valuation and that the 4.25 buyback price was high even if 4.25 was somewhat lower than the lower range of the Alexander report??

-Valuation
How can a buyback at 4.25 be detrimental when the fair value assessment is way higher than what is estimated for the common equity (and prefs at par)?

-Strategy and valuation
Whatever happened before, the outcome of this investment (especially common equity but also preferred equity) will be related to:
1-the way value is unlocked at PLM
2-the investment acumen and results of MIM and others

For 1-, shareholders in Aimia before 2016, in Multiplus and in Smiles, eventually after, were surprised by the turn of events (anchor partner) and value recovery suffered. Why? Even after Air Canada announced the non-renewal, there was widespread institutional feeling that investments in Multiplus and Smiles were secure (I can supply a Credit Suisse report if required). What objective criteria suggest that MIM and others will be able to obtain a more favorable result? Where are the credentials in loyalty and in financial dealings with predators?
For 2-, I'm in the process of reviewing MIM's past investment record. There are areas of strength and the value theme is present. However, they have not done well in the last 6 years (absolute and relative) and, so far, the conclusion I come to is that they have switched to levered and risky bet plays which may eventually pay off but which also may hurt results ++. For example, take Revlon. This is a company that can be assessed by attributing probabilities to various outcomes. MIM expects value recovery form an outside party making selective or outright acquisition(s). It's possible. However, in my own humble assessment, I come to a weighted intrinsic value below where the shares are trading because the most likely outcome may be that Mr. Ron Perelman opportunistically makes an offer in an environment where minority holders will not be able to refuse (perhaps in a similar trap that is being set up for PLM). They keep mentioning that mean reverting forces should eventually help results but I've never found that this explanation, by itself, to be enough to become comfortable with a strategy or an investor.
www.mittlemanbrothers.com/performance/
So, I'm slowly running out of conviction as it seems to me that Aimia's future hinges on unsubstantiated hope, expectations and optimism.

Note to Dr. A: In the late 90's, I got interested in the Fairfax story and, based on valuation and sufficient trust perspectives, in the following years, I invested significant portions of my portfolios (including my children's accounts, and, at times, using significant leverage) in Fairfax securities but I absolutely don't come to the same conclusion for Aimia now (for both the valuation and trust perspectives).

Homestead31

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Re: AIM.TO - Aimia
« Reply #604 on: January 07, 2020, 04:36:45 PM »
i am suggesting that it is at least possible that the old board deliberately tried to destroy value and/or prevent the future realization of value under MIM in an attempt to appease shareholders that had supported them in the past.  in other words, i do think the 4.25 buyback price was high - not in relation to intrinsic value, but in relation to market conditions.  any dope can look at the results of the first tender and how over subscribed it was and realize that you could try to pay a lot less the second time around.  when you factor in a clear shift in strategy going forward, you have to know there are some people who will just want out.  if you are acting as a fiduciary to ALL shareholders you would try to pay the lowest price possible.  if you are just trying to help out exiting shareholders who are exiting b/c they had supported you, then you would try to pay more. 

that is for the common.

there is absolutely no way to justify tendering for the prefereds if you care about the long term potential of the business.

to be clear - i still think 4.25 was accretive - but there is zero doubt in my mind they could have done a dutch tender with the range significantly lower and gotten filled at the lower end, or even just a regular tender at 4.00 or 3.85 even and gotten filled.  i think based on the amount of oversubscription at $4.25 you will have to agree with this assessment Cigarbutt.

the point is, i don't think the recent buybacks were MIM's / Frischer's idea, and yes i am suggesting that if the old board deliberately failed to do what was best for shareholders in an attempt to reduce the resources that the new board will have, then it is also possible that the old board deliberately encouraged a valuation report that understated the real value of the company.  now, of course valuation is subjective - and alexander could and did justify there valuation quite easily.  all i am saying though is that i don't think the old board fought for a higher valuation report which could then be used as a negotiating tool with aeromexico or delta.


wabuffo

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Re: AIM.TO - Aimia
« Reply #605 on: January 07, 2020, 06:17:37 PM »
i do think the 4.25 buyback price was high - not in relation to intrinsic value, but in relation to market conditions.

You could say that about the preferred buyback prices too -- by the looks of the response.  Some of the preferred issues were even more oversubscribed than the common was.

This BOD has no feel for markets or capital allocation.  That's been their MO - panicky, public-relations-driven capital allocation decisions that make them collectively look like the "patsy at the poker table".

wabuffo
« Last Edit: January 07, 2020, 06:37:38 PM by wabuffo »

Dr. Aybolit

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Re: AIM.TO - Aimia
« Reply #606 on: January 07, 2020, 11:09:54 PM »
Cigarbutt,

My Fairfax analogy was from the change-over in 1985, when the stock closed at half of its book value in that first year in which Prem took over and hired his money management firm to manage its insurance funds.  I think given the severe downturn in underwriting results that business produced in the years leading up to that point, and Prem's limited track record at that point, and the conflicts of interest, what a leap of faith it must have required to invest then, and wouldn't Aimia seem far less risky at this moment.  that was my only point in making that comparison.

But I think the Fairfax example that you gave, which you experienced, is especially instructive from the time frame in which you got involved.  After an incredible run from 1985 to 1999, Fairfax (FFH CN) began a 6-year stretch of severe under-performance.  Book value per share was C$226 on 12/31/99 and C$160 on 12/31/05, a 29% decline over a 6-year period in which the TSX total return was +48%.  The stock price was down from C$246 on 12/31/99 to C$168 on 12/31/05 (-32%, -29% with dividends) after briefly hitting a low of C$57 on 1/20/03.  But despite that harrowing period of severe under-performance, anyone who held on saw a return to market beating results, such that the past 20 years from 12/31/99 to 12/31/19 has seen a CAGR of 6.44% from the shares' total return vs. 6.23% from the TSX, and book value per share is expected to close 12/31/19 at C$613, a less impressive 5.1% CAGR over those 20 years.

Clearly, you found the necessary confidence to believe in a return to out-performance despite that extended period of poor results from Fairfax from 1999 to 2005. 

I find it much easier to do so here with Aimia because I think the core business here (PLM) is much more attractive and less confusing than the myriad of insurance and reinsurance companies that comprise Fairfax.  But I will admit that I did not invest in Fairfax during that most opportune period.  I considered it seriously during the time it went from C$100 to C$57 in 2002-2003, but the short sellers' reports really spooked me, and i found things that I liked better (late 2002 was a great time to be hunting for bargains), so I didn't buy Fairfax then and I regret that.  congrats to you for having done so and for being long this little Fairfax wannabe.  I take that as an encouraging sign despite your more short-term time horizon on this one and more conservative view of fair value.

- Dr. Aybolit


Cigarbutt

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Re: AIM.TO - Aimia
« Reply #607 on: January 08, 2020, 06:15:51 AM »
Fair enough Dr. A.
The past is relevant in so far that it may help to define mispricings, whether to be discovered shortly or in the long run and poor past performance does often result in a perception that may contribute to mispricings but it's the future that counts.

For Aimia,
-I don't presently like the idea of putting 20% excess cash in Revlon, for instance.
-And if I were Aeromexico, I would have an idea what to do for PLM, at this point; scenarios which won't be disclosed on a public forum and for which I hope our new wannabes are ready to deal with.
 

Homestead31

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Re: AIM.TO - Aimia
« Reply #608 on: January 08, 2020, 06:43:35 AM »
Fair enough Dr. A.
The past is relevant in so far that it may help to define mispricings, whether to be discovered shortly or in the long run and poor past performance does often result in a perception that may contribute to mispricings but it's the future that counts.

For Aimia,
-I don't presently like the idea of putting 20% excess cash in Revlon, for instance.
-And if I were Aeromexico, I would have an idea what to do for PLM, at this point; scenarios which won't be disclosed on a public forum and for which I hope our new wannabes are ready to deal with.

what makes you think that 20% of excess cash would go into Revlon?  or that any of the excess cash would go into any of MIM's positions? it is certainly possible, and some of their names i'd love to hold - but i don't think there is any indication that that is what is going to happen here.

my assessment of MIM's track record is that while recent STOCK performance has not been good, in most cases the BUSINESSES that MIM has owned over the last decade or however back you can find records have generated lots of cash flow.  The problem that they have is that in today's stock market, cash flow is a bad thing (growth at any cost!).

however, if MIM has the ability to identify businesses that generate cash and are cheap - that is the ideal skill set for a hold co structure.  Generate cash - kick it up the chain, reinvest it, and repeat.

surely this is not lost on MIM as they have owned many holdcos over the years - and surely this is not lost on the other members of the reconstituted board of directors who probably don't want to own Revlon anymore than you do....  so i really don't think this is going to be a situation where MIM uses the cash to just add to existing positions...

Pref User

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Re: AIM.TO - Aimia
« Reply #609 on: January 08, 2020, 07:58:31 AM »
Homestead31 on the preferred shares I don't think it was done to cripple the new Aimia, I think it was discussed in the form in the past that it was believed to be done to get PH&N fund on MIM side. In the preferred prospectus, any series could change the terms of the prospectus with a 2/3 vote in favour of a change. PH&N had 2/3 of series 1 & 2 and 60% of series 3 (so if no one showed up to vote then they would have enough). I worked out the math that if management gave terms to the preferred shares that they would be repaid par in common shares the new proxy vote would lead to management carrying the day as it would finally give PH&N the liquidity event that they have been looking for, and it would be my guess that some back door dealing would be done that part of the deal PH&N would for their shares received vote in favour of the current management.  I know that is speculation, but if that happened the current management would carry the day based on previous vote analysis and it would dilute MIM by almost half making MIM less relevant unless MIM wanted to put more capital to work in the name.

In the end I think the preferred deal was done to get PH&N onside and lead to the current management realizing they could never win a vote. The price offer for the preferred shares only made sense for investors who bought before the Air Canada deal, everyone else is losing money on the trade, or at least a very small group is making money.