Current Price – C$3.46
Potential Value – C$9.99
Upside – 100%+
Expiration Date – TBD
Update May 2020: Investment thesis has change significantly from the initial write up below. Please see comment on the 14th of May 2020.
Aimia is an operator/owner of loyalty programs with the largest asset being Canada’s Aeroplan with 5m members. The business used to be a cash cow, but over the last year company’s stock has been on a roller coaster ride.
Initially there were rumor’s that Air Canada (the main Aeroplan partner) would not renew it’s contract, then these rumors got confirmed in May 2017 with Canada Air saying it will develop it’s own loyalty program. This prompted Aimia to suspend dividends in order to conserve cash in the face of uncertainty. In Feb 2018 company’s management sold Nectar business back to Sainsbury’s at what some considered to be a remarkably low price. This move tarnished management’s reputation and investors lost trust in management’s abilities to negotiate favorable asset sale transactions and turnaround/liquidate the company maximizing shareholder value. Due to activist pressure CEO was let go and two new directors were installed by Mittleman. CEO was replaced by Jeremy Rabe, founder and director of PLM Premier (Aimia owns 49% of this JV).
All of this brings us to today. Right after announcing new strategy to turnaround the company, Aimia received unsolicited offers for two of its main assets – C$250 for Aeroplan and $180m for PLM Premier. The first one is being considered and has deadline of the 2nd of August and the one for PLM Premier was promptly rejected.
Mittleman Brothers outlined SOTP valuation reaching C$10/share vs current C$3.46/share (see below). This might be overly optimistic as it requires Aeroplan price to be raised 4x and PLM Premir 2.5x. However, the consensus seems to be that these are just the starting offers and that prices will be negotiated.
The ball is now in Aimia’s court and likely some kind of response will come through today/tomorrow which might even push the share price upwards in the short term.
All will depend on who – Aimia or Air Canada consortium – has more negotiating leverage in this case and who can walk away from the deal by loosing less. Currently that is a bit uncertain. Air Canada will need loyalty program and starting one from scratch and attracting 5m members might be more costly than the C$1bn acquisition price for Aeroplan. At the same time Aeroplan’s future without Air Canada in it is still quite questionable and will require Aimia to sign up many new partners in order to retain its membership. New CEO who has successfully grown PLM Premier in Mexico seems to be fit to achieve this.
Note: amounts differ slightly from Mittleman due to USD/CAD as well as CDLX changes.
- At current offer prices Aimia is worth C$2.43/share which is a 30% downside. Before the offers were announced Aimia traded at similar levels of C$2.5/share. However, I do not think shares will revert to these levels as this seems to be the absolute bottom valuation of the assets.
- Current market price already assumes there will be at least 30%-35% increase in offers for Aeroplan and PLM Premier. Thus the offers need to be bumped by higher than this for new investors to realize any upside.
- It is not given that Aimia will be liquidated after the sale of one or both of its main assets. So shares might trade at a discount to cash value in a liquidation scenario. However, having Mittleman on the board increases the odds of focus on shareholder value maximization.