The sale of Aimia Inc.'s (TSX:AIM, Financial) (AIMFF, Financial) stake in Air Mexico's loyalty program Club Premier will be a huge liquidity event for this Toronto-based asset manager. In fact, following the sale, Aimia's cash per share should exceed the current market value,
Aimia is a holding company based in Toronto, Canada which holds long-term equity positions in other companies. In its past life, it used to be a loyalty management company which owned the loyalty rewards miles programs for airlines such as Air Canada, Air Asia and Air Mexico. The Air Canada loyalty program (Aeroplan) was sold back to Air Canada in 2019 following Air Canada's refusal to extend the contract, and recently, Aimia announced that it is selling its 48.9% stake in Air Mexico's loyalty miles plan back to Air Mexico.
Upon closing of the transaction, Aimia expects to receive approximately 484 million Canadian dollars ($384 million) from Air Mexico. Note that the proceeds of this sale are more than the enterprise value of Aimia, which currently stands at C$415.85 million.
Aimia intends to deploy most of the proceeds of the sale towards the acquisition of majority or significant minority stakes in one or more cash generating businesses operating in either the U.S. or Canada that will ideally utilize its sizable legacy net operating tax losses. Against the backdrop of ongoing gyrations in world markets, these proceeds should allow Aimia to capitalize on value investment opportunities.
Aimia is controlled by value investors Phillip Mittleman and his brother Chris Mittleman, who engineered a hostile takeover of Aimia through their hedge fund Mittleman Investment Management LLC in 2020 and changed the company from a loyalty management company to an asset manager after a tough board room battle with lawsuits flying around. The Mittleman brothers acquired their stake in Aimia opportunistically after Aimia stock fell drastically when Air Canada decided not to renew the Aeroplan contract.
Apart from the Air Mexico loyalty program, which is now being monetized, Aimia has the following assets in its books:
- Trade X - Founded in 2018, Trade X is an innovative solutions provider to the global pre-owned car industry through its B2B cross border automotive trading platform. Aimia occupies one of the five board seats and owns 12.2% of Trade X. the investment is worth C$75.6 million with a book value of C$76.6 million.
- Kognitive - Founded in 2008, Kognitiv is a B2B technology growth company enabling collaborative commerce for brands to create hyper-personalized offers that drive customer lifetime value. Aimia occupies two out of nine board seats with strong minority shareholder rights. Aimia owns 48.9% of Kognitiv, which has a book value of C$47.3 million.
- Clear Media - Founded in 1986, Clear Media Limited (CRMLF, Financial) is one of the largest outdoor advertising firms operating in China with market share of more than 70% in top-tier cities like Beijing, Shanghai and Guangzhou and a network covering 24 cities with over 72,000 display panels. Aimia owns 10.85% of the equity with a fair value of C$76.2 million and book value of C$68.3 million.
- Capital A / Air Asia - The fair value of the Capital A Air Asia (TPE:2630, Financial) common shares received was C$22.3 million. The Air Asia stake was acquired in exchange for the Air Asia loyalty plan stake which Aimia previously owned.
- Mittleman Investment Management LLC - Mittleman Investment Management LLC is an SEC registered investment adviser that provides discretionary investment management services to institutional investors and high-net-worth individuals. I am ignoring any value attributable to this company, since it is basically just the management structure. It should be noted the Mittleman Investment is an insider and holds 8.27% of Aimia shares.
- Aimia is carrying forward significant net operating tax losses (around C$350 million) and capital losses (around C$380 million) with which it can write off future operating and capital gains profits, resulting in tax free compounding of capital.
The company is net debt free even now, before the cash from Air Mexico comes in.
On the equity side, of the C$404 million in equity, C$198.5 of the equity is cumulative rate reset preferred equity, which is tied to a fixed premium over Canada five-year government bonds. This can be considered as a cheap form of debt, which the company is in no hurry to redeem.
So basically, after the sale of Club Premier, Aimia will have more cash than its market cap, along with over C$220 million in equity assets. On the liability side, the company has C$198.5 million, but again this is preferred equity, not debt. It plans to buy back 15% of the common stock and use the rest of the proceeds for other investments.
Trade X and Kognitive are likely headed for IPOs when market conditions warrant and are worth multiples of the carried book value, in my opinion. Similarly, Clear Media is very undervalued. I think overall, Aimia has significant upside potential. The cash Aimia will soon have will give it great optionality to deploy it in the current bearish market environment.
Guru Investor Azvalor Asset Management owns 8.27% of the shares of Aimia, and Silver Ring Value Partnership's principal, Gary Mishuris (who has spoken at GuruFocus Value Investing Live), has a "medium size" position in the company according to his Q1 2022 letter to investors.
