SRC recent report on AIM Portfolio Activity
Aimia
The company entered into a binding agreement to sell its key asset, the 49% stake in AeroMexico's miles loyalty program (PLM). The price agreed was about a 10% haircut from the contractual price. That's the bad news. The good news is that this removes most of the downside tail risk.
The expected proceeds exceed the current market cap of the company. The plan is to use approximately 15% of the proceeds for share buybacks and the rest to buy 1 to 3 operating businesses. If done correctly, this should result in a recurring cash flow stream that comfortably exceeds the holding company fixed costs and preferred dividend payments.
I increased the position from Small to Medium because I believe the market is ignoring how the value range has changed relative to the market price. Whereas before there was some probability of large downside in a scenario where the company was somehow cheated out of its ownership of PLM, now that possibility appears to be off the table. For a slight reduction in the Base Case value (due to the slightly lower sales price), management has substantially increased the Worst Case value.
The current range of outcomes has no downside to the Worst Case value, and substantial expected return to the Base Case. What's more, this is now a very resilient, if not anti-fragile company which will be receiving a large amount of liquidity just as financial assets appear to be going on sale. In the hands of competent value investors, this should be a good opportunity for value creation