Aecon Group Inc T.ARE

Some thoughts on today's transaction

[Meesha1]

Just looking at the details of the convertible preferred, I don't think its indicative of an interest to buy Aecon down the road. This to me looks primarily like a credit investment similar to what Buffet does with companies looking for some good PR. What got the markets attention was the conversion price at a level that implies an enterprise value of the Utilities business of ~$750MM. Given that the implied Enterprise value of the entire Construction ops on an uber low 4.0x multiple of 2024 Consensus EBITDA is also $750MM, AND Utilities is only 19% of Construction revenues, well it makes the stock look very cheap (which it is) as broken down in my valuation post. But I think the main impetus for this investment is the 12% coupon for the first 3 years and 14% for the next 4 years. They do not have to convert into equity. 

I thought they could access the credit facility and pay prime + 1.85% to redeem the $150MM convertible debenture maturing in December. 

I feel that Oaktree is getting the better of this transaction (like Buffet always does), which makes me wonder why they are doing this 2 days before Q3 earnings. Is it possible they are going to announce a bigger loss on the troubled legacy projects and they are giving the stock a vote of confidence from a high profile investor? Unfortuneately Oaktree is not buying the stock, they are buying a very safe high coupon preferred with potential upside on one of Aecon's subs. 

Does anyone have any commentary from the analysts? I can't find anything.

[radcat]

While the deal is with Oaktree it really is with BAM since Brookfield is majority owner of Oaktree. This deal is buying a piece of a piece of AECON. BAM doen't want a fraction of a piece of a comapny should they decide to excercise their 27.5% convertable preferreds. So why would BAM be interested in AECON? Brookfield Asset Management Ltd. is primarily engaged in providing alternative asset

[Gabriel]

That is my conclusion too. Aecon is a takeover target at these prices and the conversion rate is very favorable to Aecon. Many claims have been resolved in the industry and I am expecting color on ours tomorrow.

[itsalie]

If Bam becomes a majority shareholder it's bad news for shareholders. 

[JayBanks]

  How is a BAM takeover bad? We may get bought out for a premium, maybe they give us BAM shares which isn't the worst thing in the world or just cold hard cash. If they take us out we get our money quicker than waiting 6-12+ months for the share price to hit most of our targets... I don't think it's a takeover, they just identified away to make some big money on an

[itsalie]

Take out is fine, but if BAM suddenly owns 30-40% of outstanding shares its not great imho. Volume dries up, managment doesn't care about stock price.