Investing

Aimia's Battle With Mithaq Capital Heats Up, as It Reveals Ex-CIO Discussed Control Plans

Ben Ward

Published: April 18, 2023 10:14 pm

In the latest salvo in its battle with Mithaq Capital, Montreal-based Aimia (CA:AIM) has filed a temporary injunction against its former chief investment officer, Christopher Mittleman, and Mittleman Investment Management LLC, one of its subsidiaries.

The share price of the Canadian investment holding company fell 2.3% on Monday, extending the 33% AIM stock price decline over the past year.

Mithaq, the largest holder of Aimia stock, at 19.9%, is lobbying to have fellow shareholders vote against the reelection of the Aimia board at Tuesday’s meeting. The strategic shareholder claims “Aimia’s disappointing state of affairs is largely due to a lack of ownership by the board, which has overseen tepid performance and misaligned strategy,” according to its April 10 press release.

The injunction obtained by Aimia from the Ontario Superior Court of Justice prohibits the former insider from influencing voting, using or divulging confidential information, engaging in disparagement or solicitation.

Control Discussions

Aimia has been investigating the conduct of the former insider and his engagement with joint actors. The investigation uncovered correspondence between some of the Aimia’s shareholders and the insider in which they discussed taking control of the company and using its significant cash position to invest in companies in which they already hold investments.

The former insider appears to have improperly solicited votes for the annual general meeting scheduled for later today and continued to do so after Aimia moved for urgent injunctive relief.

This latest development is part of a story that has been unfolding over the last few weeks.

Mithaq said that it was disappointed with recent events and lost confidence in the Board and management. Mithaq believes that it would be in the best interests of Aimia to reconstitute the board following concerns previously raised with Aimia regarding capital allocation decisions relating to acquisitions with no regard.

In response, Aimia issued a statement saying that it had been investigating the misuse of confidential information belonging to the company and one of its affiliates before revealing Monday that it was in fact the CIO, Mittleman.

Value Erosion

Aimia highlighted that many of the investments recommended by Mithaq and the terminated insider would have resulted in substantial losses to Aimia and an erosion of value to shareholders. AIM’s management defended its acquisition performance highlighting the growth of EBITDA and free cash flow generation in recent years.

Although Mithaq purports to not be engaging in solicitation activities, Aimia understands that Mithaq has retained the services of a proxy solicitation firm, and the terminated insider is attempting to influence shareholders’ votes in breach of his obligations.

AIM’s CEO Phil Mittleman, commented that it is unfortunate that a shareholder would pursue a change in Aimia’s strategy in this manner.

The recent filing of the injunction by Aimia against its former CIO and Mittleman Investment Management LLC is the latest development in a story that has been unfolding over the last few weeks.

Acquired Firm

Aimia acquired Mittleman Brothers LLC, the parent company of Mittleman Investment Management, in June 2020, installing brother Phil and Christopher as CEO and CIO, respectively.

The move was part of a corporate transformation announced earlier that year.

Mittleman Brothers and several subsidiaries were, at the time, the largest shareholder of AIM stock, exercising control of about 23% of the shares at the June 2019 annual meeting.

Analyst Thoughts

TD Cowen analyst Brian Morrison downgraded the stock to ‘speculative buy’ when Aimia made recent acquisitions as the risk rating increased. As the firm was under the impression that the capital allocation would be more North American focused. TD Cowen has a $6 target price on the stock.

Fintel’s consensus target price of $4.25 for the U.S. listing suggests analysts expect shares to rise as much as 60% over the next year, recovering some of the last year’s losses.

Weak Fund Sentiment

Institutional investors have been paring their holdings of Aimia stock. Those funds abandoning the shares are reflected in the weak Fund Sentiment Score of 12.75 on Fintel’s dashboards, which ranks AIM stock in the bottom 3% when screened against 36,679 other globally screened securities for the highest levels of institutional buying activity.

There are currently 306 institutions on the AIM register that collectively own 33.29 million shares of the float. The number of institutional shareholders has fallen 7.55% over the most recent three months with the average portfolio allocation also declining 37.34%.

This article originally appeared on Fintel