|Shares Out. (in M):||97||P/E||0||0|
|Market Cap (in M):||15||P/FCF||0||0|
|Net Debt (in M):||-30||EBIT||0||0|
Aberdeen International (TSX: AAB)
Aberdeen trades at a substantial discount to liquidation value with an imminent catalyst.
Aberdeen is an investment company and merchant bank that is essentially a pile of assets that have persistently traded at a large discount to Net Asset Value (NAV), often 50% or greater. The reason for this is that the insiders have persistently compensated themselves a substantial amount of the assets each year regardless of performance and in years where (on paper) performance was good (only to reverse itself later as it’s turned out), insiders stepped up the compensation to dramatically elevated levels. This looks to change soon with a large shareholder initiating proceedings to cause improvements to the governance at the company.
Aberdeen has always traded at a large discount to NAV due to poor governance:
What’s new today?
What is Aberdeen worth? (values in $CAD)
Book value as of most recent filing (as of July 31, 2014) filed Sept 15, 2014: $34.3mm
On Sept 15, 2014, AAB announced a term sheet with a large PE firm Landmark Partners to sell their entire portfolio for $29mm (+$2mm potential earn out)
The portfolio formerly consisted of a hodgepodge of public and private small companies that were related parties that would likely require a large discount to liquidate. Over the last two years however many of these assets have shrunk to near $0 in value while one investment has been a modest success (Rio Alto – RIO.to). As a result, roughly 3/4 of the portfolio consists of shares of a highly liquid ~$1bb public company. Aberdeen held 7.6mm shares of Rio Alto which closed at $3.25 sept 16th when the Landmark deal was announced.
Since Sept 16th, RIO has declined to $2.70 and if one applies this 15% discount to the Landmark deal then today it may conservatively value all the assets of the company at $29mm * 85% = $24.5mm.
Additionally there is a $4.2mm tax shield asset however this is not on the balance sheet any longer as there is a valuation allowance held against it.
Range of Net Asset Values: $24.5mm - $38.5mm (incl $4.2mm tax asset)
Share count: 87.3mm
NAV per share: $0.28 - $0.44
Current share price (12/7/2014): $0.15
Upside to reach NAV today vs current stock price: 87% - 193%
Recently the company issued 10mm additional units consisting of one share and one warrant (5 yr term @ $0.30) for $0.20 raising $2mm.
If this transaction is not reversed then it would increase the NAV by $2mm and sharecount by 10mm and the NAV per share would be: $0.27 - $0.42
Additional potential costs that could impair NAV include:
Downside case (worst case scenario): $0.27 - $0.09 = $0.18/sh (excluding tax shield asset of $0.04/sh), which is still 20% higher than the current trading price of $0.15.
The Path to Change and Value Creation is Underway
After the insiders recently issued stock to themselves at a discount in the face of superior terms from an independent party, an activist publicly committed to following through to improving the governance. In Canada, a 5% shareholder can requisition a meeting to replace board members.
This is not the first time
The group (Forbes & Manhattan) currently in control of Aberdeen has been removed by shareholders from other undervalued companies in the past.
Forbes & Manhattan has over 30 controlled public companies for various projects they have incubated and sold to the public. Aberdeen is unique in that it was a vehicle to invest in all of these other projects as opposed to a specific project itself – as such, its assets consist entirely of securities rather than potentially risky environmental liabilities, etc. that come with owning a mining project.
Why might shareholders desire change?
Aberdeen shares have declined over 80% since January 30, 2011 as shareholders have accumulated net losses of $98mm yet insiders have been compensated a staggering $13mm since that time.
There have been no fewer than six loans made by Aberdeen to related parties that have been substantially written off.
In other cases, such as with a loan to Forbes Royalty Corporation, deals appear to have been structured so unfavorably that it is questionable that truly independent directors would have accepted such asymmetric terms contrary to Aberdeen's interests.
A protracted nasty fight has higher risk to insiders than usual for Aberdeen
Aberdeen also has a unique situation in that it is connected to and has been damaged by the numerous related party uneconomic transactions at each of the other public companies where it owns a minority stake. So not only have numerous shareholder-unfriendly actions taken place directly at Aberdeen but one could conceive a fairly deep chain of derivative claims against directors as there are over 30 related-party companies.
There seems to be MUCH higher risk to the Forbes & Manhattan ‘empire’ of companies from a nasty protracted fight around Aberdeen as compared to the other isolated project-driven companies. On the other hand, Aberdeen does not possess a great deal of assets compared the scale of Forbes & Manhattan. It would seem that a quick private settlement would be much better for all parties involved rather than a highly risky and highly public proxy contest where if insiders lost at a vote (which would not come with a release from future claims as would accompany a settlement) it could mean years of lawsuits. Stay tuned for more details if things bubble up publicly depending how things develop!
Activist investor going to cause changes imminently, trades well below liquidation value
|Entry||12/17/2014 02:59 PM|
Begins - after company does a PIPE at a discount to insiders and undisclosed (until just now by SMC in its filing) related party Sulliden Mining Capital
|Subject||Proxy Contest - Circulars filed and battle moves to court|
|Entry||01/09/2015 11:26 AM|
|Subject||Re: Deadline for buying shares eligible to vote?|
|Entry||01/09/2015 01:24 PM|
aagold, record date was dec 31 for this meeting so that has passed unfortunately, not that this meeting is necessarily the end of the process regardless of outcome.
re: RMFEP - the plan is pretty clearly laid out in the circular to return capital to shareholders and drastically lower comp so I do not think this is 'biglari holdings' ^2 as you speculate.
|Entry||01/09/2015 03:33 PM|
This one is ripe to do something with and it is about time that somebody stepped up. Good luck collecting votes - seems downside is well protected.
|Subject||ISS: GOLD Card Recommended|
|Entry||01/19/2015 03:43 PM|
ISS Recommended the GOLD Dissident Card but not for the full slate - they rarely will recommend the full slate...
Interesting the reason in the report why they only recommend "partial change" rather than total board change was because AAB doesn't look THAT bad on TSR vs the Jr Gold Miner index...
This had serious flaws:
1) Aberdeen has <50% of its assets in Gold, the junior gold miner index was chosen by Aberdeen because it's the worst performing by far of the comp indices.
2) ISS Used the price AFTER it had run up 40% from Activists buying a block of stock as the "unaffected price".
Had they used the actual unaffected price AAB dramatically underperformed even the worst index of junior gold miners and regardless underperformed all the other relevant comps. Unfortunately ISS compounded the error by having 2 favorable errors in AAB's favor for the TSR comparison...
At least the story is getting some coverage in the media how absurd it is
|Subject||Re: ISS: GOLD Card Recommended|
|Entry||01/20/2015 09:47 AM|
We dealt with ISS on MHGC. To echo ryan, they just rarely recommend the full slate -- if you want to replace a board, you're typically going to have to do it without ISS, unless you're a true professional at proxy fights like Jana, Starboard, etc.
|Subject||Re: Author Exit Recommendation|
|Entry||02/02/2015 07:56 PM|
Current board and insiders had a lot of support, loyal shareholders and a lot of former insiders still held their stock... Would not have made sense persisting a fight.
|Subject||Re: Author Exit Recommendation|
|Entry||02/02/2015 08:12 PM|
Wow... this is a surprising result. I realize there's now a 5 year standstill and that rjm probably can't comment on what happened, but I have to believe Meson got something pretty significant in return for this portion of the press release:
"Said Ryan Morris, President of Meson Capital: "I have now spoken with Stan Bharti. I have discussed with him the financial position of Aberdeen and the board's plans going forward. At the outset of this contest I expressed concerns that Mr. Bharti was not acting in the best interests of the companies in which Forbes & Manhattan has an interest. Having initiated this process and seeing that the majority of the shareholders voted in his favour, I now realize that I was wrong. I unreservedly apologize for the prior comments I have made that called into question Mr. Bharti's integrity. I believe that the interests of Aberdeen's shareholders are best served if Meson Capital and Nightscape Capital disengage from Aberdeen, and the board is free to execute on its plan."
I wonder what Meson got in exchange for this statement... was it just reimbursment of proxy contest and legal costs in exchange for dropping the lawsuit and an apology? This whole thing is puzzling because it sure looks like Bharti and his gang are pretty sleazy.... don't know how Meson lost the proxy contest. What a shame...
|Subject||Re: Re: Author Exit Recommendation|
|Entry||02/02/2015 08:38 PM|
"Got in return" was a release of claims on both sides and partial recovery of costs. Better to swallow pride than be a litigation martyr that chews up the value of the company. Shareholders and investors interests are more important than an activists ego...
|Subject||Re: Re: Re: Author Exit Recommendation|
|Entry||02/02/2015 09:00 PM|
Thanks for the response rjm, I'm really sorry how things worked out. I've been reading through the Jan. 20 "Free Aberdeen" letter... these guys just seem so obviously bad that it's hard to believe you lost the proxy contest. Your case sure sounded strong to me.
|Subject||Re: Re: Re: Re: Author Exit Recommendation|
|Entry||02/02/2015 09:11 PM|
There were a LOT of long time very loyal shareholders as it turned out here. Not going to deny them what they want...