CIBC Analyst: What ACE Aviation Could Do About Air Canada

Management at ACE Aviation Holdings Inc. (ACEAF.PK) told investors that it would take two or three months to reach a decision about its remaining stake in Air Canada (AIDIF.PK). That was in early August. So with its self-imposed deadline approaching, analysts are weighing in on what ACE will do.

Chris Murray at CIBC World Markets thinks there are only two viable options. The first would be a deal with preferred shareholders that would see ACE offer a premium to entice them to convert to common shares. The remaining 75 million shares ACE holds and cash would then be distributed to common shareholders.

The other option would be a deal with Air Canada’s minority shareholders that would include a purchase by ACE of the minority stake in Air Canada. This would result in a collapse of the holding company into the operating company.

A buy-in of the minority shares of Air Canada provides better value for ACE shareholders, Mr. Murray told clients. That’s because ACE’s share price is expected to recover enough to allow the preferred shares to convert to common shares after a combination.

As a result, he recommends a long position in Air Canada. However, he cut his price target by a dollar to C$24 per share and maintained a “sector perform” rating.

ACE management may be willing to seek a sale to a third party or distribute Air Canada shares through a secondary offering, but the analyst does not see any willing buyers at a price ACE would be happy with, nor enough demand for a secondary offering in the public markets.

Mr. Murray said:

We also believe that any transaction that creates additional cash proceeds from the sale of Air Canada shares would not remove the existing tax liability related to the preferred shares.

He expects a wind-up of ACE by the end of the year, as it is burning an estimated C$5-million in cash per quarter with no related value gain for investors. So look for it to act in the next few weeks in order to make filings on time and beat the tax man.

Comments

[biggie:]

He recommended a " long position " in ACE. His 24 target is for ACE !!

2008 Oct 02 12:26 PM

[biggie:]

He recommended a " long position " in ACE. His 24 target is for ACE !!

2008 Oct 02 12:26 PM