No. of Recommendations: 13
Press release quote: "As at December 28, 2022, Brookfield Asset Management's 412,201,980 total issued and outstanding Class A Shares represented a 25% interest in the approximately 1.65 billion shares of the asset management business, with the remaining 75% held by Brookfield Corporation. Of this 412,201,980 issued and outstanding Class A Shares 317,850,364 Class A Shares represented the public float."
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It says BN owns 75% of the asset management business and BAM shares represent an ownership stake in the remaining 25% of the asset management business. It sounds like the actual asset management business is an unlisted entity with 1.65 billion shares. This may not make a difference as things currently stand, but could in the future if BAM uses its shares for acquisitions. This will result in current BAM share holders diluting their stake in the asset management business to less than 25% but also gaining ownership in the acquired company. BN shareholders will continue to own 75% of the asset management business but will not gain ownership in any BAM acquisitions. The paths may significantly diverge depending on the number of acquisitions. They mentioned non organic growth as a possibility in last year's investor day presentation.
BAM reported their financials in their first earnings call in the context of the entire asset management company (4 x the value of BAM, in other words the 1 x of BAM that is the public float, plus the 3 x of BAM that is owned privately by BN).
When BAM makes acquisitions by selling its stock (which is in practice the only way for large purchases, as it plans to pay out 90% of its cashflow as a dividend), then I expect it will be done by the entire asset management firm, rather than just the public float part of BAM separately making the acquisition. The public float is 25% of the whole asset management firm, rather than a separate firm with its own financials. If this is right, as I expect, then the asset management firm dilution would be applied to both the public float of BAM and the privately owned shares of BAM by BN.
On a different topic, I think the idea to float BAM was excellent. It provides more capital allocation opportunities; if BAM trades very high, it can do acquisitions; if BAM trades very low - then BN can then purchase the shares back. But BN is more interested in purchasing shares of BN right now, and not BAM..
The main capital allocation point of interest (for me) from the recent BN earnings call was that BN is very aware that BN's quote is far too low right now; Flatt gave the impression, through the particular wording and also his intonation, that he is very much ready to put forward an public offer for BN to purchase back a lot of its shares at a higher price than the present quote. They presented this idea with BPY in 2020, and went ahead and did it.
Both as a high IV10/price opportunity (the long-term value of BN relative to the present quote), and quite separately for other types of investors with a shorter speculative stance (because of a possible pending private purchase by BN), the parent BN appears as a really great investment opportunity right now at $36 per share. Enjoying owning them today.
- Manlobbi
