triedtestedand

ABH is not folding their tent yet: http://www.marketwatch.com/story/resolute-extends-offer-for-fibrek-to-february-23-2012-02-13 The % of shares tendered has dropped from 57% to 52% (# tendered down from 74M to 66M) so I would presume that the only non-lockup still tendered remains Steelhead (who no doubt are looking to be rewarded for their loyalty), and that all others have rescinded their tenders. This is getting back close to a 50/50 split ... but as factor in now-close-to-in-the-money management options and the MERC warrants, will need to shift battle lines.

My $1.30ish worth (vs $1ish last night): - Who at this moment is still going to tender to ABH? - Because the PPA (the key variable still) is still out there, this bid allows Mr Garneau opportunity to upbid while saving face (if he worries about such). - I asked FBK mgmt a few weeks ago (Jan 30) about timing of PPA, beyond "early 2012" as mentioned in public releases. They were hopeful of it being within "next 3-4 weeks", but reiterated it was out of their control. So this may be resolved quite soon. - FBK's mgmt gets change of control payments, but their options are still underwater unless ABH comes back to the table. It would be sweet to for them to get such cheque w Mr Garneau's signature on it Well played FBK, and excellent crystal balling SD. I look forward to your next prescient moment.

" ... but I really doubt that minority shareholders will vote for ABH offer at this point." Finetrader -> Given value of the PPA, you'd need to seriously want to liquidate to do otherwise.

Based on the 3 valuation methodologies, it looks like they went for roughly the lowest high and the highest low to derive the recommended valuation range. - The DCF methodology yielded the highest low (and high). - The Comparable Company analysis based it's EV/EBITDA comparisons primarily against those of Canfor and Mercer, and implies a ~5x multiple - The Precedent Transaction analysis derived an estimate of $550 to $625/tonne as value of NBSK mill, and $50 to $125/tonne range for the two RBK mills (but with no real comparable transaction ... they excluded FBK's purchase of the mills a few year's back.) For all three, a "net debt" of ~$118M is assumed (a figure that apparently was provided by management) ... But shouldn't that # arguably be lower? The $118M takes a big bite out of all three valuations. {At Sept. 30th, accounts payable roughly equalled accounts receivables ... AND long-term debt roughly equalled inventories ... so in my mind, net debt is more a wash (save for the $26M pension liability).} It looks like, until it is signed, they value the 33MW power contract at 25% to 50% of it's potential ... and that such translates to a value of $.18/share to $.36/share ... so if (when?!) it is signed it's valuation (w/sh)ould go to $.64/share ... which just so happens to correlate w SD's valuation (SD ... maybe they should have paid you the $900K for the valuation, eh?). The US operations have tax losses of ~$98M that would be lost in a transaction, while the Canadian operations have tax losses of $71M that could be used. Anyway ... any bids that are in, are in ... and the hearings are over today ... so we shall see soon.

Here's the full release: http://finance.yahoo.com/news/Update-Fibrek-Ongoing-cnw-1861034109.html?x=0 An interesting few days coming up ...

I would think, as SD notes, that stuff will get resolved soon, as the following all have February dates tagged to them: a) regulator hearings ... Feb 1-8 ... embroiled w ABH of course regarding status of poison pill, and of insider bid designation. b) independent valuation ... "mid-February" ... they have consistently communicated this would be done mid-February, and since it is "independent", I'm sure they can't just whitewash the valuator's "independent" delivery timeframes. c) power purchase agreement ... "early 2012" ... again, exact timing is likely out of their control, but I would expect them to be applying as much pressure to get it approved soonest. The poison pill, regulator hearings, and independent valuation are all serving to buy FBK time (and these have been successful so far, moving ABH's bid deadline at least once, from Jan 20 to Feb 13 ...), but still need to be mindful that patience will be wearing thin / nerves will be fraying with all parties. So if FBK is indeed getting closer to any alternative transactions, then such will need to be effectuated soon. That said, given this is a bit of a poker game, then in a perfect world I personally would try and wait until a) after the regulator hearings, b) after the independent assessment, c) after power purchase agreement is signed, but d) a few days (but no more) before the ABH bid expires (which could get extended a bit further depending on outcome of regulator hearings). Late next week should get interesting ... no?

Looks like some dirty laundry is going to be aired, starting tomorrow: http://business.financialpost.com/2012/01/31/watsa-embroiled-in-takeover-dispute/?preview=true&preview_id=137828&preview_nonce=e8cb8bd866

SD: Interesting thesis regarding Steelhead ... remind me never to play chess with you. That said, only 7.03M shares have traded from Dec 14th thru Jan. 20th ... and we know cardboard bought 150K of those, so Steelhead's theoretical max so far (assuming no off-market sales) would be about ~11.2M

SD: It appears that the lock-up is generally in effect until the offer expires (or 120 days?). Here's the document from the SEC: http://sec.gov/Archives/edgar/data/1393066/000119312511323479/d261775dex101.htm Relevant section is Article 4 (Termination): This Agreement may be terminated by notice in writing as follows: (a) at any time by mutual consent of the Seller and the Offeror; (b) by the Seller, if the Offer is not commenced within the time contemplated by Subsection 1.1(b) or if the Offer has been terminated or withdrawn; © by the Seller, provided the Seller is not in breach of any of its obligations hereunder, if the Offeror has not taken up and paid for Subject Shares deposited under the Offer within one hundred and twenty (120) days after the date of the Offer; provided, however, that if the Offeror’s take up and payment for Subject Shares deposited under the Offer is delayed by (i) an injunction or order made by a court or regulatory authority of competent jurisdiction, or (ii) the Offeror not having obtained any regulatory waiver, consent or approval or a delay in the declaration of effectiveness by the SEC with respect to the registration statement to be filed by the parent for the Parent Common Shares offered as consideration under the Offer, which are necessary to permit the Offeror to take up and pay for Subject Shares deposited under the Offer, then, provided that such injunction or order is being contested or appealed or such regulatory waiver, consent or approval or declaration of effectiveness is being actively sought, as applicable, this Agreement shall not be terminated by the Seller pursuant to this 4.1© until the earlier of (i) one hundred and eighty (180) days after the date the Offer is commenced, and (ii) the 10th business day following the date on which such injunction or order ceases to be in effect or such waiver, consent or approval or declaration of effectiveness is obtained, as applicable; (d) by the Seller, when not in material default in its performance of its obligations hereunder, at any time if the Offer is modified in a manner contrary to the terms of this Agreement or contrary to the provisions of applicable securities legislation; (e) by either party, when not in material default in its performance of its obligations hereunder, if the other party has not complied with its covenants contained herein in all material respects; (f) by either party, when not in material default in the performance of its obligations hereunder, if any of the representations and warranties of the other party contained herein is untrue or inaccurate in any material respect; or (g) by the Offeror, if any Condition is not satisfied at the Expiry Time of the Offer and the Offeror has not elected to waive such condition.

Let's expand on this a little bit: 74.25M (57.1%) have been tendered, of which we know: - 59,502,8221 (46%) (from FFH/Pabrai/etc. ... subject to lock-up) - 4,336,500 (3.3%) (from Steelhead ... as of Dec. 13th) This means that a maximum of 10.4M shares (or 8% of total ... or only 15.7% of NON pre-aligned ABH stakeholders) have been tendered ... and even this assumes that Steelhead hasn't made any other open-market purchases subsequent to December 13th! I was intrigued by the following quote from M. Garneau: "We're pleased to see that over 57% of Fibrek shares have been tendered as of today. The success of our bid should be up to shareholders, unimpeded by management entrenchment maneuvers like the tactical poison pill." Which begs the question ... why is M. Garneau so pleased?

This just in ... deadline extended to Feb. 13th ... and only 57% have tendered ... not even 66.67% ... there's a message in that! http://www.marketwatch.com/story/resolute-extending-offer-for-fibrek-to-february-13-2012-01-20-192400

Alertmeipp: Remember to add ~760K for FBK mgmt/board, and sub-total so far comes to ~4.4M. In addition, I know of multiple entities (including our own positions) - all of whom are also not tendering - who's positions essentially double the sub-total above. This brings the board total so far to almost 9M shares (or >6.5%), so it might get interesting ... To your question ... I can only surmise that for FFH ... a) this is a small relative position, c) seeking to force liquidity event, c) they're selling (partially) to themselves, d) and they are backing Garneau, their selection to turn ABH around (which FFH has much more exposure to). That said, I still can't understand why the others (i.e. Pabrai) would have played ball at that price - and under those conditions - as well ... except for similar reasons (e.g. small relative position; seeking liquidity/better options; wanting to force a liquidity event; wanting to play nice w FFH and/or ABH?)

Tyska/Alertmeipp/SD: I emailed FBK this morning, asking if they would have any further public update before ABH's offer notionally expires. They did respond fairly quickly, indicating that "You will hear from us before Friday."

Tyska: I presume that from your enquiries to FBK, feedback was along lines of "we're working hard on it" and "if we do anything, you'll hear about it via press release to all"? However frustrating, this is all they can really say anyway (so can't tell so far whether anything will materialize).

Alertmeipp: Am adopting same position. Also, it looks like Resolute is providing final notification (and at same time is seeking to kill the poison pill): http://www.marketwatch.com/story/resolute-updates-status-of-its-offer-for-fibrek-2012-01-17-17000?siteid=bigcharts&dist=bigcharts As fyi, I received calls from agencies representing both sides of the deal ... one from FBK two weeks ago, one from ABH last thursday evening. Save for news articles in local paper, scuttlebutt out of FBK has been eerily quiet. The clock ticks ...

Word on the street ... ?? http://www.montrealgazette.com/business/Resolute+Forest+Products+Fibrek/5957704/story.html Am not sure $.13/share extra will get to 90% ... maybe to 66.6% for those wanting to get out quick??

SD: Are you hanging out at the plant? Rumour has it (in french) that some MERC reps were just there, taking time out of their New Year's holidays. ;-) http://www.cyberpresse.ca/le-quotidien/actualites/201201/05/01-4483039-fibrek-suscite-de-linteret-au-sein-de-lindustrie-de-la-pate.php

"yeah but we all know that FBk has lagged those two in the past.." You know, as much as this has been touted ... I think that's actually open for at least some debate, depending on timing of purchase (e.g. if you bought in FBK at the $.20 lows). Anyway, that's water under the bridge ... the point is that the market is turning upwards, and even if it lags ... the water has to get under the bridge sometime. Moving away from the stock price debate, and moving to the business valuation ... you could argue that FBK has outperformed both MERC and CFX in terms of improving their balance sheet over the past 3 years. MERC is a Giordian knot, and CFX just pumps cash up to the parent (nothing wrong with that, but not really improving the long-term valuation in doing so).

And MERC is up 22%+ in same timeframe ...

All: FBK's director circular has been posted on SEDAR, at: http://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00029948 Amongst other info, they've included their own "BACKGROUND TO THE UNSOLICITED OFFER AND RESPONSE OF FIBREK" section. This is getting juicy ... it looks like FBK was a) about to announce an acquisition (in mid-December), AND that b) Fairfax (and potentially an independent director of ABH? ... ) had been briefed on it (ironically, the initial briefing had happened the same day that Prem/Paul just happened to meet with CEO of ABH, where acquisition of FBK itself was discussed.). On May 5, 2011, Pierre Gabriel Côté, President and Chief Executive Officer of Fibrek and Patsie Ducharme, Vice! President and Chief Financial Officer of Fibrek, met in Montreal with Messrs. V. Prem Watsa, Chairman and Chief Executive Officer of Fairfax, and Paul C. Rivett, Vice President and Chief Legal Officer of Fairfax and a director of Abitibi. During such meeting, Fibrek's representatives presented to Fairfax a business update as well as Fibrek's most recent strategic plan and informed representatives of Fairfax that Fibrek envisioned effecting a vertical integration acquisition. Certain details of the ongoing negotiations with the Potential Target regarding the Proposed Acquisition were revealed to Fairfax at such meeting and the impact of an equity financing on Fairfax's shareholdings was also discussed. The parties agreed to reconvene at an appropriate time to further discuss this matter. Offeror's Circular: On May 5, 2011, Mr. Garneau met with Messrs. Watsa and Rivett of Fairfax in Montreal to explore with them on a preliminary basis the feasibility of a transaction in which Resolute would acquire only the shares held by each of Fairfax, Pabrai and Oakmont. Mr. Garneau noted that Resolute was considering such a transaction because it believed that it could be accomplished quickly and in a manner that would not require Resolute to make a mandatory offer to acquire the remaining Fibrek Shares. Mr. Garneau noted that in order to fall under an exemption from the mandatory takeover requirement, Resolute would not be permitted to acquire the Fairfax, Pabrai and Oakmont positions at a price per Fibrek Share greater than 115% of the then market price of the Fibrek Shares. Mr. Watsa did not believe such a proposal was acceptable to Fairfax. The circular's background section also notes that the ABH bid has killed the acquisition discussion: "On December 16, 2011, the Potential Target sent a notice to Mr. Côté terminating the negotiations regarding the Proposed Acquisition."

SD: Although lockup group put FBK into play, according to your 10 point scenario, would they benefit from a judicial FV valuation if such path is followed, or is it just the dissenters (i.e. just those who don't tend into the $1/share offer) who would benefit?

All: The background snippets that are quoted in the G&M article can be found in their full splendour (with timelines, etc.) from a document that's been posted on the SEC website ... just check out the ABH filings. Note that Prem didn't want to sell in May (when FBK was at ~$1.70), nor in Sept (when FBK was at ~$.75) ... so why in November, and why at $1? Txlaw: Agree that the deal isn't good for the guy who wants cash ... but it's not necessarily great for the person who wants ABH either ... it's the quality of the balance sheet (vs the stated #'s) that are important ... and ABH is weighted down with $1.1B in pension liabilities (which FBK has much smaller proportionally), and it has future tax assets of $1.7B (which FBK doesn't include on it's balance sheet). So if you look at current assets less all liabilities, they have a $600M hole. If you look at same for FBK, they are near $0. Further, ABH has toxic union relationships (which FBK doesn't appear to have), it has non-insignificant debt still (despite Prem's statement), and doesn't generate the same amount of proportional cash flow/EBITDA. So Prem's "it's simple really" answer isn't really (except for Fairfax) ... as Fairfax's position in both companies precludes him from offering an FBK shareholder centric view of the deal (more specifically ... the deal valuation). That said, he's a smart guy, so if he's really looking forward a few moves, he may well have been anticipating all this sound and fury. ;-) We can all grant that ABH has a) size (and thus institutional interest, and thus liquidity), and b) more product lines (and thus diversity) ... but that said, what's better going into a down market ... FBK or ABH? Or perhaps more importantly ... FBK as part of ABH, but at what price. ;-)

Well, at least I'm learning a lot: "If Fibrek should declare or pay any cash or stock dividend or make any other distribution on, or issue any securities, rights, warrants or other interests or distributions in respect of, Fibrek Shares after the date of the Offer (and without prejudice to our rights described under Section 4 of the Offer to Purchase, “Conditions of the Offer”) which is payable or distributable to Fibrek shareholders on a record date prior to the date of transfer into the name of RFP Acquisition (or its nominee or transferee) of Fibrek Shares deposited pursuant to the Offer, such dividend, distribution or rights will be received and held by the depositing Fibrek shareholder for the account of Resolute or RFP Acquisition, as the case may be, and (i) to the extent that such cash dividends or cash distributions or payments do not exceed the cash distribution payable to the depositing Fibrek shareholder pursuant to the Offer, the amount payable to the depositing Fibrek shareholder will be reduced by the amount of any such dividend, distribution or payment; and (ii) the amount by which any such cash dividend or cash distribution or payment exceeds the amount payable in cash to the depositing Fibrek shareholder, or, in the case of any non-cash dividend, distribution, payment or rights, assets, property, securities or other interests, the whole of any such dividend, distribution, payment, assets, property, securities or other interests shall be remitted promptly by the depositing holder to the Depositary or another person designated by us for our account accompanied by appropriate documentation of transfer. Pending such remittance, Resolute or RFP Acquisition, as the case may be, shall be entitled to all rights and privileges as the owner of any such dividend, distribution or rights and may deduct the value thereof from the amount payable in cash by it pursuant to the Offer to the depositing Fibrek shareholder." Resolute Common Stock to be received by Fibrek shareholders as a result of the acquisition will carry different rights than the Fibrek Shares. "Following completion of the Offer and any Second Step Transaction, Fibrek shareholders will no longer be shareholders of Fibrek, a corporation governed by the CBCA, but will instead be stockholders of Resolute, a Delaware corporation. There are important differences between the current rights of Fibrek shareholders and the rights to which such shareholders will be entitled as stockholders of Resolute. For example, the CBCA provides an oppression remedy that enables a court to make any order, whether interim or final, to rectify matters that are oppressive or unfairly prejudicial to or that unfairly disregard the interests of any security holder, director or officer of a corporation governed by the CBCA whereas there is no oppression remedy available to stockholders of corporations incorporated under the DGCL, such as Resolute. Also, dissent rights are available to stockholders of corporations incorporated under the DGCL in more limited circumstances than under the CBCA. See Section 19 of the Circular, “Comparison of Shareholder Rights” and Appendix A to this document." We have the right to waive the Minimum Tender Condition and, if we were to do so, there can be no assurance that we would be able to successfully consummate a Second Step Transaction. "Under the terms of the Offer, and subject to the terms and conditions of the Lock-up Agreements, we have the right to waive one or more of the conditions of the Offer, including the Minimum Tender Condition. In the event we were to decide to waive the Minimum Tender Condition and were to take up and pay for more than 50% of the Fibrek Shares, we may not be able to successfully consummate a Second Step Transaction or our ability to do so may be delayed. In addition, the market for Fibrek Shares not tendered in the Offer may be less liquid than the current market for Fibrek Shares and the Fibrek Shares may be potentially delisted from TSX. In such event, it is possible that Fibrek would become a controlled but not wholly-owned subsidiary of Resolute." Our Credit Agreement and the 2018 Notes indenture may restrict our ability to respond to changes or to take certain actions. "The 2018 Notes indenture and the Credit Agreement contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including, among other things, restrictions on our ability to: incur, assume or guarantee additional indebtedness; issue redeemable stock and preferred stock; pay dividends or make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase certain debt; make loans and investments; incur liens; restrict dividends, loans or asset transfers from our subsidiaries; sell or otherwise dispose of assets, including capital stock of subsidiaries; consolidate or merge with or into, or sell substantially all of our assets to another person; enter into transactions with affiliates; and enter into new lines of business. In addition, the restrictive covenants in the Credit Agreement could require us to maintain a specified financial ratio if the availability falls below a certain threshold, as well as satisfy other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and there can be no assurance that we will meet them. A breach of the covenants under the 2018 Notes indenture or under the Credit Agreement could result in an event of default under the applicable indebtedness. Such default may allow the holders to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the Credit Agreement would permit the lenders thereunder to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our Credit Agreement, those lenders could proceed against the collateral over which they have priority granted to them to secure that indebtedness. In the event our lenders under the Credit Agreement or holders of the 2018 Notes accelerate the repayment of our borrowings, there can be no assurance that we and our subsidiaries would have sufficient assets to repay such indebtedness. As a result of these restrictions, we may be limited in how we conduct our business, unable to raise additional debt or equity financing to operate during general economic or business downturns or unable to compete effectively or to take advantage of new business opportunities. These restrictions may affect our ability to respond to changes or to pursue other business opportunities." And then there's a whole section "BACKGROUND TO THE OFFER" which makes for good reading ...

PS: Filings are up on SEC website (not yet on SEDAR though) ... http://www.sec.gov/cgi-bin/browse-edgar?company=&match=&CIK=abh&filenum=&State=&Country=&SIC=&owner=exclude&Find=Find+Companies&action=getcompany

SD: Not that I don't think FBK still have options, but you lost me with your second scenario ...