lessthaniv
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Posts posted by lessthaniv
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I'm not so quick to conclude that FBK will be allowed to do the warrants. The regulators will want to know that the issue was truly needed for corporate reasons and not just as an anti-takeover tactic. Given that the funds have gone to escrow and would likely be redeemed should Mercer win their bid the courts may side with ABH. Fibrek went to great lengths to state the purpose of their issue in the press release but I'm not so sure the courts (or exchange) will approve. Fibrek is trying to force ABH to come with a bigger bid and should they turn the offer friendly the warrants can be redeemed. Not sure that is going to fly ...
From the release:
Mercer has also agreed to purchase 32.32 million special warrants of Fibrek on a private placement basis, at a price of $1 per special warrant for total subscription proceeds of $32.32-million. The special warrants are convertible into common shares of Fibrek on a one-for-one basis. Conversion of the special warrants is automatic in certain events and otherwise at the option of Mercer subject to certain conditions. The special warrants are also redeemable by Mercer or Fibrek in certain events at their subscription price, including in the event that Fibrek receives and supports a superior proposal. The proceeds of the private placement will be deposited in trust at closing and will be releasable to Fibrek on conversion of the special warrants or to Mercer in the event of a redemption. Proceeds from the private placement are initially to be used by Fibrek to reduce net debt given (i) the recent costs associated with its strategic alternatives review process in response to Abitibi's unsolicited offer, (ii) the high level of RBK pulp inventories and lower than anticipated sales which have resulted in a five-week market shutdown of the Fairmont mill effective Feb. 20, 2012, and an increased need for liquidity, and (iii) capital expenditures required in connection with Fibrek's power-generation initiatives and other growth and diversification opportunities. Completion of the private placement and the conversion of the special warrants is subject to a number of conditions, including the approval of the Toronto Stock Exchange, but is not conditional on the successful completion of the Mercer offer. In the event the Mercer offer is not completed, the private placement will provide Fibrek with necessary financing to continue operations and the execution of its strategic plan
You misunderstood the press release. The warrants are redeemable by FBK if it receives a superior proposal and therefore ABH is not at all prevented from submitting a superior proposal. This isn't shark repellent - in fact its the opposite. The warrants are meant to dilute the hostile $1.00 bid so ABH can't get control of FBK through abusive actions to the minority shareholders. If ABH reduces their minimum tender from 66 2/3 to 50% and takes up the current 52% tendered, MERC will exercise the warrants and dilute ABH to 42%. ABH knows this and therefore will not take up shares now. All they can do is withdraw or bump their bid. I think we'll see the latter.
Also, there's another valid reason for the warrants - FBK burned through cash defending itself against ABH. A financing makes sense. Go back to the Perpetual / Profound deal, you'll see a precedent for this:
http://www.bennettjones.com/BennettJones/images/Guides/external7446.pdf
Hey Jetsfan,
Do you still think I misunderstood the press release?
Yes I do. The warrants were meant to neutralize the oppressive lock-ups, not thwart a take-over. The BDR made an enormous error. I don't see how FBK's appeal cannot be successful.
I'll admit you got lucky on your call. It was definitely a 100:1 shot.
Ya ... that's what happened.
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I'm not so quick to conclude that FBK will be allowed to do the warrants. The regulators will want to know that the issue was truly needed for corporate reasons and not just as an anti-takeover tactic. Given that the funds have gone to escrow and would likely be redeemed should Mercer win their bid the courts may side with ABH. Fibrek went to great lengths to state the purpose of their issue in the press release but I'm not so sure the courts (or exchange) will approve. Fibrek is trying to force ABH to come with a bigger bid and should they turn the offer friendly the warrants can be redeemed. Not sure that is going to fly ...
From the release:
Mercer has also agreed to purchase 32.32 million special warrants of Fibrek on a private placement basis, at a price of $1 per special warrant for total subscription proceeds of $32.32-million. The special warrants are convertible into common shares of Fibrek on a one-for-one basis. Conversion of the special warrants is automatic in certain events and otherwise at the option of Mercer subject to certain conditions. The special warrants are also redeemable by Mercer or Fibrek in certain events at their subscription price, including in the event that Fibrek receives and supports a superior proposal. The proceeds of the private placement will be deposited in trust at closing and will be releasable to Fibrek on conversion of the special warrants or to Mercer in the event of a redemption. Proceeds from the private placement are initially to be used by Fibrek to reduce net debt given (i) the recent costs associated with its strategic alternatives review process in response to Abitibi's unsolicited offer, (ii) the high level of RBK pulp inventories and lower than anticipated sales which have resulted in a five-week market shutdown of the Fairmont mill effective Feb. 20, 2012, and an increased need for liquidity, and (iii) capital expenditures required in connection with Fibrek's power-generation initiatives and other growth and diversification opportunities. Completion of the private placement and the conversion of the special warrants is subject to a number of conditions, including the approval of the Toronto Stock Exchange, but is not conditional on the successful completion of the Mercer offer. In the event the Mercer offer is not completed, the private placement will provide Fibrek with necessary financing to continue operations and the execution of its strategic plan
You misunderstood the press release. The warrants are redeemable by FBK if it receives a superior proposal and therefore ABH is not at all prevented from submitting a superior proposal. This isn't shark repellent - in fact its the opposite. The warrants are meant to dilute the hostile $1.00 bid so ABH can't get control of FBK through abusive actions to the minority shareholders. If ABH reduces their minimum tender from 66 2/3 to 50% and takes up the current 52% tendered, MERC will exercise the warrants and dilute ABH to 42%. ABH knows this and therefore will not take up shares now. All they can do is withdraw or bump their bid. I think we'll see the latter.
Also, there's another valid reason for the warrants - FBK burned through cash defending itself against ABH. A financing makes sense. Go back to the Perpetual / Profound deal, you'll see a precedent for this:
http://www.bennettjones.com/BennettJones/images/Guides/external7446.pdf
Hey Jetsfan,
Do you still think I misunderstood the press release?
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Something to consider:
FFH/Pabrai/Oaktree may have agreed to a lock-up, & a lowball tender, to put FBK into play. The intent was to exit either via ABH share issuance (& resale to the secondary market), or a direct sale to the winning bidder. Clean, elegant, & the fairest way to deal with a problem holding. No additional involvement from FFH other than lend their credibility via the lockup.
Then ABH decides to play the thug, & CONTINUES to play the thug right up to the present. Most senior management recognizes that the job comes with risk, & OK - you might have been overly aggressive in the intial delivery to spur the desired reaction. (A)But attempting to have the courts throw out a subsequent superior & COMPETING bid just because you don't like it ? What are your lockup shareholders supposed to do - when you've just tried to legally rob them by attempting to remove the competing offer that they were trying to obtain ?
ABH is a bankrupt & hoping to use 50M of its reformed stock as currency. Now nobody wants the stock (unless deeply discounted) & (B)they need maybe an additional 130M to pay for the PV of the PPA. If you held your bowl out to me for an additional 180M, just after trying to rob me, I'd also be supremely p*ssed. I'm working with the Marx brothers, to protect my existing investment I don't have a choice but to fund them, I'm going to very close to the complications of 50% ownership, & I have to act to protect my business reputation. Some might even think that I'm being greenmailed.
Most would want this resolved, & quickly, behind closed doors. Simplist is to put up the fair bid, end the event, then use the votes to make the changes neccessary.
SD
(A) In the history of public market deals, have you ever seen a bidding entity happily increase their bid to IV in order to make shareholders under a hard lock happy? SD, this makes no sense to me. The whole point of getting FFH to commit to a hard lock is so they can't chase after a higher bid. That is what allowed ABH to perhaps get away with a weak bid and transfer the excess intrinsic value to ABH and away from the minority shareholders of FBK.
Furthermore, if FFH was in fact displeased with Garneau's cowboy antics as you suggest then why is FFH seeking to stop the issuance of the warrants through the exchange?
Additionally, three shareholders, including Fairfax Financial Holdings Ltd., which have entered into lock-up agreements with Abitibi and Steelhead Partners LLC, which is, like Fairfax, a significant shareholder of Abitibi, has also, through counsel, sought to stop the issuance of the warrants before the Toronto Stock Exchange.
Your comments leading us to believe that FFH would prefer the $1.30/sh Mercer offer do not align with FFH's actions.
(B) It seems to me that this is applying private equity theory to a public market deal. In the public markets, I would not expect the bidders to pay up for a contract that doesn't yet exist. I note that neither ABH nor MERC have offered prices that include that future potential revenue stream to any meaningful degree. The best hope for the FBK minority is to try and get a PPA in place, yesterday. With a new contract on the table the value of FBK then goes up. But what are the chances that it happens before the deals close? I would be willing to bet that whoever wins the bidding war will pay the lowest price they are able to pay inorder to win the deal. And until such time as a PPA is in place ... I won't expect that future cash flow to be fully valued.
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IV:
Thanks for the info r.e. Hudbay and Osler ... the links below spell out some interesting contextual details:
http://www.mccarthy.ca/article_detail.aspx?id=4759
http://www.osler.com/NewsResources/Default.aspx?id=1303
It looks like everything is a shade of grey ... with interpretation based on whether you're rooting for black or white. We'll see what happens soon.
This is the statement that bothers me the most:
the fact that the transaction did not preclude a superior offer by a third party, and required Paramount to tender or vote any Profound shares acquired on the conversion of the special warrants in favour of a superior offer;
As I stated earlier, I think ABH will argue this deal does have the potential to preclude a superior offer.
We'll see though.... It's certainly been an interesting one to follow.
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IV
I would more easily subscribe to the rationale IFF FFH were opting for ABH shares, but doesn't the tender circular state that FFH would opt for the cash? That would mitigate thesis that they are giving up on one end to get on the other (recognizing they would still gain as existing ABH shareholders).
I'm a long time FFH admirer, so it just seems something is different here. However it plays out, I'm sure there are a few good bar stool stories that will come out of this.
TTT,
Fairfax has agreed under its Lock-up Agreement to elect to receive its consideration in the form of either the Cash Only Option or the Cash and Share Option, but not in the form of the Shares Only Option, in effect limiting the number of shares of Resolute Common Stock that Fairfax may receive under the Offer to 955,043.
Resolute's offer limits the amount of new stock issued to approximately 3.7M shares.
So, when FFH agreed to this condition it was in effect leaving more stock for the remaining shareholders to split. Dare I say it ... they did something nice for their partners! You'll note that the others parties involved did not agree to the same limiting condition under their lock up agreements.
Here is an excerpt from the Globe and Mail article dated Dec 20th:
“When Resolute, the old Abitibi, approached us, we felt this was the right operation with the right scale to acquire Fibrek, and here’s the key – Fibrek shareholders will receive Resolute shares that will maximize shareholder value over the long term,” says Mr. Watsa. “Our view is Resolute shares over time, the next three or four years, will do much better than Fibrek shares.”
Fibrek’s shares have not performed well for a long time, he added. “Abitibi/Resolute is almost debt free, it’s a large company, and it’s come down by more than 50 per cent itself,” Mr. Watsa says. “So where would you put your money? Our thinking is we preferred to go with the large company whose stock is also undervalued and who is financially very strong and will recover. If Fibrek was to recover, Resolute will recover too. And it’s as simple as that.”
<IV
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IV
Thx for comments. I see the rationale. That said, what were circumstances in the precedents you note? I can see ABH arguing against it ... It's when FBK shareholders who stand to gain (in isolation, without insider/backroom dealings) seek to block it that something smells.
TTT,
The basic math for Mergers works like this; IValue of Combined Firm = IValue of Acquirer + IValue of Target + Synergies - Cash. You'll note that IValue of Combined Firm is maximized if synergies are high and IValue of the Target > cash paid. This much is intuitive.
I believe that FFH felt ABH stock was worth more than it's market value at the time of the offer. The ABH offer at $1/share implies a stock paper price $15.83/ABH share for investors who want to end up with ABH stock. (.0632 * X = $1). My guess is this would include FFH & Pabrai given their existing positions in ABH.
Now, if the cash paid < IV of Target (which I believe it is) and synergies are high (wood chips) .... the IV of the Combined firm would be maximized. But the benefit is even greater given your using ABH paper at $15.83 and you think its worth $25 or more.
In other words, FFH gave up deal value on the FBK side but is gaining it back on the ABH side. Remember, when all this started FBK was potentially on the verge of doing an acquisition which would have been diluted; FBK was at $.70; pulp prices were weaking; and FBK management was not shopping the assets to competitors to maximize shareholder value. In order for ABH to agree to doing the deal they required the hard lock agreement to protect themselves. At the time, given the choice of the hard lock agreement vs. FBK's prospects under current management, I suspect they decided they had enough.
This deal hurts the minority shareholder of FBK who doesn't want to own ABH going forward. I believe those are likely the biggest voices at this time. They are getting lessthan IV for FBK which pisses them off and they won't accrue the gains back through ownership of ABH.
But ... that's business.
Frankly, I don't understand a lot of comments regarding FFH. Their loyalty lies with their own shareholders first.
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Can someone find out who the third shareholder is, besides FFH and Steelhead, who is seeking to block the issuance of the warrant? Presumably it is another FBK shareholder with ABH shareholdings/alignment as well?
That said, can someone provide a rational reason why FFH themselves would seek to block the issuance? If, by their lockup agreement, they've implied a $1/share sale price valuation to FBK, then how can issuance of warrants at same value be dilutive from a valuation standpoint? And from a control standpoint, if they considered their FBK position in isolation, then what should they care about owning a few % less of a bigger pie, especially if the proceeds are going straight to strengthening the balance sheet? After all, they benefited 18 months ago with the backstop agreement where they raised their % ownership with the rights offering at $1.01/share.
Doesn't FFH's action go above and beyond any "duty" implied as part of their lockup agreement? The only rational reason I can think of is that they would prefer to sell holdings and get ABH shares than get MERC shares (at higher valuation) ... but even there they've stated that they would seek the cash-only option (or as much of such as is pro-rata available).
Doesn't this cross a line somehow? Is Prem pissed that he was subpoenaed (although not actually called to testify) at last week's hearings regarding the FBK shareholder rights plan?
Something is not right in the state of Denmark ...
TTT,
As I mentioned in my last post, I'm not yet convinced the warrants will be allowed. Possibly, but it's not a done deal by any stretch. The precedent cases cited earlier are instructive. The private placement in the Hudbay deal was squashed because it was deemed to be abusive. The Paramount deal was found to be a real financing and the panel did not intervene. In that issue the financing was not bathing in "conditions". My understanding is that money was available to the company regardless of the outcome of the deal.
In this case, FBK's deal structure looks a little more suspect to me and I'm not sure whether the BDR will see it as such. The reason for my concern is that funds are heavily conditional and the funds are currently in trust (not available to the company). The outcome of the warrants will be influenced by the outcome of ABH's offer. Will the BDR see this as a real financing? I'm really not sure.
ABH will argue that the warrants are abusive. Here's why; If ABH came to the table with a $1.30 offer tomorrow to match Mercers under the assumption that this was indeed a better deal because ABH paper is worth more they still would not likely get a deal done. Assume for a minute that ABH stock is more valuable. This is a complete grey area but that's my point. Under these conditions ABH would not likely get the Boards support. The Board must be convinced that ABH has offered a superior deal and there is way too many variable involved to confidently determine who's paper is better. Therefore, it would cost ABH $40M even if they did indeed have a superior offer and under this scenario it will therefore cost the other shareholders.
If on the other hand, ABH comes in with a new offer at $1.45/share. It would be hard for the Board to not see that as a superior offer, imo. Remember, Fibrek has the right to redeem the warrants if it supports a superior proposal. So, the money could flow out of trust to buy back the warrants.
Is that a true financing or more of a strategic tatic to force ABH to come to the table with a materially higher bid?
We'll see what the BDR/ TSX say ....
Re your question: FFH wants the excess value within FBK to accrue to the largest shareholders of ABH, which is of course -FFH.
<IV
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I'm not so quick to conclude that FBK will be allowed to do the warrants. The regulators will want to know that the issue was truly needed for corporate reasons and not just as an anti-takeover tactic. Given that the funds have gone to escrow and would likely be redeemed should Mercer win their bid the courts may side with ABH. Fibrek went to great lengths to state the purpose of their issue in the press release but I'm not so sure the courts (or exchange) will approve. Fibrek is trying to force ABH to come with a bigger bid and should they turn the offer friendly the warrants can be redeemed. Not sure that is going to fly ...
From the release:
Mercer has also agreed to purchase 32.32 million special warrants of Fibrek on a private placement basis, at a price of $1 per special warrant for total subscription proceeds of $32.32-million. The special warrants are convertible into common shares of Fibrek on a one-for-one basis. Conversion of the special warrants is automatic in certain events and otherwise at the option of Mercer subject to certain conditions. The special warrants are also redeemable by Mercer or Fibrek in certain events at their subscription price, including in the event that Fibrek receives and supports a superior proposal. The proceeds of the private placement will be deposited in trust at closing and will be releasable to Fibrek on conversion of the special warrants or to Mercer in the event of a redemption. Proceeds from the private placement are initially to be used by Fibrek to reduce net debt given (i) the recent costs associated with its strategic alternatives review process in response to Abitibi's unsolicited offer, (ii) the high level of RBK pulp inventories and lower than anticipated sales which have resulted in a five-week market shutdown of the Fairmont mill effective Feb. 20, 2012, and an increased need for liquidity, and (iii) capital expenditures required in connection with Fibrek's power-generation initiatives and other growth and diversification opportunities. Completion of the private placement and the conversion of the special warrants is subject to a number of conditions, including the approval of the Toronto Stock Exchange, but is not conditional on the successful completion of the Mercer offer. In the event the Mercer offer is not completed, the private placement will provide Fibrek with necessary financing to continue operations and the execution of its strategic plan
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How is this clown "seeking alpha certified".
Time to start the letter writing campaign on behalf of Francis.
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278K - voted against.
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Yes the lockup group put FBK into play for a reason, but unfortunately not the reason you are claiming. As I said before, they put FBK into play to allow all the intrinsic value + synergies to accrue to themselves through ABH, at the detriment of FBK minority shareholders. Otherwise, they would have signed soft lock-ups.
EXACTLY, unless you take ABH stock and go along for the ride.
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Keep in mind that Prem is talking the long view - & doing so for a reason.
A cynic would note that ABH might well be floating the idea of swapping the roughly 120M+ of cash in this deal (71M in the offer + 50M from FBH credit lines) for ABH stock. Because if the deal settled at $2+/share (or higher), ABH would get an equity issue of 260M+ & materially improve its D/E ratio. Given that it is highly unlikely that ABH could do an equity issue for 260M+ of cash in todays market - for the same number of shares - there is a need to persuade FBK shareholders as to the merits of ABH stock.
A cynic might also highlight what junk TODAY'S ABH share currency actually is - & that this deal is being done TODAY. We may well all agree that over the long term ABH should be worth a lot more, but TODAY a FBK shareholder is being asked to swap a stronger credit for a much weaker one. When you want your counterparty to re-assign to a lower credit, you have to pay for the priviledge.
A cynic might also note that in a commodity downturn FBK is not only the lower financial risk, but it also has the cash to buy back its own shares. Furthermore, Prem & Coy have so many shares of FBK, their only real exit is to take FBK private. There is a lot more market risk to holding ABH than there is to holding FBK, & for a FBK shareholder to take on that risk - you have to pay for the priviledge.
We would actually prefer to take all ABH stock, & agree with Prem that we would expect the ABH holding to double its value within roughly 1.5-2 yrs. Most others would probably take a similar view - but ABH is going to have to add something for FBK improving their Balance Sheet ;)
SD
None of this addresses the simple question; "Why would ABH compete with themselves?" With so many shares comitted to the deal at $1, the hurdle to overcome in terms of additional votes is pretty low. They only require 4 out of every 10 shares remaining to vote in their favor. Naturally, FBK will come back with a higher valuation. But, that doesn't mean ABH will do anything about it. Why not just take the $1 offer to vote. If they get it they've stole the assets. If they don't they can simply extend the offer provide a small bump and get wait the obigatory 10 days to find out if they are lucky the second time around. Quebec Harvest levels are shrinking and FBK's biggest expense comes from ABH in the form of woodchips.
Porter's 5 forces: I think ABH has the power, unfortunately.
I don't like ... but I fear this is reality.
I hope your right and I'm wrong ...
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Very interesting.
It appears that HWIC considers ABH shares to be substantially undervalued on a risk adjusted basis to the point where the exchange ratio is fair. I think I need to do a deep dive into ABH.
I suspect the ABH pension liabilities may be the reason why there is such a divergence of opinion on the value of ABH versus FBK. Does anyone have any good ideas of how to go about assessing how the pension funding for ABH will work? Is everything in the public filings, or is there some background material that I should read to get up to speed?
This is what I previously mentioned looked to be the motive for FFH. ABH looks to be worth about $25/share. Valued in the deal at $15.84 giving about 58% upside. The FBK deals kills the guy who wants cash but rewards the investor who adopts ABH, imo. Synergies gained are in addition. Effective value is then $1.58/share and your betting that ABH gets to it's fair value before FBK could. I personally, don't disagree with this ...
My simple answer to all the math occuring in the previous thread is ... "why would FFH want to compete with themselves". FBK and their bankers can frame the value anyway they want. But I highly doubt ABH will up the offer until after the vote. They only need to get 20% more. If they don't, they can extend the offer with a slightly improved price, wait 10 days and find out if that was enough to attract the extra 20%.
I personally don't see how the offer comes to $2/share at any point. Don't get me wrong, I'd be happy if it did... but I think those folks are focusing on the cash value only and no looking into the value on the ABH side.
;D
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We adopt a Christmas family every year too. This year, a single Mom and her two kids. Working hard trying to provide for the kids and get herself stabilized after a bad relationship. My two boys even donated their December allowance and bought gift cards at Walmart for the other kids. Clearly they are getting as much out of this as the sponsored family!
Last week when I was going through the Tim Horton's drive through I saw a young Cadet raising some money by the front door. I yelled for him to come over and I donated $20 bucks. When I got to the window to pay for my stuff the girl informed me that is was all taken care of by the guy in front of me and that he wished me a "Merry Christmas".
What comes around goes around.
<IV
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I need about ~1.45 just to break even. Sucks.
I will say No for 1 bucks. Do we need 90% or just 66%?
66% total but Prem and Mohnish represent about 46% of that... so really out of the remaing shares, only 40% has to accept the offer. (see my math above)
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LessThanIV. Agreed it is unlikely there will be another bidder, but FBK does not have to agree with the price & can put its plants up for sale to extract a better price[/b] (which diligence requires them to at least attempt). Also agreed that ABH will likely prevail - but they are going to have to cough up.
Are you thinking the assets may generate more interest if they are split up and sold off in pieces?
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Rmitz,
Respectfully,
I think the remaining float is owned by many investors who bought this company longer ago than the year and half you mention. Many investors purchased SFK back in 2005/2006 when Fairfax was building their position.
Incidentally, judging by the decision to lock up their shares at this price ... I can only assume that Prem and Mohnish have become "very tired" too.
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"The deal seems to be valued around 4X a reasonable estimate of EV/2012e EBITDA . That's perhaps a little too cheap but in the vicinity of proper multiples for a single product pulp company. Most seem to garner multiples of 4.5X to 5X EV/EBITDA"
1) Keep in mind the power generation EBITDA of 4-6M/yr starting 01/01/2013. Roughly 5 x 5M discounted at 7% ? (debt rate) for 1 yr; 23.36M/130M shares - or an additional 0.18c MINIMUM.
2) Assume another 35M MINIMUM of market value > book value for all the P&E. Another 0.27c/share.
They need to be thinking about getting above at least $1.45.
SD
The problem as I see it is ... There isn't going to be any competition for the assets to drive the price higher. What other Eastern operators are in a position to bid? I'm assuming you expect the board to reject this offer and then Resolute counter at $1.45 but I'd be surprised to see that high of a counter. With 130M shares extended and 59M already committed, 46% of the required 66% has already been attained. That means that of the remaining 71M shares only 28M (or roughly 40%) need to tender to complete the bid. In this market with other opportunities abound, I expect that a good chunk of very tired shareholders are going to take the 39% premium and reallocate the cash.
My gut feeling is that ABH steals these assets. If Prem and Mohnish take ABH stock they now have "their guy" running the show and as I mentioned previously, it appears to my eye that ABH stock is itself quite undervalued. (need to do more work here). But it's likely that their confidence in ABH passing them back that value is greater than their confidence in FBK passing them back that value. That's the only reason I can see for the signing the lock up agreement at this price.
Perhaps it takes a slightly higher bid but I don't expect a huge improvement.
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I find the price of ABH interesting. Upon an initial cursory glance, the value of ABH seems much higher than $15.84/share. The value appears closer to mid twenties. Roughly a 58% upside to get to $25/share. Fairfax and Pabrai likely have more confidence in ABH returning to IV sooner that FBK could. Having ABH return to fair value would be the rough equivalent of getting $1.58/share for FBK.
FBK is heading into some headwinds at the moment on pulp pricing. The deal seems to be valued around 4X a reasonable estimate of EV/2012e EBITDA . That's perhaps a little too cheap but in the vicinity of proper multiples for a single product pulp company. Most seem to garner multiples of 4.5X to 5X EV/EBITDA.
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Fibrek suitor Resolute plans $130-million takeover
2011-11-28 19:43 ET - News Release
Mr. Remi Lalonde reports
RESOLUTE FOREST PRODUCTS TO COMMENCE TAKE-OVER BID TO ACQUIRE FIBREK INC.
Resolute Forest Products intends will make a formal takeover bid to acquire all of the issued and outstanding common shares of Fibrek Inc.
"The acquisition of Fibrek is consistent with our strategy," stated Richard Garneau, president and chief executive officer. "As we continue to focus on building a sustainable and profitable company, growth in expanding global pulp markets is the right move, at the right time, for Resolute Forest Products. The range of optimization opportunities that we expect from this acquisition will, over time, deliver increased value to our shareholders."
The offer would contemplate that holders of Fibrek shares could elect to receive for each Fibrek share:
Cash and share option: 55 cents in cash and 0.0284 of a Resolute share;
Cash only option: $1 in cash (subject to proration, as described herein);
Shares only option: 0.0632 of a Resolute share (subject to proration, as described herein).
The maximum amount of cash available will be approximately $71.5-million, and the maximum number of Resolute shares to be issued will be approximately 3.7 million shares. For purposes of calculating the applicable proration, the maximum cash available and the maximum shares available will first be reduced by the amounts necessary to satisfy the cash and share option fully. The cash only option and the shares only option will each be subject to proration in the event aggregate elections exceed the remaining cash or the remaining shares, respectively. If proration applies, the remaining consideration will be delivered in Resolute shares if the cash only option is prorated or in cash if the shares only option is prorated.
The offer will contain customary conditions for transactions of similar nature, including, among others, a 66-per-cent minimum tender condition, waiver or termination of all rights under any shareholder rights plan(s), receipt of all regulatory, governmental and third-party approvals, consents and waivers, Fibrek not having implemented or approved any issuance of shares or other securities or any other transaction, acquisition, disposition, capital expenditure or distribution to its shareholders outside the ordinary course of business, and the absence of occurrence or existence of any material adverse effect or material adverse change.
Resolute has entered into lock-up agreements with three significant shareholders of Fibrek, including Fairfax Financial Holdings Ltd. and Pabrai Investment Funds, holding, directly or indirectly, an aggregate of 59,502,822 Fibrek shares (representing approximately 46 per cent of Fibrek's issued and outstanding common shares). Under the lock-up agreements, each of the locked-up shareholders has agreed to tender, or cause to be tendered, all of its Fibrek common shares to Resolute's offer, subject to certain conditions. The lock-up agreements provide, among other provisions, that Resolute commence a formal takeover bid on or before Dec. 30, 2011, provided certain conditions are satisfied, including there not having occurred any material adverse change with respect to either Resolute or Fibrek. Under the lock-up agreements, which are being filed with the U.S. Securities and Exchange Commission, also available on the Canadian SEDAR filing system, the locked-up shareholders have no ability to withdraw any Fibrek common shares to tender to or facilitate any competing transaction.
The offer represents a premium of approximately 39 per cent over the closing price of Fibrek's shares on Nov. 28, 2011, and a premium of approximately 31 per cent over the volume-weighted average trading price of the shares on the Toronto Stock Exchange for the 20 trading days ending on that date.
Full details of the offer will be included in the formal offer and the takeover bid circular to be filed with the securities regulatory authorities and mailed to Fibrek shareholders.
Based on Fibrek's public disclosure, it has 130,075,556 issued and outstanding common shares (on a non-diluted basis), valuing the offer at approximately $130-million, or approximately $126-million (U.S.). Resolute currently owns no Fibrek common shares.
BMO Capital Markets is acting as financial adviser to Resolute, while UBS is acting as financial adviser to a special independent committee of the board of Resolute.
We seek Safe Harbor.
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If you think FBK will see IV in 3 yrs, the compound return is above 40%/yr .....
Most folks will not pay $1 today, for $2.50 - 3 or more years out (in spite of it being a 40c dollar). To get the Greenblatt 30% return experience, you have to be 75% confident that you will actually see IV realization within 3 years.
SD
SD,
Most folks, including their largest shareholder have been holding for much longer than 3 years and will likely lose money with an IV of $2.50.
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Given the 2007-2011 market climate, I'm pretty happy. (I'm leveraged)
Years Return (%)
YTD Aug11 7.62
1 Year -11.17
2 Years 23.35
3 Years 25.03
4 Years 28.01
Resolute Forest Products Commences Takeover bid of Fibrek
in General Discussion
Posted
Pretty much what I said in response to the press release I still don't understand, no?
Anyways, enough of the gloating on my part. I've had my fun for the day and with that, I'll move on.
TTT,
Without the dilutive warrants in the way, I wonder if ABH will now reduce their minimum tender to 50%?