SharperDingaan

We have european family who are Quantity Surveyors. Iceland is an indicator canary, & this one has been having serious discussions around adopting the $C as its currency. Additionally, were an investment made it would be done at todays lows & not the historic highs. An investment today would exploit the capital controls on purchase, rely on them for interim appreciation, & use Krona conversion to cash out - over the short term. Notable are the rejected currency choices of Euro & $US, & why. Aberdeen, Inverness, & St John's mansion prices before the development of off-shore o&g. 4 hours flying time from Toronto.

And what happens < 3yrs of the crash ... http://www.icenews.is/index.php/2012/02/29/iceland-property-prices-increased-fastest-in-europe-last-year/ Property prices in Iceland increased faster last year than in any other European country surveyed. The increase in par value of houses was higher even than in Norway, where a property boom is in progress

Change the game. ie: Buy a house/condo in city X, sell a long lease (25-40yr) on the land inclusive of property tax. Lessee lives in the shelter (house) on top of the land, pays the utilities, & maintains the property if desired. Lessor hands over the shelter keys, pays the annual property tax, walks away, & re-leases or levels/re-develops the property at the end of the lease. The lease is a bond, valuing at the PV of the remaining CF. Maximum value is at initiation & in a low risk environment. Lease value declines every year & terminates at zero. Shelter cost between yr X & Y is the difference in lease value, identical to depreciation in a vehicle purchase. Shorter the lease, the lower the price, & the less/no need for mortgage financing.

"So what do we short, guys" You don't. Park your $ in Canada's. If/when a particular property falls far enough for you - buy it.

You cannot prevent people from hurting themselves, it is their choice.

The 24 yr old with the massive mortgage goes bankrupt, moves back in with mom/dad, & CHMC covers the bank against loss. Highly visible, but there are not many of these, & the CMHC/Bank/BoC have more than enough capital to hold houses off the market, en masse, if needs be. Financing for mortgages this big is usually by LOC. Rates increase, the house(s) get sold at a deep discount, & the new buyer finances via conventional mortgage (or the bank/BoC doesn't give the mortgage. Prices drop, but they don't melt down 30%+, en-masse. Financing goes from unstable to stable, with monthly amortization continuously lowering the risk going forward. Victoria McMansions may lose 40% of their value, but they dont drag down the nation overall.

Going forward we'll very likely take the same approach, despite having done very investing alongside them. Silence on what we like & why, but where we touch FFH it will be for seasonal trading purposes only. Unfortunately, the canadian investment pool is really too small to allow any other approach. SD

There is 'read' & there is 'scan'. We read the Globe and Mail, & Oil & Gas Week. We periodically scan www.straitstimes.com, www.thestandard.com/hk, www.telegraph.com.uk/, www.icenews.is, www.theportugalnews.com, & www.aljazeera.com. We scan primarily for tone, the hot business topics, & assume each publication is overtly biased. SD

As at 7:25 EST, 02/27, 20 of 27 voters see the ABH bid as an abuse of minority shareholder rights. We were deliberately provocative - to demonstrate how a voter could arrive at a conclusion of abuse, using publicly released information. Those who insist on drunk driving, or beating their wives, do not see their actions as abusive either. Most would conclude that given these statements, the longer the lock-up now continues the greater the likelihood that the conclusions are true. The solution is simple – drop the lock-up, or match the Merc bid. In the interest of fairness our rebuttals are as follows; 1. You have no idea whatsoever what the "value enhancement" from the acquisition would have been. The deal had to have a material & significant NPV or it would never have been proposed (Corporate Finance 101). The NPV also had to have been > the BV loss of the new shares that would have been issued (Corporate Finance 101). It was a bad deal for FFH because it would have diluted the size of the lock-up stake being negotiated. 2. This is pure speculation! Agreed we do not know what was considered. We do know that FBK was under pressure to demonstrate value, & that share consolidation &/or major shareholder dilution are mechanisms that would have increased FBK’s value (Corporate Finance 101). 3. Again, explain to me how minority shareholders were deprived from realizing the full value of their shares. They could have sold millions last week at well above the $1.30 offer price. superior bid. Selling last week was to assume no further improvements in what is a hostile takeover. < 10% probability that the PPA will be realized. 0% probability that the Merc private placement will go ahead. Mr Markets price today, NOT the Merc or ABH final offer. 4. Rubbish! This is actually libel...that you are accusing ABH and Steelhead of a coordinated fraud. We do not make this statement. We simply point out that the ABH bid has gained more support. Those votes could be because the group has bought more shares, or a new party (other affiliate) has bought shares & chosen to align with ABH for the present. 5. It's their responsibility to take care of their shareholder's first. Agreed. If they are not tendering to Merc’s $1.30 offer it must be because they will make more from an ABH win A win that can only be achieved by abusing FBK minority shareholders. 6. Glad you can read their minds Sharper. We don’t read minds, we look to fiduciary responsibilities. SD

We know: FBK advised FFH management, in good faith, of their intent to execute a value enhancing acquisition. Had the acquisition proceeded ALL shareholders would have owned a smaller share of FBK that was worth more, but there would supposedly have been a diluting share issue. We know that at about the same time 1) FFH rejected a solicitation from Merc for their FBK shares at $1.00/share, & 2) ABH was negotiating for a hard lock-up with FFH/Oaktree/Pabrai. - The ABH lock-up was rushed to spike FBK’s deal & avoid dilution of the combined FFH/Oaktree/Pabrai stake in FBK. It deprived FBK shareholders of the acquisitions value enhancement, circumvented the governance we pay our senior management to do, and could not have been accomplished without the FFH explicit agreement to enter a hard lockup. The transaction was a clear minority shareholder abuse, it defrauded all shareholders except FFH/Oaktree/Pabrai, & it was abetted by FFH/Oaktree/Pabrai. - There is no reason to believe that existing shareholders would have been denied the opportunity to maintain their existing proportionate ownership, or that there would not have been a subsequent share consolidation to bring the trading value of FBK’s shares > the minimum $5/share institutional threshold. If it wished, FFH could have chosen not to participate, allowed its holding to dilute, & sold consolidated shares into a stronger & more liquid market after the fact. - Give FFH/Oaktree/Pabrai the benefit of the doubt, & assume they didn’t fully realize what “it’s just business” really meant. The lock-up abets a transfer of the IV of FBK minority shareholders to ABH shareholders at below fair value. At above 66 2/3% FBK minority shareholders will be forced to accept an offer on the ABH terms of $1.00/share at best –materially below Merc’s competing price of $1.30/share. A “just business” current defraudment of $0.30/share that is not possible without the explicit lockup consent of FFH/Oaktree/Pabrai - We know from the recent 51.5% tender that ABH/Steelhead/Other Affiliated have been buying FBK, & that the shares could only have been purchased at well > the $1.00 ABH offer price. Within the terms of the ABH bid, the purpose can only be to coerce a tender > 66 2/3% & perpetrate a defaudment on FBK minority shareholders. - We know that ABH unsuccessfully attempted to spike the Merc offer of $1.30, & that FFH/Oaktree/Pabrai publicly supported that ABH effort. FFH/Oaktree/Pabrai have a fiduciary obligation to their shareholders & investors to maximize the value of their holdings – & they cannot meet that obligation unless their opportunity gain on the ABH side of this transaction exceeds their opportunity loss on the FBK side. To take this approach, is to imply that FFH/Oaktree/Pabrai are in full agreement with the intent to defraud. “It’s just business”. - We know that if FFH/Oaktree/Pabrai were released from the lock-up tomorrow, & the ABH bid put on the same 50%+1 terms as the Merc bid, the ABH bid would fail. It would fail because it is below the $1.30 Merc bid, & FFH/Oaktree/Pabrai have each have the fiduciary duty to tender to the highest offer. As FFH/Oaktree/Pabrai have not spoken out, ABH has not released the lock-up, or matched the Merc $1.30 bid - we can only conclude that ABH intends to defraud by coercion, & that FFH/Oaktree/Pabrai have agreed to it. Should ABH prevail at the $1.00 vs $1.30 bid they will save approx 39M on the 130M o/s shares. If they can avoid paying the estimated $1.00/share PV of the PPA they will save an additional 130M. A total potential defraudment of 82M on the non-affiliated 48.5% who have not tendered to the ABH offer. Apparently fraud “is just business” ? SD

I think the point I was making is that when a company offers to buy a company for $15.00 the public shareholders get $15.00. No more, no less. As far as a PPA goes, how does it immediately affect working capital? Your statement is incorrect. Working capital is just A/R - A/P & represents the outstanding short-term receipts and liabilities that are expected to convert to cash within the next 90-120 days. To ensure that an adequate collection effort will continue immediately following the sale, the seller agrees to repay the buyer whatever agreed A/R is not collected. Without the working capital adjustment process a seller has an incentive to terminate their collection staff immediately following the sale, pay them an inflated severance, & leave the buyer with a significant A/R write-off - & the need to re-hire/hire replacement collection staff at a higher average rate. Re the PPA. Agree the PV of the PPA, Db A/R, Cr Equity. The $ amount of the A/R is the best estimate as to the PV of the power today net of all uncertainty - the same definition as for every other A/R on the books. Total A/R increases, A/P remains the same, & working capital increases. Because this specific A/R is significant, material, & unique - collection is defined as a deal signing within X days of purchase. Db long term asset, Cr A/R when the deal is signed. The buyer will argue the uncertainty makes it impossible to value the PPA. The seller will argue no sale - we wait for the uncertainty to clear, & then value the PPA. There is no sale unless there is BOTH a willing buyer AND a willing seller, and ALL institutional shareholders have a fiduciary duty to their shareholders to maximize the value of their holdings. The coercive transfer of FBK IV to ABH IV is also a criminal act. No different to a drug lord abducting the family's of all the major ABH shareholders - & then informing the head of each family that they will agree to transfer the IV of ABH to their worthless shell - or risk not seeing their family's again. These criminals just wear better suits, talk politely, & don't use guns - but otherwise, what is the difference in the process? SD

The only shareholders affected by dilution are those making a lower offer. Everybody else sees the higher price of the competing offer & are not affected – because the company will no longer exist. Remove the conditional strings on the Merc financing, reprice at the $1.30 bid, & make it effective immediately. A little less dilution, but the share count still goes up. The $ themselves are not from Merc, they are just flowing through them. Attack the lock-up. Make it fiduciary extremely difficult for ABH’s remaining shareholders to continue supporting the lock-up, by strangling their financing & Quebec business. Change the game. This entire fiasco is because FFH owns too high a % of both ABH & FFH. FFH is supposed to be a passive investor, but because of their % they are being dragged into operations decisions that they are not equipped to deal with. The solution is to merge both ABH & FBK into a 3rd & big player, & dilute their holding to a more normal <30% of the combined entity. Change the end-game. Drop the ABH bid as it has served its purpose. Support FBK management to counter the Merc bid for inclusion of a PPA A/R & improve shareholder value. Maybe even indirectly finance a portion of the PPA A/R should it occur. Demonstrate goodwill, then aim for merger. SD

Three options: - Rework the Merc deal to make it qualify - Apply to have the ABH deal diqualified - Get the PPA signed ASAP

FFH Watcher: Working Capital adjustments are common to ALL take-overs, not just private ones, as the same basic valuation issues have to come to practical resolution. The adjustments just don't get the press because they're normally very small relative to the purchase price (often a rounding difference in EPS terms), & they are the outcome of negotiated collection (sufficient effort in the collection effort, etc.) Look at the sale of the 407ETR by the Province of Ontario to a private consortium of toll-road investors. Sale proceeds were $3B+. The working capital adjustment was $10M, & paid roughly 6 months later through a seperate money bill passed in the Ontario Legislature. SD

Very well played gentlemen .... Because we have a bidders hedge covering both our Q4 & Q1 results, we are not affected by the downtime & write-downs that were required to set the business up for Q2 going forward. The bids remain at $1.00 & $1.30, & we continue to have a material incremental PPA in progress that is mutually exclusive of how both the NBSK & RBK markets perform. Notice: The global NBSK market is currently showing signs that prices have reached the bottom of the cycle. For the first time in seven months, February presented no price reductions and China spot prices were increased by US$20 per tonne. An announcement was also made by a leading producer of NBSK for an additional US$20 per tonne on China spot prices for the month of March. Furthermore, paper machines which had taken market-related downtime during the holidays are now being restarted. The Company anticipates a gradual recovery in both demand and prices during the second quarter of 2012. St F has taken its downtime & is going to be selling NBSK into a rising market starting Q2. EBITDA goes back up to normalized levels & starts rising from BOTH price AND volume increases. Just in time for its buyer to start coining it Notice: During the fourth quarter of 2011, RBK pulp markets continued to be negatively impacted by high wastepaper prices and low hardwood kraft pulp prices. Fibrek announced on February 10, 2012 that it will be taking market-related downtime for approximately five weeks, beginning February 20, 2012, at the Fairmont Mill to manage inventory levels. Looking forward, the Company believes the return to a balanced level of harwood inventories should have a positive impact on the RBK pulp demand. Feb 20 is the natural sale date for these mills as the buyer has 5 wks to do their thing at Fairmont while the inventory is running down, & FBK takes the hit on the labour disruption. Despite bad conditions the other mill would also seem to be largely unaffected (assume its the take/pay contracts, & new product). ie: by mid-march a buyer could expect BOTH these mills to again be generating EBITDA at normalized rates, that should grow over the balance of the year. SD

MERC would have to include the PPA as a working capital A/R adjustment. FBK shareholders do not have to vote in favour of the $1.30, & they can afford to wait the expected short period for the signing to be completed. The obvious solution for FBK & each bidder is to agree a PV of the PPA, & hold the funds in escrow until the PQ signs the deal. If there is no subsequent signing, the funds return to the bidder as a working capital adjustment. On a risk scale of 1:10 (worst) holding at $1.00 was perhaps a 2. Holding at $1.30 is maybe a 4-5. More risky than it was, but still relatively low overall. The saving grace is that the significant & material size of the PPA forces both bidders to recognize it. Despite the bitching ::) SD

Don't knock it - there's money in muck! SD

Forget the gadgets..... Henry VIII lived from 1491 through 1547. He died very old (56) for his time, but 500 years ago even the 'king of the world' - had to use a cold & drafty 'long drop' from castle turret to the moat below. 300 years later (1836-1910), Thomas Crapper comes along & invents the flush toilet. By 1900 virtually every wealthy individual around the world has one. If you really want to make change, this is how you do it ;) 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. Money talks. Very loudly - & especially when those hard lock shareholders are also the ones funding you (either directly or through their indirect acquiescence). Only the Marx brothers would be deaf to the need to keep this group happy. 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. The point of the hard lock is to demonstrate the displeasure of the major shareholders & lend credibility to the alternative - if value is not realized in very short order. 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? A hard-lock requires the shareholder to publicly support the bid. Privately the shareholders may say something quite different, & in different ears. (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. There is nothing to prevent the PPA from being treated as a working capital adjustment. As in all takeovers the buyer pays the agreed amount of the A/R, & gets a rebate off the price for that portion of the A/R that subsequently turns out to be uncollectable. ie: pay up for the PPA, & get your money back if the PQ doesn't sign the agreement. Consequently, it is highly likely that the winning bid will be the one that guarantees to pay the most for this A/R. ie: the least rebate from FBK if the PQ doesn't sign the deal. We will get paid for the PPA. It is just the how that is unclear. SD

There are actually 3 options on the table. Sell to ABH @ .97, MERC @ 1.27, or do nothing. The board & the external valuation agree that FBK qualifies for the PPA. Most estimate the average PV of the PPA at $1/share +/-. The bid argument is dont pay, because you dont have it, the business is worth $1.27 at most. The sell argument is pay up for the PPA or we don't sell, we'll simply wait to get the deal signed & increase our value by the $1/share PV of the PPA to $2.27. A gain of 79% for maybe a 3-4 month delay. There is nothing to prevent FBK itself selling its RBK mills to someone else. It is highly likely that they have received an offer for those mills, that would eliminate a very large chunk of their debt. Were there a RBK mill sale, the PPA would incease St F's value by well > 100%, & we would be having another discussion with ABH. Merge the chip plant with St F, or buy St F, or sell the chip plant to St F. No matter what - the PV of the PPA gets included. SD

Look at 5-yr history, & stay in the top 3 firms within the industry segment. You might miss the odd diamond, but if management was no good these firms would not have made the cut. If it is something local - look at the storefront, & read the social networks, etc. If its industry, talk to the worker bees (the original social network). The storefront observations should intuitively make sense. The social networks will point to who's best/worst & what are the common practices. SD

The IV argument is right, but to make it work you need 100% of the sellers ownership in the hands of one party, & prior owners have to have sold to you at lower prices - so that the premium price applied to the last share is not received by all shareholders. The practical solution is to put up a cash offer for all of the shares up to about the IV, then collect the synergy on the combined entity. Swapping cash for stock made sense if FBK traded at materially less of a discount to IV than ABH did, AND you had confidence that the ABH discount would narrow following the merger. At the time most thought this reasonable, but the sticking point was ABH's refusal to pay up. Board solicitation of a competing bid was to make ABH pay up. The argument still holds today, but with possibly a wider ABH discount & a delay in the narrowing of that discount. If you need to issue a lot more stock to pay for the deal, & are likely to make senior management changes, you have to discount your stock. Today many would not accept ABH stock. So they either do a placement with a friendly party for cash, or they do a placement with the street for a fee. Given the recent treatment, both parties will be mercenary. There's no conflict with FFH. Fiducary duty requires them to maximize the sale value of their FBK stake, & they will accrue the synergies on their ABH stake if the merger is successfull. SD

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. 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) & 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

Once it is over it is hard to see why there will not be senior management terminations at ABH. This should be a routine small acquisition for them, & it was so heavily weighted in their favour that even a monkey could do it. Yet they've demonstrated an unbelievable level of incompetence, & it would appear to largely because of hubris. We expect ABH to eventually win, but it will be more of the same. An ABH low-ball counter offer based on P/E multiple that includes the PPA. MERC earning their 8.5M fee & toping the counter based on PV of the PPA. ABH countering again with a finally fair offer. Obviously distasteful, but untill ABH changes its attitude we don't expect any improvement. Fortunately they have shareholders with the muscle to make changes. SD

Just need to keep their head jammed in the toilet a little longer. Not enough bubbles yet ;)