SharperDingaan

Back of the envelope - value per share is around 3.94+? NBSK EBITDA (1): 21.7Mx6=130.2 RBK EBIDTA (2): 20.8Mx8=166.2 RBK EBIDTA saving (3)7Mx8=56.0 Power Generation (4): 16Mx10=160.0 Value/share: (130.2+166.2+56+160)/130.1 shares = 3.94 289M sales =367,500@787/ton. 7.5% net EBITDA = 21.7M. Ave EBITDA multiple (2) 277M sales = 377,300@735/ton. 7.5% net EBITDA = 20.8M. Higher EBITDA multiple for base loading & new product (3) P14 Directors Circular. 7M/yr saving x RBK EBITDA multiple. (4) P12 Directors Circular-could be 22M/yr (16+6). Higher EBITDA multiple for price & volume certainty. ... a ‘serious discussion’ at anything even close to this will please anyone SD

Purely speculation ... but with the vote over - perhaps the lock-up shares are now free? He may also be expecting a value maximizer to come to fruition (before the new deadline) which will remove the need for the poison pill. SD

This bid is about the best thing that could have happened for FBK shareholders - & kudos to ABH/FFH for putting it out there. Ignoring the price issue, from the business POV it has done what was really required. It is clear that there is material friction between management & the major shareholders, & that the friction has become destructive. There is only room for one vision, & owners/managers have to be on the same page with respect to execution. Vertical integration to feed St Feliceon makes a lot of sense. Did buying additional tissue production elsewhere, for the right price, make MORE sense? – none of us really knows. We do know that it was value accretive, but it is difficult to see how it could have been done without significantly increasing either the financial &/or operating leverage of FBK. Prior to the bid, FBK was entering an extended period of extreme return for the risk incurred. Financial leverage at record lows, base loading & new product rapidly dropping the operating leverage, & surplus CF & material share float available at a price well below IV. The scuttlebutt would have it that the effect of buying additional tissue production, would have been the material & polar opposite of this. From Day 1, FBK was not intended to be an empire. The mills were to be asset stripped on an ongoing basis with the material bulk of operating CF going back to trust holders. Depreciation less cap-ex to buy additional mills only if/when financial capacity & business opportunity presented itself. Repeal of the income trust legislation orphaned FBK; it was not sold off immediately as the market didn’t favour it. It was nursed through its near BK because the otherwise losses were punitive. It was retained through the last up-cycle because its Sharpe ratio was rapidly increasing for no additional capital investment. There have been material financial & operating improvements ...... but it remains an orphaned asset. There are now serious value-maximizing discussions, which we did not have before, & we have the best possible value maximizing means of resolving management/shareholder dissonance on FBK’s future direction. Our long-held view is that FBK should either be left “as-is” (baring a fibre acquisition), merged into another larger entity at market rate, or dissolved - depending upon whichever is most profitable. If it goes the “as-is” option, merger &/or dissolution is just deferred to a later date. Most would prefer a quick & clean resolution versus a drawn-out & messy affair .... & if it came with a minor discount, so be it (we don’t have to accept the offer). As in any auction there are times when it makes most sense to throw out your best bid, & this is one of them. A pre-emptive all stock bid in the $2.75-$3.25 range would very likely get it done, & done quickly. SD

Keep in mind that most here do not disagree with the combination - it is the price that is the problem. Also, while the share count may be relatively small - it is more how many are voting against, & who they are. SD

210K spread over various accounts. SD

Alertmeipp: We're taking the same position. That said we're also looking for a update from FBK - before Friday - stating what our advisors believe the company is worth, & where they are at in the value realization process. The TD assessment that it is worth more than is currently offered, is not adequate. SD

We find that when all the choices are outliers, the return over 1 yr is really the wrong metric. Best we can do is decide the intended length of the holding period, guess the exit price, determine the IRR, then rank the choices from highest to lowest. Small errors can really change the ranking. The better metric is whatever you’re using for your MOS. Set the metric for the portfolio at some min/max number, & let it be. If the net-net doesn’t work out, at least it still worked for the portfolio overall. SD

st96, Quebec: We googled fibrek in the early evening of Friday looking for management announcements & came on the article by luck. Believe the publication was The Daily, & at the time we could see the entire article & use the translate function on it. We didn't post as we were expecting to read a FBK press release on the subject. We googled again on Saterday but could only get partial access to the article. We understood that there was a contract signing for the 33MW on Friday, but if we misread we sincerely apologize to all board members. SD

Don't have access to the full article, but it goes on to describe what was signed. Basically, it is as FBK said it would be. http://translate.google.ca/translate?hl=en&sl=fr&u=http://www.cyberpresse.ca/le-quotidien/actualites/201201/13/01-4485689-gilles-potvin-assiste-a-la-rencontre.php&ei=m8sRT83dFKP20gHr7ZzEAw&sa=X&oi=translate&ct=result&resnum=2&ved=0CD8Q7gEwAQ&prev=/search%3Fq%3Dfibrek%26hl%3Den%26sa%3DX%26biw%3D1024%26bih%3D640%26tbs%3Dqdr:d%26prmd%3Dimvns Also a flavour as to the Quebec view as to whether this is an inside bid or not. If ABH plays fair there shouldn't be a problem. http://translate.googleusercontent.com/translate_c?hl=en&prev=/search%3Fq%3Dfibrek%26hl%3Den%26sa%3DX%26biw%3D1024%26bih%3D640%26tbs%3Dqdr:d%26prmd%3Dimvns&rurl=translate.google.ca&sl=fr&u=http://www.cyberpresse.ca/le-quotidien/actualites/201201/13/01-4485459-fibrek-cherche-a-gagner-du-temps.php%3Futm_categorieinterne%3Dtrafficdrivers%26utm_contenuinterne%3Dcyberpresse_B4_en-manchette_322_section_POS3&usg=ALkJrhjE6IZjfFs0BtQvn340GylTQYmLAg SD

We gather the PPA was signed yesterday http://www.cyberpresse.ca/le-quotidien/actualites/201201/13/01-4485689-gilles-potvin-assiste-a-la-rencontre.php Assume around 60M EBITDA x 6/130M, with no asset sales, SD

Cardboard, Munger: Thanks for the heads up. I hold a FCSI designation so I don't expect any issues with registering, but perhaps its also getting time to either dissolve or revert the partnership back to its original intent. My few partners each contributed > 200K, & would be considered more sophisticated investors. To ensure that we understood the risks, all GP & LP agreements were witnessed by their own legal. Estate planning was added after the fact to deal with the death/divorce issue. The common & pref share structure was a corporate overlay to facilitate wealth attribution, evidence LP agreement with the IP, & enable the payment of different returns consistent with the nature of the GP-LP arrangement - not elegant, but serves the function. Great structure for the original purpose, but any material growth obviously causes issues. My interest is owner-management of a single venture/company project - much more modest, hands-on stuff. The serious money is a way different ballgame, & frankly I would rather work for others doing it, than do it myself. Basically money as servant, not the master. SD

For our Cdn GP-LP partnership I am the GP. The LPs are either family members or close family friends, & the partnership exists to make/manage investments on the TSX. Setup & agreements were reviewed & prepared by Cdn legal. The partnership has operated for 9 years & we’ve never been challenged. What counts is overall context, & how it is evidenced. • Memoranda of Understanding (MOU): Outlines the intended nuts & bolts as to how the partnership will operate, how the GP & LPs earn their money, what are eligible partnership expenses, liquidity arrangements, etc. The GP does not get paid a management fee for services provided, as it gives the appearance that the GP is acting as an agent/employee of the partnership. • Preferred share agreements. Objective evidence that LPs gave up control of their funds in return for specified dividends &/or participation. Redemption/liquidity provisions evidence there is no intent to trade. • Detailed Investment Policy & strategy. Evidences there is no intent to give LP’s investment advice. • Nature of the quarterly reporting. Lead off with pref share div coverage, LP partnership transactions (if any), investment strategy versus actual variance analysis, & add copies of broker statements & the current financials. Speak only to historic results, & not a TSX benchmark. • Some kind of formal strategy review & publication process. You are not allowed to use the MOU as an alternative solicitation; it is only to evidence how the proposed partnership will operate. However there is some wiggle room, as in the early stages - it is a draft document only. Discretion. For many the stumbling block is the different business model, & getting rid of the marketing ‘apparatus’. It is because of the marketing, that we have the investment regulation. Obviously our docs are confidential, so we will not release them – but direction should be clear. The best of luck to you. SD

“ where is the exemption found allowing the general partner to get paid for providing investment management services to the limited partnership without having to comply to federal or provincial laws for investment management” There isn’t one, because it isn’t necessary - the GP is not providing investment management services, & is not getting paid for the provision of any services. If you go the common & pref share route - the GP’s reward is 100% of the market return on the pooled funds - less any incidental costs & agreed upon pref share dividends & participation - & it could be negative in a down year. Add in the unlimited liability the GP has & the tests for comp clearly fail. As there is no comp, there is no services contract, & the investment management laws don’t apply. (1) Pref shareholders did not give you their money to manage for them, they gave it to you for the stated objective of the partnership; invest it to do ...... (2) The GP is not advising the LP’s in any way or form. Example: If the investment were an apartment block; the GP would build surplus net CF from leasing up a declining pool of vacant units, & would use the CF + annual depreciation to replace windows/insulation/H&E. Just before the partnership expires the GP would sell the apartment block for a gain (rent rolls & higher CF capitalized at a lower discount rate), LP’s would get their funds back + any agreed upon participation, & the GP would keep the rest. The only difference is that the apartment block is now an investment policy + cash of X. SD

Eddie, for most folks, you will need .... (1) An investment policy outlining what the GP can invest in, max/min weightings to specific asset classes, concentration limits, maximum D/E etc. Look to the OSFI Prudent Person guidelines for the basics. (2) LP agreements outlining the terms of the LP investment. Return, sale/purchase, sinking fund terms, no say in decisions, expulsion conditions, provisions for renewal, etc. (3) You will need a corporate account at your local brokerage in the name of the partnership. Per the KYC & AML regulations, a copy of pretty much all your documentation will be filed with the brokerage. (4) There are no deposits/redemptions as you are not a fund. All investment transactions (initial deposit, trades, int/divs, etc) are recorded on the monthly statement, by the broker, the same as any other account. If the partnership buys the prefs the monthly statement shows a debit for the amount of cash returned to the LP. (5) If you're GP, you're also enough of an accountant to be able to do the monthly financials. Accpac software & the monthly statement to support the transactions. Reclaim HST on a bi-annual basis - if you bother with it at all. (6) Year-end tax documentation is supplied by the brokerage. Hire an accountant at year-end to audit the books & review your tax filing. $600-$1200 on a bad day. (7) GP is not paid, but the partnership usually reimburses for incidentals (telephone, partnership meetings, etc.) You should be very clear as to what you are NOT. You are NOT a MM firm, you are NOT marketing to clients, you are NOT paying commission for AUM, there is NO office &/or support staff, NO 'apparatus'. Your business model is not to grow AUM for the fees, by marketing past performance & hiring PM's in the upper quartiles to achieve it. The partnership model fires the 'apparatus' & keeps the PM. Partners get rich based on how well the GP (PM) invests their capital, & not on how well the 'apparatus' collects AUM. End of the day the GP (PM) has $X for a period of Y years, the GP (PM) can invest it how he/she wants within the investment policy parameters, there is minimal admin burden, & the GP (PM) can run the whole thing from his/her laptop - off the side of their desk. SD

Munger we can't speak to BC or Quebec, other than Quebec will be under french law & all the registration documents will be in french. You would want both legal & tax advice, but the below (for Ontario) will get you started: (1) Copy the Ontario Limited Partnerships Act http://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90l16_e.htm (2) Go to the Ontario Forms http://www.forms.ssb.gov.on.ca/mbs/ssb/forms/ssbforms.nsf/FormDetail?OpenForm&ACT=RDR&TAB=PROFILE&ENV=WWE&NO=007-07191 (3) Fill out Declaration 3 http://www.forms.ssb.gov.on.ca/mbs/ssb/forms/ssbforms.nsf/GetFileAttach/007-07191~1/$File/07191E.pdf (4) Register http://www.newbusinessnow.com/LAW/partnership.htm The GP has unlimited liability, but the GP's risk can essentially be mitigated by making the GP a limited liability corporation controlled by the GP. Key to remember though is that you are not a mutual fund soliciting $ (& therefore attracting the securities restrictions); you are just a few partners pooling your funds on a venture in the nature of trade - for a limited period of time. May we wish you the best. SD

Racemize: Keep in mind that when you start out it's pretty much ONLY family & friends money - because that is all that is available to you. Once you are independent - it is others with similar interests & experiences, who just want to have fun doing whatever the venture does. We would suggest though, that at least one of those others be of the opposit sex - as the thinking really is different. SD

Keep in mind that you tailor a partnership to suit your purpose, so each will be different.... We’re structured in a partnership using a Canadian GP with 100% common equity, & family member LP’s holding 100% prefs. The prefs have a par of 100, pay a non-cumulative 6%, & are subject to sinking fund repurchase at 110% of PAR if the partnership realizes a return > 20% in any given year. LP’s may sell their prefs to each other at 90% of PAR, or the partnership as a whole, but have no say in what the GP does. We also have a UK partnership with a UK GP, under a broadly similar approach – so can look North American, or European, as circumstance requires. As in any partnership, LP’s rely on the judgement of the GP. If the partnership BK’s they get nothing - if it does well they get their money back as rapidly as practical (& based on realized return); but in the meantime they get 6%. The GP gets to build meaningful capital, & concentrate equity funds on a single endeavour. Our partnership was originally created to facilitate the funding of a material & meaningful start-up equity stake in a micro-brewery. A way of leveraging a modest equity stake at up to 8:1 if needs be, & spreading some of the risk. Although we ultimately chose not to pursue the start-up, we have kept the partnership, used it to invest as we see fit, & refined it a little through estate planning. There may still be a brewery at some point ...... but not until the GP actually retires! We used an initial capitalization in the low 7 digits at 40% common equity, & 60% prefs, with a sinking fund lasting 20 yrs. You will need a minimum 10-20% common equity capitalization to cover unforeseen sudden liquidity demands amongst your pref holders. The partnership could be more tax efficient, but it has minimal overhead as the GP is not paid. After 9 years, today’s outstanding pref position is < 50% of what it was, equity is up materially, & LP’s are pressing to issue more prefs. LP partnership liquidity essentially cures itself. Lot of hassle to initially set-up, but day-to-day operation is very straight forward. An accountant to annually audit the books. The quarterly financials & tax filings, you can probably do yourself. Obviously not for everybody, & very dowdy, but also just as effective as being a partial owner of one of the many AUM firms. SD

At this point there's 2 weeks to go to bid expiry, & comes next friday after close (assumption) we should start seeing some hard numbers on the alternatives. Our preference is stock over cash, as long as we're paid for it. Merc, Domtar, ABH are essentially all the same to us .... we don't have to marry them, & can always sell into the secondary market. Let the games begin! SD

Just a brief add on: If going the GP route, you need to make a decision as to whether your interest is primarily as the investment, or the finance guy. You can be the finance guy in an investment business (Goldman Sach Partnership), or the finance guy in a regular business (manufacturing, etc.). Which route, depends largely upon how much hands-on involvement you want, & how you believe a business should be run to generate wealth. The typical non-invstment-business investment may be a 40-70% direct equity investment in a manufacturing facility, brewery, apartment building/hotel (in Paris, Madrid, Rome), insurance syndicate, etc - where the investment is you & 2-3 partners. You are CFO, your partners may also be some of the other LPs, there are no stock options, & the entire partnership is private. The assets are bought at/near their valuation low point, you run the partnership for a while, & ultimately sell out to a bigger player at a higher bid. The typical investment-business investment may be a time limited 10-20% stake in an existing fund business, with the proceeds essentially buying out the firms capitalized defered sales charge. If you have a partner, they will be silent, & you will be expected to grow AUM through what you bring to the table. The primary advantage is that there is an existing business, you're not building from scratch. You can of course also go between the poles, & build an investment business from scratch, as many on his board have done. Our preferance is to not concentrate our investment and personal risk in the same entity, but kudos to those who have. SD

Crip. You might want to consider setting yourself up as an everyday limited partnership. Family/friends/backers buy pref shares, receive an annual dividend, and an annual sinking fund redemption based on the the years results. You get the equity, & your loss is limited to your initial capital investment. The reality is that you cannot avoid illiquidity, but you can reduce it by buying down the exposure. If someone really needs to sell their prefs, the others/new backers get first crack at purchase, then the partnership buys them - hurting everyone equally. If you're doing well your pref share holders don't want their money back, & are usually more than happy to have the opportunity to buy more. Liquidity materially improves. As GP, you get to invest in whatever you want with minimal restriction. As long as you can pay the annual dividend, &/or fund some kind of annual partial redemption, your LP's have no say. Cheap, no fuss, but you are not a fund manager ...... SD

Couple of messages; (1) They cant buy in enough stock at the current price of 1.03. They're telling the market they're willing to pay more in $0.10 increments. FBK's additional 23M of annual EBITDA at 6x EBITDA is an extra $1.06 - so expect around 10 incremental jumps. (2) They think FBK has a probable & credible alternate to their bid, & feel they cannot sit back. The bids momentum has slipped considerably, & we would expect that ABH does not want to see any sizeable break-up fee attached to any alternate bid/combination. (3) They may have a developing short attack on ABH stock, & they need to come over strong in order to spike it. For the last few days they have had minimal Cdn trading volume, around what is supposed to be a liquid stock - & that has to be concerning. Short ABH & go Long FBK (by buying out the market) ... if you're pretty sure there is going to be an alternate FBK bid to take you out? It would appear that ABH is in trouble, & are trying to do damage control. SD

Just invited some friends over for a little winter skiing ;) SD

Keep in mind that the investors, & the owners, view of a business are not the same. As investor, we want maximum (but often low quality) EBITDA because we price off that metric; & to get it, we maximize debt & do all kinds of gymnastics to force the EBITDA multiple up - MERC & CFX being shining examples. As owner, we want BS flexibility, & high quality EBITDA. The 'discount' to the MERC & CFX approach is meaningless UNTIL WE SELL THE BUSINESS. FBK handily beats MERC & CFX on most BS metrics, & does so primarily because FCF over the peak of the cycle was diverted to debt retirement versus dividend payouts. Terrible investment for the short-term orientated investment community though, because FBK wouldn't play the game of paying a dividend & keeping the share price > 5, so that institutions could trade it. Hence, FBK's name is dirt. But ..... all of FBK's BS re-building was akin to winding up a spring, & now we have material additional EBITDA from power generation, as well as significantly higher quality EBITDA from the cost plus RBK sales. We're now only minimally sensitive to SOP prices, & our mills are more efficient - so we don't need as high a market price for our product. Our biggest exposure is our NBSK fibre supply, & the solution is really the direct purchase of a chip supplier (vertical integration). With that supply - St Feleceon may well be one of the 3 lowest cost producers in Canada. Because FBK is unloved it is also possible for FBK to buy-back their shares at prices well below IV, & fund those purchases from operating CF - benefiting long term shareholders. We (long term shareholders) get 30-40% annual compounding for some years - & then get to capitalize it if there is a take out. Hardly surprizing that 'theft' underlies part of today's bid lexicon. If FBK bought someone else's NBSK fibre, ABH's plant would be orphaned; & would more than likely eventually fall into FBK's hands for a song (ABH rationalization). ABH/FBK is just one of many combinations, & partly defensive - therefore it will require a premium. FBK is a very attractive combination to most buyers as beyond the merely operational - it can also carry the cost of its own acquisition. Even MERC could buy it, & they would be more than willing to because of the high multiple that attaches to their EBITDA. And the MERC's of the world - would make a bid - if they could also get a sizeable break-up fee to make it worth their while. Analysts/advisers are paid to push their clients case, & keep their bid 'on message' - their message. As shareholders (including FFH/Pabrai/Oaktree) we keep an open mind, & pay our senior management to demonstrate the alternatives. As long as we can collectively exit, it doesn't have to be ABH that takes it. SD

Uccmal, twacowfca: We do something similar. Cash/margin on one-end, 3-4 equities on the other. Synthetic hedging instead of options, capital withdrawals instead of FI, & we deliberately do not work in the investment industry. Amusingly, we've also had the LEAP experience. SD

Just another log for the fire ... If FBK wanted to be REALLY hostile - all they have to do is short-sell sufficient ABH, & use the proceeds to tender for enough shares of FBK (at what they determine the Market Price to be) to force ABH into a compulsory bid - at a premium. It doesn't violate the tender conditions, there is nothing ABH can do to stop it (FBK's BOD decides, the BOD does it based on the independently valued alternatives presented, & FBK's shares are illiquid in volume), FBK shareholders (including FFH/Pabrai/Oaktree) get a short gain on ABH's falling price increasing the premium for their remaining shares, & FBK's management gets the satisfaction of forcing ABH to cover their short. Competing offers (with a break-up fee) to substantiate the market price, & pull the trigger. FBK shareholders get more $ value, & a lot more ABH shares as the ABH share price is also lower. ABH gets happy shareholders, & an elegant end to the whole sorry episode. We're happy to take all ABH stock (& would prefer to) - but we're going to get paid for it. We get paid most, & with the least risk, if ABH is forced into a compulsory offer ;) Consolation prize is to flip the shares into the competing offer (if ABH withdraws) & buy in ABH directly at the depressed price ;) No matter what, as FBK shareholders we get paid - & we get paid very well. ...... which is the whole point of this bid. SD