SharperDingaan

It is what it is. Management is doing what they are being paid to do, & the outcome will speak to whether this is actually an insider bid or not. If the assertion is true, there will be significant damages accruing to FBK, FFH included. The fact is majority ownership at < 50%+1 does not give you absolute control, & low-ball bids for absolute control is abusive behaviour - the last guy with this view was Conrad Black. Ultimately, FFH has to get out of FBK through either a real tender for all of FBK (& resale to someone else), or a sale of FBK to some other party. With 20/20 almost everything about this bid points to zero foresight, bad advisement, & poor execution - & all because they wanted to be cheap? They need to end it, & soon: ABH either puts up a real bid before expiry, or steps aside to let FFH make one. SD

2 yrs is at the long end of the development cycle. Beginning of Yr3 your competitor introduces their shite competition to your device, but there's still a big gap. Beginning of Yr5 your competitor introduces their 2G, & the gap is much smaller. When they get to 4G, you're the one with the shite device. Each generation usually takes less time than the last. Assuming 4G is achieved in around 6-8 yrs, todays Blackberry would be the shite device - & it appears to be exactly that, versus its competitors. Observing the strength of RIMs competition today, maybe our 2yr time frame should really be 18 months. A patent is worth the PV of its future CF. The problem with tech patents is that once the product life-cycle peak is over, its almost impossible to materially extend the product life by driving down widget costs, & selling at just over cost - you simply get a warehouse full of obsolete & unsellable shite widgets that no-one wants. The good news is that the patent may still have 10yrs+ to run. If you can reuse the patent in a totally new & different product line, you will do very well - & get a deterrent thrown in as well. As at about the time your competitors reach 3G/4G your patent expires, & every copycat, world-wide, will use it to flood the market. If you are the first mover, & the patent has less than 5-6 yrs to run, you'll probably get most of the profit for yourself. SD

Racemize: We're speaking to the approximate value of the patent at a point in time following inception, & assuming 50% declining balance amortization every 2 yrs. For a 20yr patent with an inital capitalization of 1,000,000: Yr 0 1,000,000; Yr 2 500,000; Yr 4 250,000, Yr 6 125,000, Yr 8 62,500, Yr 10 31,250; Yr 12 15,625; Yr 14 7,812; Yr 16 3,906; Yr 18 1,953; Yr 20 0 A $1M patent (Blackberry) capitalized in 2005, would have run 6 yrs to the end of 2011 & be worth about 125K, but its future obsolescence cost/yr is small. More notable is that the cost curve closely resembles the inverted decay curve of a long dated LEAP - an opportunity after the intersection point for those so inclined. SD

There is another way to approach it: Assume tangible equity is worth +/- $2.50. Bad decisions, write-offs, etc. burn off the cash cushion. Positive number, average between $0-5, & existing primarily because of HW presence on the board. The range is a best guess, but if they stopped selling everything today - took the inventory write-off, paid the termination penalties & severance settlements, etc - & were unable to sell any P&E - how much cash would be left? Assume the average patent has a 2 yr 1/2 life of 50%. 4K of patent value is worth 1K at the end of Yr4. They are primarily a single sku company & at an advanced stage in the product life cycle. Most would expect the patents to be currently worth maybe 25% of their peak value - & about 13% ongoing obsolescence for the next 2 years. Development: Lot of talent, patents, & financial strength remain. Even with 75% of the talent gone, the odds are good that there will be totally new lines, product, etc < 5 yrs. They have a very large yolk, & the odds get even better if they drop out of the public eye, go at their own pace, & shed the majority of their analyst following. No more analysts, notebooks, blackberry, etc - the buggys in a automobile world. New product & lines, as in not done yet, & minimal chance of additional financing being required. It does happen, & often (Apple). Impossible to value this future development today, but it clearly has material IV. We also know that industry valuation based on sales must continue to push RIM down, as they lose more share in a pie that has increasingly limited growth. A spur driving technology, mo-mo & technical investors to sell to value investors - & further depress RIM. Take the long view & RIM looks reasonably attractive, but you wouldn't buy it yet as the blood is only just starting to sweep the floor. SD

Txlaw: Re the Circle of Competence. To safely (relative) invest in Cdn Industry; the competence circle really needs to include the mechanics of the banking, tech, oil/gas, & forestry industries - & you need to get trained by the masters. With RIM, 3 of the 4 sectors are covered - but they've also had some instruction in Oil/Gas from AIM, & their old holding of Russell Steel (pipeline supply). Long-term they really need to know the green industries as well - but they have some time yet. SD

If you're buying RIM today, you do so in expectation that it will be a venture capital J-curve investment. Some now, 2nd round later at a lower price, 3rd round later still .... with the whole position accumulated over maybe 1 yr. If RIM falls 30% the day after you buy it, it's not that bad a thing. With retail you're small & obscure enough to be able to pick your spots & buy-in at anytime - without moving the market. For FFH, not so much - best they can do is start at around 2.0-2.5%, double down, then double again if needed. At the 4th round, change to convertible debs. Each round is a reassessment. Sometimes the decision is no, you bite the bullet & move on. We wish FFH the best of luck, but for us, it is a pass that we can afford. In FFH's shoes it is more likely a pass on a strategic investment that they cannot afford. SD

We took a look at it early last year & passed.... There are essentially 3 possible ways to play: (1) Buy the best of the US new home builders as if they are not BK by now, they likely will not. You're buying their reputation, old boy connections, & market dominance - then sitting tight for +/- 5 years untill new build starts to recover. The best Cdn analogy is buying PD @ <4.50/share 3-4 yrs ago, shortly after they got a sweetheart financing from the Alberta government. (2) Buy those buying the sub-prime debt itself. At the time the stuff went for < 20c, in bulk, but almost all the buying was by private partnerships. It used to be extremely profitable, as US refinancing programs made the deadbeat temporarily look good enough to allow the mortgage to be resold for a 100-300% profit. We looked at RoundPoint Financial Group (3) Buy the best of the US retail banks (Wells, BAC, etc). Over time much of the risk dissipates as mortgages run-off - & either get foreclosed on, or refinanced (at better spreads). But solvency risk gets swapped for dilution risk if there's a significant hiccup or tightening of capital requirements. You really need to see it as a sector rotation from (2) to (3) to (1). You've no real idea how long you should be in each sector, & you can't assume that sector correlation will remain relatively stable over time (ie: short (1) long (2) pair trade, then reverse). We found that we if simply bought TD we'd get much the same exposure at materially less risk. 50% of the TD branches are located in the US, most are in the more viable states, & whatever they do needs to stay within OSFI's risk tolerances. SD

Look at Iceland in the first 2 quarters after they refused to repay ;) Once the headlines are over .... SD

The current 0.12 Euro/share cost must make this one of the best secured penny stocks in history! SD

Keep in mind that we're value investors looking at a busted mo-mo darling, & one of our biggest weaknesses is buying too early. It is highly likely that declining market share & marketing miss-steps - driving headline news, is going to trump the value metrics for at least the next 6 months or so. Hard to believe that we not see at least one additional manic 1/3 sell off by late summer. There's no rush. SD

Keep in mind that Soros was born in the 1930’s depression. He saw first-hand the impact on family, he saw that in Europe the depression only really ended with Germany re-arming, & he knows what it is to have to run - & have to leave almost everything behind. He knows his topic; the audience – not so much. All the kings horses, men & women believe that the crises can be ... managed .... with enough time & money. Wide-scale sub-prime collapse in the US, wholesale austerity contraction in Europe, repeated material bank bail-outs, multiple sovereign debt collapses, youth unemployment at 20-25%+, etc. Market players need only minor reform, & what has happened far away (Arab Spring) could not possibly happen here. Back then the market players were Carnegie, Van De Bilt, Mellon, etc - & what happened far away ..... was an assassination in Serbia. Been there, done that, twice. Repress high unemployment for an extended period & you get regime change. Often disruptive (Egypt, Libya, Syria), & the new really no different than the old. But when you rely on their exports (oil), & large portions of their population are guest &/or illegal workers in your country – those causes become your causes, & spread like wild fire if you have similar conditions. And European history has repeatedly shown that when disruption is wide spread, bad things happen. Post WWII we’ve had the UN, the IMF, & the Euro to hold the place together .... & all of them are evidencing signs of not being up to today’s demands. The US & Canada are not islands, but they are far enough away that most of the damage will be ‘over there’ versus ‘here’. As in WWII you may lose men, money, & materials in large numbers – but your productive capacity remains intact (it isn’t bombed every night). How you use that capacity changes dramatically, but the fact that you were able to adapt your use, is what pulls you out of the depression. Adaption to industrial & social disruption is what the US & Canada is very good at. With euro GNP contracting, unemployment/hopelessness can only worsen & the possibility of wide-spread & higher % Icelandic style debt repudiation can only increase. Iran closing the Strait of Homuz & sending oil to $150/barrel+ may be enough to tip it over the edge .... & finally make the crises unmanageable. The specifics may have been different in Soros’s early days, but the overall look & feel may well be largely the same. Given that most trust their gut over their head, it is nice to see that he’s speaking up. SD

Thanks for the complement!. The usual process with this kind of loss of confidence is that you try to put the company 'in play', & get an outside bid for the company as a whole, &/or parts of - that you can sell into. If nothing comes forth you then try to replace management &/or asset strip to fund periodic returns of capital; usually a fractious process that requires the voting control of majority ownership - & which would likely occur if the ABH bid were unsuccessful, & Steelhead sold its FBK stake to FFH. The reality is that FBK's senior management will be replaced, & they know it. That said, it is in ALL our mutual interests for management to get the power deals signed, & to get a sale at the highest possible price – following which management either goes with the mills &/or receive generous packages. If management cannot get a sale, the change of control premiums do not kick in, & the magnitude of the packages is materially reduced. The better management 'fights the ship' the more marketable they will be in their next life, & they have done very well to date. It is accepted that the big $ come with risk, but selling the company is the fairest way of dealing with it. SD

FFHWatcher: We'll decline the bet! but we will make a donation to the foundation - the only condition being that the transaction has to close before the FFH dinner. Triedtested: Funnily enough we all play speed chess, & simultaneous games, as an ongoing training tool. Goes along with walking around & adding up random number plates for highest score (not so simple in arabic), & card counting at Canasta. SD

Assume: (1) All the additional shares tendered were from Steelhead. 11.1% at an average cost of $1.05/share (15.17M) (2) An all-stock ABH tender at 3.25 (3) The Steelhead interest is the RBK plants 130.1Mx3.25=422.8M ABH equity issue, of which Steelhead gets 46.93M (11.1%). RBK mills are valued at around 124.8M [(20.8+0)x6]. Steelhead swaps its ABH stock & pays 77.87M for the mills. Total cost to Steelhead is 93M (15.17+77.87) – for mills with a ‘true’ value of around 222.2M (166.2+56)? A sceptic might argue ..... If the majority of the additional shares ARE Steelheads, there is no intention that ABH actually wins the bid. (1) The lock-up group just wants out at the best price possible; otherwise they would be buying & putting the tender > the 66 2/3% threshold. (2)Steelhead is indifferent as the incremental gain on their FBK position is a hedge against the market price for the RBK mills that they would offer to buy from the winning bidder (3) An all equity winning bid at higher multiples, a built in asset sale, & willing sellers, is worth a lot to both FBK’s shareholders & a highly leveraged bidder. ... another reason to be pleased. SD

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