SharperDingaan

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

Cardboard, agreed the purpose of the bid is to show value, as of today. However, FBK’s management is required to ‘fight the ship’ & maximize TODAY’S value any way they can - & that includes acquisitions, joint ventures, asset sales, share buy-backs, poison pill share issuance, etc. As owners, we compensate management to do exactly this under change of control conditions, & we certainly cannot fault them for their actions taken to date. But also as owners, if we dislike the possible long term outcomes, we are free to sell at today’s MAXIMIZED price & buy something else if we so choose. It is in both the FBK’s owners, & its managements, interests to get the highest price possible TODAY - & if ruffles feathers, so be it. Agreed that the spiking of opposing actions is not unusual, but expect a no holds barred hockey game – spearing, slashing, charging, & concussion are all fair game in grudge match pond hockey. We have refereeing because it’s too easy to get badly hurt, & Quebecois players have seldom been ones to back away from a fight. Fundamental to FFH’s deal flow is the reputation for dealing fairly in small to mid-sized companies when it is very easy for them to abuse their privileged position; & so much so that FFH cannot afford to wear any whiff of insider trading. FBK does not need to prove insider trading in a court – it is sufficient to release corroborated evidence into the public domain in defence against the hostile bid, & then publicly draw on that evidence to support reasonable claim(s) of insider trading. The purpose is to deliberately hurt FFH’s business by attacking FFH’s future deal flow, & smearing FFH with the allegation. FBK just needs to publicly show that this is how FFH sometimes treats its partners, & it could be you – they don’t need to win a court battle. The use of ABH stock as currency is a key variable; The ABH name would appear to smell in too many of the wrong places, & the obvious targets are its Quebec cutting rights & its senior management. It is very easy for the Province of Quebec to change cutting rights rules, they can do it very locally, & NDP politicians are in the business of getting re-elected. FBK needs to sell the powers that be on putting ALL the cutting rights around St Feleceon up for auction – & if ABH doesn’t pay an inflated top $ to keep those rights - & gives up it plant; FBK will be more than willing to save those jobs in return for a break on the auction price. Credibly threaten ABH’s Quebec cutting rights, & the ABH share price will fall. ABH’s senior management were good for the BK restructuring, but now they are a lightning rod. They have exposed shareholders to what could be a significant damage settlement, & exposed their key backers to allegations of insider trading ... so far. Credibly threaten the replacement of ABH’s senior management, & the ABH share price will fall. So far the ABH share price is barely > 14 ... 10% below where they started, & still falling. ABH stock is highly exposed to short selling. Selling today in anticipation of a damaging FBK defence further depressing the ABH share price. Then add to it, a possible increase in dilution resulting from a higher &/or follow-up bid price. And the more ABH shares decline in price ... the greater the run on the shares, & the more pressure to replace senior management. Highly damaging to all, but it will MAXIMIZE today's price for FBK. Or they can all act like adults - & kiss & make up (for terms) before it gets out of hand. SD

Very, very nice ... (1) p12 - Incremental 12M of EBITDA from power generation. p 14 - Incremental 7M of EBITDA from RBK. (2) p14 - it appears that this bid was to stall an acquisition .... FFH was aware of it, & was acting on insider information. It may have been inadvertant but it was illegal, & it was used coercively to stop an FBK value generating acquisition - BIG, BIG DAMAGES. (3) ABH, & the lock-up group (by association), have been shown to be misrepresenting information (cutting rights). They also appear to have been attempting theft through the use of inside information - as they may well have been aware of the potential EBITDA magnitude from the power generation & RBK contracts - SETTLEMENT MAGNIFICATION (4) This is the 2nd time ABH has been caught abusing its position - first time out it was 6M for breaking the wood chip supply agreement. A very dangerous position for a company that doesn't have many provincial friends, & which appears to have a habit of abusing the smaller players. 10 MINUTE PENALTY ? (5) At this point the bid is still live, but it is effectively stalled. Implementing the poison pill will also make it very difficult to get over the 66% Damages can be settled - & they settle quickly & favourably when there are whiffs of possible insider trading. The question is what do we want as compensation ? Might we humbly suggest that we want ABH's St Feliceon wood chip facility at a dirt cheap price ;) ... And for the right price we can all be friends again - & avoid a whole lot of very bad press, penalty time, & embarrasment ;) It's a bad time to be shy, & the clock is ticking. SD

Up 5% The good: (1) Volatility hedging under leveraged conditions saved our butt. (2) Ongoing focus on risk reduction. The bad: (3) Not periodically re-evaluating an investments premise (FBK). The lucky: (4) Withdrew 45% of the chips in May just ahead of the more extreme Euroland volatilty. We would have had negative returns if we were still working with this capital. Lessons learned: (5) Annual returns for the next few years will not reflect the declining risk in the underlying portfolio. We hold sizeable weightings in (mostly) high quality equities (MFC, PD, NEM, FBK/ABH) at cost bases well below market, & funded with a growing portion of house money. Going forward, Year-on-Year return will be primarily a measure of how well we are recovering our initial investment. (6) Its OK to let equity weightings grow downwards by redeploying recovered investment to T-Bills/Margin reduction. SD

A simple numbers example to illustrate how FBK could force a compulsory offer. -Assume the offer group tenders 112M shares (86%) of all the shares at the $1/share offer. They have FBK minority shareholders - but they dont have to buy them out. -FBK makes an issuer bid for 6.5M (5%) shares at an assumed FMV of $2.50. Total cost of 16.25M, but the price in the market in $2.50, & the share count is now 123.5M. The tender group has 91% & is compelled to make a compulsory offer at a premum to market - which FBK has established as $2.50/share. The minority gets bought out for cash. SD

Jets we'll agree to disagree: - Forcing a compulsory offer is a 2nd step plan. In our example it is just FBK doing it. - We have read the agreements. Nothing prevents any of them from warehousing additional purchases through somebody else; a very common practice to evade lockup restrictions. - FBK doesn't need to do a levered recap. They just need another buyer (them) buying a significant number of shares on the open market, at FMV - to establish FMV as the market price. 5-10M shares at FMV is easily within their credit line capacity. - We both do not know what FBK is going to to, & they still have a lot of options. SD

We are voting right now - as you vote by either selling your stock at $1 - or holding on in the expectation that the bid will stall at < 90%, & you will receive a higher offer. The lockup only applies to the 45.7%. Additional shares purchased by the group that are not part of the agreement - do not have to be tendered. The king makers are sitting in excluded entities. To get out. All FBK need do is deliberatly break a condition. Or put in an issuer bid for enough of its own shares at FMV to force ABH into a compulsory offer. SD

We might all want to keep the following in mind: (1) Just because FFH/Oakmount/Pabrai could vote what they've bought since lockup - does not mean that they will. After FBK's management presents the independent valuation of FBK, all they need do is voluntarily abstain. (2) To really benefit, we need to accept ABH stock to get full capture of FBK's IV, & then retain ABH as it delevers &/or sells off FBK mills. In the interim, we are all quite free to sell our FBK today at $1, sell our ABH right after we receive it, or sell our ABH some time later. (3) Most would argue that FBK will be materially more profitable, & a less risky investment, were it part of ABH. The bid is solely about how much ABH we should receive for our FBK, & FBK management is required to independently & credibly demonstrate the FMV range of FBK. (4) To date we do not have a FMV range for FBK. All that we know is that it is higher than the $1/share offered, but is it $2, $3, etc. To have the ABH discussion we first need to know the FMV of FBK. The angst is because the clock is ticking, & FBK's management has not yet put forward its alternatives. Let the strategic committee do its thing, & save the speculation until we have the full picture. SD

Keep in mind that most would expect the judicial FV to be the FBK determined FV as there is/will be (1) Independent & credible evidence that the bid undervalues, & (2) Independent & credible evidence of the reasonable FMV range (at a higher price). Everybody gets the highest price (if they haven't sold on the market). Shares allready tendered get the higher price because the original terms of the tender (price) have been broken. Shares not tendered receive the higher offer directly, & all shareholders receive the compulsory tender premium. Lockup generally does not affect the price received, it just guarantees a minimum of X votes in favour. The lockup group directly benefits from a price hike. (1) The sellers get more value for their stock, & (2) influence the cash/stock mix + any related premium. (3) The buyer gets assurance that they can issue some of their shares as currency, & (4) possibly go all equity if there are favourable statements. ABH & FBK shareholders benefit massively if it is an all equity deal. The ABH D/E ratio drops immediately to around 14%, from 16%, & roughly zero (via defeasance) if the RBK plants are then sold off. But it's $15/share - until FBK shareholders accept the offer, & those RBK plants are sold. Given that the FFH forestry portfolio could well revalue upward by $1B+ once its over, it is not hard to see why FFH put FBK into play. SD

The process is essentially as follows: (1) Bidder gets an accept with > 66 2/3% of the voting stock. Sellers tend into the offer (2) At 90% dissenting shareholders tender to a trust which tenders to the bidder. Consideration is the bid price + a judicial FV evaluation. Judge decides & dissenters get paid any additional difference between the judges/FBK's FMV evaluation, & the bid price. (3) Bid stalls if > 10% refuse to tender, as the buyer cannot compell the minority to sell. Buyer either (a) accepts minority interest (unlikely) or (b) pays a premium to FMV to force the dissent position to <10% (ugly process) & engage the complusory action. The realities of the FBK bid are largely as follows: (4) The buy-out group probably has between 66 2/3% & 90%. They could force a vote at the current terms, but it is unlikely that they can force a compulsory tender. Therefore, ABH has to make the minority an offer at FMV + a premium to force a compulsory action. (5) The FMV is being determined by FBK & its advisors. There will be some discussion between buyer & seller, but ultimately FBK will make a announcement as to what the FMV range for FBK is, & that is the price the judge will use if he/she is required to decide. (6) ABH wants to use ABH stock in at least part consideration - but ABH will have to pay a premium for doing so. The buy-out group will largely decide how much of a premium- & it will be a function of ABH's future prospects, liquidity, & the posibility of ABH ultimately walking away. (7) Although compulsory tender premiums can be material, they are negotiated, & it is usually on an artifically low base. What does it mean: (8) Numbers example using Q3/2011 as the base: Q3/2011 BV/Share = (350,575/130,076) = proxy for Q3/2011 FMV = 2.70 Premium for ABH shares vs cash = assumption = 10% Compulsory tender premium = assumption = 5% - Price for FBK, if paid for with ABH stock = approximation = 2.70*(1.10) = 2.96 - Price for FBK, to get a compulsory tender = approximation = 2.96*(1.05) = 3.11 - ABH equity issue for approximately 405M Considerations: (9) Most would agree that ABH/FBK is the best combination, & that the synergies would be both material & readily realizable. While there are other possibilities the issue for this combination has really always only been price. Readily fixable. (10) The lockup group put FBK into play for a reason. Most would think the demonstration on how to release value, additional ABH stock at low cost, & a match to industry consolidation are exceptionally good reasons. Always nice to see the masters at work. SD

Keep in mind that Sears has 4 main assets & 1 major liability. Real Estate. The asset is the selling space, not the land. Most of the stores are dirt cheap leases for anchor tenancy in the traditional mall - & as long as Sears stays open, the mall operator will basically give them the mall. Quality or crap, they get paid to fill the store - & Sears gets ongoing brand awareness, for essentially no cost. Product Lines. 3-4 lines already mentioned - but aside from HomeSense, there is really no need for storefront. Selling Mastercraft, etc. under licence, & directly on-line, will do the same thing without the headcount & overhead. The art is in doing it slow enough that the real estate continues to at least break even during the transition. Cards. Biggest & best asset. Retailing exists almost solely to drive card balances. Higher pricing exists almost solely because Sears will give you the credit. Higher run-rate write-offs offset with higher pricing; but the game stops if everyone suddenly cannot pay – at the same time. Not that likely if Sears is the only store giving you credit. Retailing. The asset is the rent spread between what a brand name pays & what Sears pays the mall. Put bluntly the stores are upscale flea markets - the booths just don’t have walls, & are a little bigger, brighter, & more glam. As long as they can still make the minimum spread, what they fill the store with is largely irrelevant. Brand. The department store that your parents &/or granny goes to - & primarily because that is what they grew up with; every other generation goes to the boutique &/or big box. No real future when much of your clientele is either getting rid of stuff (down-sizing) or too immobile to even get through the door. Summary: Sears is really nothing more than a finance company that is being asset stripped. Card income slowly being converted to royalty income, & assets being set-up for liquidation at opportune prices. A very tough & uncertain way by which to make a $. SD

Simplest to just buy the fund class with the worst 1yr record (Greenblatt), & hold it for 1-2 Yrs. You're really betting on mean-reversion. Today's star being replaced with another, the popularity order getting re-arranged, & todays unpopular choice rising a rung or two on the backs of tomorrows dogs. You're also buying the class (ie: todays global equities) on the expectation that all boats in that class will eventually rise with the tide. Even the dog in the class will rise with the tide. SD