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Guest Dazel
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Guest Dazel

It has been quite a ride for SFK PULP shareholders...most are disappointed with the what the rights issue and subsequent arbitrage has done to the value of the shares. I am included in that group. I would think that Fairfax and the others knew that their would be an arb trade that would bring down the share price. we know  Fairfax does not care about short term fluctuations but the management should. It could cost them their jobs!

We are very happy that the restructure is done. This sets up FBK to explore any options they want...and better yet it allows Fairfax and other institutional investors security for any future deals. What do I mean...let's say that Canfor for example put an offer in for the company in June....that deal would take months to close and if it fell through FBK would be in trouble for refinancing. Canfor would also know this and would have leverage if a deal was pending...

 

Another option...Fairfax has shown that they have been extremely fair in the way that they have handled the backstop...they now own 25% of the company and lowered their average share price a great deal. If they were to put in a $1.50 offer for the rest of the company to take it private or merge it with some our all of Abitibi or possibly a consortium group of investors as SD has speculated current share holders would be happy because no one likes to see their share price drop.

 

Another Option

What I expect is that conference call will now will have to look at strategic alternatives because the company trades for a fraction of its bookvalue. The manegement need to look at asset sales combinations and other means if they cannot deliver cashflow and share price appreciation. This restructure deal has not done that YET...It has destroyed the share price...

I would say that FBK is now in "play" because it has time and a good balance sheet if none of the options are taken.

I would speculate the company will be split up with the pieces merged with other businesses. Managemnet will be given incentive to do it...employees will remain with their individual business.

Canadian lumber company for Candian ops...two seperate international buyers for the U.S assets.

 

Dazel.

 

 

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Dazel, I am in that group as well. I apparently owned too much of it. I have been selling some at a lost last couple weeks. Will keep the rest.

 

I see two scenarios:

 

Buyout scenario:

 

CFX.UN's market cap is 500millions, they own 50% of 3 mills. Total capacity is 1.1 million tonnes. Its debt is minimal and they pretty much distribute all the cash out. So, it's 1 billion for 3 mills. I realize their mills also produe kraft paper, but ebitda from it is minimal.

 

FBK's SF mill can provide 0.36 millions tonnes per year. So, based on CFX.UN's market valuation. the SF mill would fetch about 300millions. Net debt for Fibrek is about 200 millions. So under that scenario, Fibrek will be left with the RBK mills (they bot it for 180miliions few years ago) with 100 million of cash.

 

The SF mill is actually one of the lowest cost producer in Canada, however, due to the high Western wood chips price, it's not a very profitable mill so far. Historically, Western Canada wood chip is more pricey in relative to east (~75$ vs 125$); we knew from the last CC Western Canada wood chip price has been coming down since beginning of this year. SF mills uses 775,000 tonnes annually, so SF mill can literally generate close to 40millions FCF if the western chip price goes down to match east side. There are also tax credit as well as the power supply agreement that comes with the SF mills. Attractive, right?

 

Who knows, it may makes sense for CFX will diversity its portfolio... wait till they convert to Corp. :)

 

 

Acquirer scenario:

The name Fibrek suggests to me they want to do more than Pulp; they may want to acquire couple wood sawmills to secure and lower their wood chip  (wood fibre) cost. Maybe FFH will just have ABH and FBK strike a win-win deal. 20 dollars of the market price would mean 20millions FCF.

 

 

FBK's market cap is 130millions, EV value is about 330 millions - will be less than 300millons by year end if FBK generate additional 30 millions by then.

The trick about Fibrek is pulp price, currency exchange, wasterpaper price and fibre prices are all important.

 

Check my numbers! Thoughts?

 

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We're on the same page, but might add:

 

Its highly like that the rights issue was related to the debt restructuring done last year. We said at the time that it was reasonably probable that others (FFH, Quebec Government) were also in the room, & all those players were present at this refinancing. Most would summise that the refinancing was simply deferred for a year, & that it was an advantageous decision.

 

Worst case is FFH does a takeout for the entire company & breaks it up. The cycle is turning & its unlikely that we'll see much of a peak beyond the next 2-3 months; its highly likely that a modest premium following the digestion of Q2-2010 results would win the company. There is very clear value to a long term & patient investor, & institutions have had the opportunity to average down enough to be reasonably certain of a gain.

 

SD 

 

 

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Its been an interesting ride and things have largely gone as expected though I didnt think we would see .89.

 

US residents couldnt participate in Rights offering.

and the stock pulled back considerably due to offering.

 

I have to believe they have some sort of plan to capitalize on the pull market, or like Dazel said shareholders will push for a sell. Management has to have something up their sleeves. I only wise I had a bit more dry powder.

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Guest Dazel

 

Interesting scenario of acquiring one or two of Abitibi's saw mills that are close to the mill out of bk...

 

but the deal is really for Abitibi to swallow its old plant back from SFK...they know it well and they could buy it for a tenth of what they sold to the public for in income trust form. Fairfax would have a hand in this....throw in the power deal and Abitibi would get it cheap. The Pulp divisions are the only thing that has saved the lumber companies...they could probably pay for it with cashflow over two or three years with their own woodchips and the Quebec government would probably help finance it to make sure it remained Quebec owned.

 

There is also an opportunity to seperate the american mills and sell them individually...these are state of the art mills that are not old...again a strategic buyer would be the key.

 

Dazel.

 

 

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Guest Dazel

 

http://www.foex.fi/

 

I think that posts on the fomer thread are over doing it! supply is down....China importers are flexing their muscles...not taking prices being charged..not unusual...they do this ocssionally....if anyhting it will discourage new supply. This is not the case in North America.

The paper market continues to outperform the general economy is the line...that should be looked at. This industry was destroyed in 2009...not that easy to get a quick balance in an industry where no one wants to put in capital.

 

Dazel.

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Another option...Fairfax has shown that they have been extremely fair in the way that they have handled the backstop...they now own 25% of the company and lowered their average share price a great deal. If they were to put in a $1.50 offer for the rest of the company to take it private or merge it with some our all of Abitibi or possibly a consortium group of investors as SD has speculated current share holders would be happy because no one likes to see their share price drop.

 

 

Dazel.

 

 

 

I think at this point it is pretty much a given that it's in Fairfaxs' hand as far as unlocking the value of this company. I sure hope they  can unlock more than $1.50 though, this shareholder wouldn't be happy. I agree with some of the other posters on the last thread that it's concerning to see the lack of insider buying from management. They are obviously in the income bracket that has disposable money for investment. So what are they investing in that has a better outlook for them, or are they just putting in their job one day at a time and have no foresight. In which case hopefully FFH will move them out.

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How much of everyone's frustration is almost entirely share price related?  Are we changing how we think about the company just because $100k/per day of shares change hands at a lower price than we feel is justified?  What percentage of the shares outstanding have traded since the share price was at $1.50?

 

I don't think anything has fundamentally deteriorated, only improved, based on the refinancing and NBSK pricing.  Price of NBSK is up $40/tonne since the SP was at $1.50 (mid May - 2 months ago).  Less than 6M shares out of 90M shares outstanding (pre-dilution shares o/s) have traded below $1.50.  I hear all the points but they were all there 2 months ago, 3 months ago, 4 months ago, etc.  Why is the company worth less today than on May 15th or April 15th?

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If it is a favorable operating environment and FBK has improved their finances by restructuring their debt, cutting interest expense and the NBSK has increased in the past year and continues to improve or at least hold steady, why are you frustrated?  If you are frustrated because it is a large holding and it isn't going up, I understand that, but I think that is mainly out of control of mgmt, especially in the short term.  The largest trade per day is about 50,000 shares or $50,000.  The remaining trades are quite small.  The people selling are not significant investors.  How significant is this decline if all the sellers are small?  Larger investors/more sophisticated investors could/would have selected the rights offering to buy shares. 

 

so, you don't feel frustrated at all when the share price drop everyday with a pretty favorable operating environment?

 

I take it FBK is a small holding for u?

FBK is a large holding for me and I am fully invested.  I too am frustrated but I am questioning why I/we are frustrated.  I believe I am only frustrated due to the share price decline.  I can't pinpoint anything else that I am frustrated with.  Are you letting this get to you emotionally? 

 

We are getting towards bankruptcy pricing here.  A possibility a year ago but now? 

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Guest Dazel

 

"We are getting towards bankruptcy pricing here.  A possibility a year ago but now?"

good post FFHWATCHER.

 

I agree with your logic...SD and I months ago kind of bench marked $1 price was a bankruptcy

possibility. That is gone...they are now conservatively financed. Although the market has cut the shares more than in half...The frustration comes from the timing of the rights and the price of the rights..why would the management not put a floor in the rights offering at say $1.25 (still low)...did they not know the stock would be killed by the arbs? I will stop there.

 

I have talked in detail on selling assets..

 

Looking forward what I want to see...from management.

-second quarter should be excellent...

-I want to hear that they are looking at different options asset sales combinations..etc..at least tell me that they are not sitting on their big salaries..and are looking at bringing the company to book  value.

-that management fully bought into the rights offering

-A plan to solve the woodchip problem

-That they are talking to their large stakeholders with respect of creating value for shareholders

 

You can't put your head in the sand when your shares are trading at such a massive discount. The refinance have bought them enough time to prove themselves. I think Fairfax et all will demand more now

that they have raised their investment here. They obviously see a direction let us know what it is...If they

have been approached with options let the shareholders know!

 

Dazel.

 

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Guest Dazel

 

One more thing...

 

I want to hear about the power project and rev stream it will create and when it is coming online. It

would not hurt to surmise what that cashflow it would be worth as a standalone  (years*cash-exp..etc..bring it to a net present value). That asset could worth more than the current market cap.

Investor do not realize what the individual assets are worth...that is why we are trading at .93 cents!!

 

Dazel.

 

 

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It's hard for me to throw stones since I don't have some major position in FBK (I acknowledge frustration would be high now), but the emotion on these threads is crazy.

 

Dazel, I'll pick on you:

 

why would the management not put a floor in the rights offering at say $1.25 (still low

 

How EXACTLY do you put a floor on an offering?  Do you buy Rights very often?

 

This is how it goes guys... a company in need of cash can't be choosy... FFH providing the backstop... you think they would have backstopped at $1.25?  I'm sure they chose the price they were willing to effectively sell a huge put at.

 

Management salaries, lack of communication, ok, that's all good.  but the comment above is ludicrous... FBK needed money.  Beggars can't be choosers.  Everyone had the same opportunity to pony up for the the rights, and everyone now has the same opportunity to buy a $0.93.

 

If the gnashing of teeth is any indication, this stock will perform very very well over the next year.

 

Ben - no offense intended Dazel.

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FFHWatcher/Dazel/SD et al:

 

My $.01 worth ... I have a significant position in FBK (not sure totally that is good or bad, but that's the market for you!) ... and take similar view as FFHWatcher, that with exception of activity relating to the rights offering, the volatility in this stock (both down AND up) is mostly based on very small volume relative to the capitalization ... that they are much better shape now than they were in February, when the stock finally got back up to $1/share on a sustained basis (first time since the Q4/08 meltdown) ... and that increased FFH ownership will only have positive influence on mgmt, and benefit to all shareholders ... in the long term.   

 

Of course stuff might happen sooner ... but that'd be a bonus.  My one yellow flag is consistent lack of mgmt buying ... if even nominal ... as that doesn't point to an owner/operator mentality, even as I think they've been doing a good job in a very difficult set of circumstances.

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Maybe FBK will submit  a bid..

 

 

 

Domtar seeking offers for its closed pulp mill in Lebel-sur-Quevillon, Que.

 

 

 

MONTREAL - Domtar Corp. (TSX:UFS) announced Wednesday that it is seeking offers for a kraft pulp mill in Lebel-sur-Quevillon, Que., that has been idled since November 2005.

 

Pre-qualified bidders, including the local municipality in northwestern Quebec, must submit offers for the land, buildings and equipment by Sept. 3.

 

Domtar indefinitely closed the plant in December 2008, three years after production was stopped because of unfavourable economic conditions.

 

The mill's 425 workers had produced 300,000 tonnes of pulp annually.

 

Shares of the company were down more than three per cent, or $1.63, to $5.80 in late Wednesday afternoon trading on the Toronto Stock Exchange.

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"The NBSK pulp list price for July is unchanged from June at US$1,020 per tonne for North America. Although the global softwood supply/demand balance still favours producers, downward pressure on pricing is currently being exhibited in the market in China. A reduction in market pulp consumption from Asia combined with a typical seasonal slowdown during the summer months, may exert continued market pressure to reduce NBSK pulp list prices over the

next three to six months."

 

Seems like they are confirming many of the fears from the article that I shared from Paperage.com. Current profitability is fantastic, but what is it going to be in 3 to 6 months?

 

Have you ever seen producers discipline in any commodity? And many are now armed with cash and stronger balance sheets.

 

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