New FBK

[Guest Dazel]

 

 

Sell the U.S units to Rock Tenn ($2.6 b market cap) they can be vertically integrated..

 

Sell the cdn Unit to Canfor, Abitibi, Tembec, Mercer etc.

 

Sell the Hydro contract seperately.

 

what price to get for the assets? The answer is triple the $175m it trades for...Or do none of the above let the wolrd know they would be sold for the right price...because this company trades at fire sale prices!

 

How do we get management to consider shareholers? does the board write a letter to the board for the annual meeting?

 

Dazel.

[Cardboard]

Dazel,

 

I guess, it is probably too late already to have a proposal included in the proxy documents. However, if you could locate a willing large holder (portfolio manager) or a group (members of this board via petition) I think that you could get some attention.

 

You basically inform the media ahead of time (BNN, Globe and Mail and others) that you will raise the long term underperformance issue vs other pulp companies and the fact that management seems unwilling to make big changes to help shareholders, at their annual meeting. You then wait for the Q&A session to introduce yourself or the PM and then make your case. With the media attending (TV is the best), you can be sure that management will be forced to answer some tough questions.

 

They may or not be receptive. In any case, once the possibility of splitting and/or selling the company is in front of everyone, things tend to happen.

 

Cardboard

[FFHWatcher]

 

 

Sell the U.S units to Rock Tenn ($2.6 b market cap) they can be vertically integrated..

 

Sell the cdn Unit to Canfor, Abitibi, Tembec, Mercer etc.

 

Sell the Hydro contract seperately.

 

what price to get for the assets? The answer is triple the $175m it trades for...Or do none of the above let the wolrd know they would be sold for the right price...because this company trades at fire sale prices!

 

How do we get management to consider shareholers? does the board write a letter to the board for the annual meeting?

 

Dazel.

 

I agree with some of the stuff you have written.  They are not good at selling the company to shareholders and future shareholders.  In a perfect world, they wouldn't have to market their company to the market, brokers, institutional investors, private investors, etc.  They would focus all their time and effort on running a great company.  Unfortunately, FBK is a publicly traded company and occasionally they need to raise capital.  If you haven't sold your company to the market effectively, your cost of capital will be significantly higher than a similar company that does market themselves properly.  Remember when Prem didn't even do quarterly conference calls?  That was a big step for FFH.

 

FBK mgmt really haven't personally invested much personal capital into the company nor did they invest significant personal capital into the company after it was clearer that they were not going to file for creditor protection back in early 2009.  I believe their investment was something but it was perhaps a few months salary.  It was difficult for me to reconcile how it was a good investment on my part to investment more personal capital than the CEO and CFO combined when I earn a tiny fraction of what they earn, and I have a tiny fraction of their inside knowledge of the company.  The question comes down to, Do they know something that I don't, that is keeping them from investing or are they business managers and not investors?  I have reconciled that they are business managers and not investors.  If they were investors, they would have done 2 things differently;  1/ Invested confidently when they refinanced their debt and 2/ Tell the world how cheap they were by making available investor presentations on their website and to present at industry investment conferences.  I can not confirm that they do not attend and present at investment conferences, but if they do it is not published or advertised on the internet or on their website.  Heck, they didn't even feel it was necessary to have a website for several months even though they have hundreds of millions of dollars of annual revenue and about $20M in the bank.  

 

In my opinion, FBK needs a fundamental shift in how they represent their company to the public, especially through the electronic media which is obviously critical in today's investment environment.  On any other investment, I would just sell it and move on.  I think it is worth sticking with FBK and encouraging mgmt to change.

 

I will leave it up to FBK mgmt to make business decisions but as time goes on without any fundamental corporate changes, shareholders will become more restless.  If FBK is planning on doing something other than paying off their convertibles in full, and end up costing shareholders additional dilution or more long term debt at unfavourable terms, I will be pretty upset that simply a lack of marketing their company has cost us money.  I guess you could also ask the question, If they don't know how to market their own company to the stock market (existing shareholders/potential shareholders), than are they properly marketing FBK to their customers?  

 

Having said all that, I have talked to Patsie at FBK and she was quite pleasant, knowledgeable and helpful.  An excellent resource.  As shareholders, we often make assumptions and that is a mistake.  Pick up the phone and call them or write them a letter.  I, for one would be more than happy to join in something that supports the recommendation of increasing the corporate emphasis on the promotion of FBK to the market.  

   

[Uccmal]

Its trading insanely cheap as compared to its peers especially Mercer which is arguably in a more tenuous financial position.  I would back any plans to pressure management with my shares.  At the minimum I want to see those debenture gone and the associated interest costs.  I would also like to see the lines of credit bought done to zero as fast as possible as per Canfor.  Management with alot of cash on hand scares me.

[cwericb]

I probably don’t have a huge number of shares compared to some, but you can count me in on that as well.

 

I too am uneasy to see management with all that cash on hand. I am also concerned about where management’s loyalties lie when they don’t seem to have a lot of shares in their own company. (But didn’t they get options back a while ago at $1.50 or something?)

 

Then there is management's apparent lack of marketing ability as evidenced by their “website”. Conversion from SFK to Fibrek did not happen overnight, yet it took about six months after conversion before they were able to launch a website - and it still isn’t functional today. With zero web development skills or experience, I was able to create a site of my own in a matter of a few days ( www.SundancePEI.com ). If I could muddle through the process, surly with Fibrek’s resources they could come up with a decent website. One has to wonder why promoting the company would be so low on their priorities. Certainly this will not make or break the company, but it does seem to reflect on their marketing abilities and that concerns me. If they are not interested in trying to promote their own company...

 

I also wonder about Fairfax's position in all of this. Perhaps FFH and ABH are not as interested in seeing the share price rise as we are?

[nodnub]

cwericb,

 

i don't disagree with most of the points you've made.

 

but in what sense do you find the current www.fibrek.ca website non-functional today?  It appears to have the essential information. I agree that it does not include a long flowery description of their business.

 

yet it took about six months after conversion before they were able to launch a website - and it still isn’t functional today.

[SharperDingaan]

 

Keep in mind that the Debs trade just > 100. The clear inference is that the built up cash is going to be used to buy them out of the market, & that it will happen < maturity. Solid Q4 earnings, & an AGM announcement of intent to repurchase the Debs, will remove the dilution possibility & boost the share price. ABH is clearly shopping as well, & partial ownership of St Feliceon is not ideal.

 

If there are no announcements, its hard to see how snr management will survive the rest of the year.

 

SD 

[cwericb]

Nonub  re "...in what sense do you find the current www.fibrek.ca website non-functional today?"

 

Okay, it's barely functional but does little or nothing to describe or promote the company. The old SFK site was reasonably well done with seperate pages devoted to each of their plants with photos and detailed discriptions of their operations. Even if they had simply changed the name from SFK to Fibrek on the old site it would be better than what they have now. The website may be a relatively small thing, but the lack of attention to it seems to indicate a lack of interest in promoting their company. The very limited info on the site can be found anywhere and they even admit the site is unfinished where they say... "Sign up to be advised of the launch of our new website" One would think that when they converted nearly a year ago they would have had the new site ready to roll. Yes, its a small thing, but in this era not having a decent website is like not bothering to put up a sign outside your opperations telling who you are. If you are proud of your company and want to promote it shouldn't you show it?

 

It should be a very interesting AGM this year.

 

 

[Alekbaylee]

Hmm... Tembec considering investments too...

 

The Quebec-based lumber, pulp and paper producer is examining options to spend several hundred millions of dollars on projects over five years.

 

A large part of the money could be spent to produce green electricity and reduce costs and enhance pulp production at its flagship facility in Temiscaming, Que.

 

"If it wasn't for China and the demand and the impact it had on the market, whether we wanted to or not, we would not be in the financial position to do it," CEO James Lopez said in an interview Thursday before its annual shareholders meeting.

 

He said the company is in strong financial shape to consider projects because its debt has been reduced to $200 million from about $1.4 billion a few years ago and it foresees strong free cash from operations expected this year.

 

 

http://ca.finance.yahoo.com/news/Chinese-demand-giving-Tembec-capress-277224271.html;_ylt=AkbKturc2qUYQAw9pxDMYn9yzJpG;_ylu=X3oDMTE4bzEybDFyBHBvcwMyBHNlYwN5ZmlUb3BTdG9yaWVzBHNsawNjaGluZXNlZGVtYW4-?x=0

 

Re de Website : Pure speculation, but maybe they already know who will buy them and are not interested in marketing themselves or spending any time or money on a website that will disappear in a few months...

 

 

[triedtestedand]

Well ... not the total sum ... but directionally what I think everyone here was looking for ...

 

http://www.tradingmarkets.com/news/press-release/fbkzf_fbk_fibrek-announces-partial-redemption-of-7-convertible-unsecured-subordinated-debentures-1450571.html

 

 

[tyska]

I probably don’t have a huge number of shares compared to some, but you can count me in on that as well.

 

/quote]

 

I also don't think I have a huge number of shares compared to some, would be interesting if there was some way to tally up the shares held on the board. Maybe it's not as many as we all think.

 

Dan

[triedtestedand]

PS ... The following quote is also reassuring:

 

... "It is currently Fibrek's intention to repurchase the remaining Debentures before their December 31, 2011 maturity, assuming our financial position and prevailing market conditions are appropriate," stated Patsie Ducharme, Vice President and Chief Financial Officer ...

 

Sounds like they want to continue to keep on hand some of the cash being generated from operations ... thus the 2 phase approach? Otherwise, why not just tap into the credit line to pay things off ... I presume there's some transaction cost/friction either way?

[finetrader]

In my opinion, and if management would want to be more shareholder friendly and a little more aggressive, they could start paying an annual dividend of .10$/share right now.

 

a .10$/sh equal 13M$. They are gonna save 1.5M$ from the deb repurchase this year and 3M$ annually after they've paid it in full. Also with the actual NBSK price, they generate FCF 10M$/quarter.

 

 

[Myth465]

I think a deal is done in terms of a high level agreement. I think all the key players know how this will play out, and investor relations is kind of a waste of time at this point. Debt will be paid off, and the details will be worked out between all the key players before we hear anything. Thats my 2 cents.

 

I like the Deb move, but would have preferred them to retire all. As someone said perhaps there is some reason out there.

[finetrader]

My view is they paid half of it so that they still have cash on hand as a cushion

[cwericb]

 

“...maybe they already know who will buy them and are not interested in marketing themselves...”

 

“I think a deal is done in terms of a high level agreement. I think all the key players know how this will play out, and investor relations is kind of a waste of time at this point.”

 

I think Alekbaylee & Myth are probably right on the mark. Why waste time and money on marketing and PR when you already know the company will be undergoing a major transformation in the future, likely with ABH and with FFH’s blessings. But if that is the case would it not be in those three parties own best interests to keep share price low?

[Uccmal]

Funny how we complained today and got our results so fast ;).

 

This is a very positive development.  Whether or not they decide to sell the company I would like to see the stock price going up.  I figure if they decide to sell they will at a minimum have to offer around 130% of the prevailing 30 day price (1.70) as a start.  Putting it in play may start a bidding war when others realize that someone is stealing it.  i.e. If ABH makes a lowball offer I would think that Domtar, or Tembec may not be far behind.  I wouldn't worry too much about FFH interfering.  They will take the highest bid because they have to.  

[Alekbaylee]

"But if that is the case would it not be in those three parties own best interests to keep share price low?"

 

That's what I've been thinking for a while, but again it's pure speculation.

We shall learn more in the coming weeks/months.

Meanwhile, today's news didn't move the s/p at all.

[FFHWatcher]

"But if that is the case would it not be in those three parties own best interests to keep share price low?"

 

That's what I've been thinking for a while, but again it's pure speculation.

We shall learn more in the coming weeks/months.

Meanwhile, today's news didn't move the s/p at all.

 

Ok, what am I missing?  In what situation does a shareholder and option holder want to keep the share price depressed?  If there was an offer in the works, it would explain the lack of insider buying but it does not explain the "they want to keep the share price low" theory. 

 

How would any shareholder, especially someone with over 1M options at $1.35, over 1M long term incentive options and over 175,000 shares not want the share price to be HIGHER?  How the heck does it make sense to keep the share price low when you are a shareholder if you already know who will be buying you out? 

 

Non logical premise (IMHO) plus there are some fiduciary responsibilities to minority shareholders that may be in question if what some are suggesting were true. 

 

I really like the idea of clearing off half the debentures now and the plan of paying off the other half later in the year.  It shows fiscal conservativeness plus a longer term view (minimal upside to paying off the other half right now, especially if they had to stretch themselves).  Just the sentence of saying they plan on paying off the other half is all this shareholder needed to hear to be reassured that management isn't ignoring this important issue. 

 

Interesting that the market didn't move.  Perhaps it isn't on all shareholders minds, perhaps we represent the minority of minority shareholders?  Of course, there were a total of 13 investors making trades (as per my system) in FBK today. 

[Uccmal]

FFHWatcher,  I agree with you.  The only party in this suggested triad with any interest in keeping the price low would be ABH.  The low price is of no benefit to management due to the options and stock holdings, plus they may well lose their jobs in a buyout scenario.  The low price is of no real benefit to FFH.  ABH adding FBK is not going to be any material benefit to FFH.  It is a bolt on for ABH, not a game changer.  FFH benefits most if FBK goes up by 5-10x in price. 

 

Finally, as per you comments, deliberately trying to keep the price down, even if they could, is illegal.  This is similar to what Buffett and Munger were accused of in the Blue Chip Stamps/Wesco investigation.   

 

Following on the "even if they could" scenario:  FFH cannot even manage their own stock price let alone FBKs.  The only thing FBK is guilty of is passive marketing.  However, the actions of today indicate that they are ramping things up a little. 

[Guest Dazel]

 

 

It is nice to see a heart beat in the company...were they watching this this thread! Today was positive...I would expect to see more action and commentary from managment.

 

Dazel.

[alertmeipp]

the news was great buy not unexpected.

i was expecting more!

[FFHWatcher]

What do other FBK investors think about meeting before Sanj's FFH meeting at Joe Badali's in April?  We don't have to meet there but perhaps next door or somewhere downtown.  I could come in 1-2 hours early.  Any thoughts? 

 

Of course, I assume everyone is going to Sanj's meeting...because if you aren't you are missing the best value investment of the year! It turned out to be a 20 bagger for me last year.  How many of those will you get in 2011?

[cwericb]

FFHwatcher, Unfortunately I have held shares in several other companies where share prices were obviously manipulated and/or the companies involved were grossly mismanaged. So perhaps I tend to be overly suspicious.

 

I have held shares in SFK/FBK for three or four years now and I haven’t seen a lot that has really impressed me. Yes, they avoided bankruptcy but so have others in the industry. I have seen very little effort put into promoting their company in any way. Why is that? Why did FBK’s share prices not increase to the same extent as some of their competitors? What steps have they taken to promote this company?

 

Suppose a takeover deal has been in the works for some time involving ABH. Obviously it would be in ABH’s best interests to start with a low FBK share price. As far as FFH is concerned it may matter little where FBK’s share price sits but the less that ABH pays for FBK the better off and the healthier ABH would be going forward and that would be in FFH’s best interests, so I don’t see much incentive for FFH to do anything to pressure FBK to be more proactive in marketing themselves better.

 

As far as management’s personal options are concerned, what exactly did they do, or what is expected of them to earn those options? If you had those options wouldn’t you be doing everything in your power to escalate investor awareness of this company and increase share prices? I would be doing everything I could to promote and polish the company’s image and make the company more attractive to investors. I would be putting out frequent news releases reminding the public of all the great things we were doing, I would have had a glossy website promoting all aspects of the company and featuring frequent updates for shareholders and potential investors. What about some publicity on the progress they are making on the power generation front - there is a web page in itself. I might even throw a few dollars at some ads to increase public awareness of my company and how it is a leader in the “green” movement with the power generation and the RBK plants. Perhaps I might look at a small dividend to show that this company is getting its act together and spur investor interest. Once you have elevated investor awareness and have positioned yourself where you have started to attract more attention, then if takeover talks start you are in a much better position to start a bidding war, rather than a passive takeover by a related company. Never underestimate the power of image and perception.

 

[Uccmal]

cwericb, As a two time shareholder myself I agree and disagree with your thoughts.  I rode the original SFK to my biggest all time loss of capital in dollar value.  Prior management was truly inept at managing the company through the cycle.  The present management as we have discussed seems a little sluggish. 

 

However, if we look at the history a little bit maybe we can understand why present management is taking it easy on the marketing side.  Past management over promised and under delivered.  They promised they would maintain 20 M cash to see them throught the cycle, cut distributions to do it, and then blew the capital on the RBK purchase and diluted everyone in the process.  With this as a back drop I might be very cautious if I were new management. 

 

New management has been in place a little over a year and with the help of the pulp prices have stabilized and strengthened the company.  I dont think there is any way they will sell the company unless each of them gets some kind of a great deal that pays them huge returns on their stock options.  There is not a chance in hell that an ABH or a Tembec would keep current management since they each have their own managers at each level already.  I also think it matters a great deal to FFH that they get a good price on the shares of FBK.  FBK would be a bird in hand while ABH would be an unknown.