Abitibi - Bowater

[Uccmal]

http://www.bloomberg.com/news/2010-12-09/abitibibowater-new-shares-to-begin-trading-tomorrow-toronto-exchange-says.html

 

My guess is that this may be FFHs largest equity position going forward.  I glanced through the prospectus but cannot determine FFHs total ownership.  Paul Rivett is on the BOD.

[DynamicPerception]

from page 11 of the 2009 Annual report.

 

While we have had great investment success in the last two years, our net gains include the absorption of some major

other than temporary impairment charges, mark-to-market losses and realized losses over these two years, as follows:

2008/2009

Other than temporary impairments (“OTTI”) 1,351.8

Mark-to-market losses 704.2

Realized losses 306.0

Included in OTTI are Level 3 ($226 million), Torstar ($175 million), Canwest ($121 million), Frontier Communications

($84 million), Dell ($65 million), U.S. Gypsum ($61 million), Brick Group ($40 million) and SFK Pulp

($31 million). Included in the mark-to-market losses are Abitibi ($336 million), California state bonds ($67 million)

and Mega Brands ($37 million). While Canwest is a permanent loss, the game is far from over on the other

impairments and mark-to-market losses. However, our balance sheet is very sound as we have written down these

investments to market value.

[Nnejad]

I'm surprised no one's caught the $17 gain for Fairfax in the coming quarter from this.

 

http://www.shearman.com/Shearman--Sterling-Scores-Victory-for-Fairfax-Financial-Holdings-Limited-12-09-2010/

[Hoodlum]

Why would this be a gain?  Did fairfax do a write down in the past in expectation of loosing this lawsuit?

[Nnejad]

While we have had great investment success in the last two years, our net gains include the absorption of some major

other than temporary impairment charges, mark-to-market losses and realized losses over these two years, as follows:

2008/2009

Other than temporary impairments (“OTTI”) 1,351.8

Mark-to-market losses 704.2

Realized losses 306.0

Included in OTTI are Level 3 ($226 million), Torstar ($175 million), Canwest ($121 million), Frontier Communications

($84 million), Dell ($65 million), U.S. Gypsum ($61 million), Brick Group ($40 million) and SFK Pulp

($31 million). Included in the mark-to-market losses are Abitibi ($336 million), California state bonds ($67 million)

and Mega Brands ($37 million). While Canwest is a permanent loss, the game is far from over on the other

impairments and mark-to-market losses. However, our balance sheet is very sound as we have written down these

investments to market value.

[Hoodlum]

I believe that is just the writoff in convertible bonds due to the bankruptcy.

 

http://www.thestar.com/Business/article/627037

 

"Last year, Fairfax bought $350 million (U.S.) worth of AbitibiBowater debentures convertible to shares at $10. Those shares face delisting from the TSX as the Montreal-based firm tries to recapitalize."

[DynamicPerception]

Didn't Fairfax throw in another couple of hundred million to help with the restructuring process?

I'm refering to the Debtor In Possession process or is this part of the 336 million?

[Uccmal]

Didn't Fairfax throw in another couple of hundred million to help with the restructuring process?

I'm refering to the Debtor In Possession process or is this part of the 336 million?

 

I think so.  I am thinking that they will get a good portion of ABH equity. 

[SharperDingaan]

 

Keep in mind that with FFH, you should add the FBK exposure to ABH. ABH still holds the portion of FBK's St Felicion mill that wasn't sold (SFK IPO Prospectus), & FFH is a dominant shareholder in both FBK & ABH.

 

The elegant operational solution is to merge the two entities (via an mixed equity/cash offer for FBK). With most shareholders electing to take tax-free rollovers (ie: institutions taking ABH equity); ABH could afford to pay full value, lower their Debt/Equity ratio, & simultaneously increase their very small 100M share float.

 

How long can it really be before exactly that happens.

May we all see a interesting 2011!

 

SD

[SharperDingaan]

http://www.theglobeandmail.com/globe-investor/new-abitibi-head-aims-to-control-costs/article1833059/

 

"Mr. Garneau will also lead a management team – including Mr. Paterson in an advisory role until next summer – that will be on the lookout for acquisition opportunities, Mr. Evans added."

 

FBKs plants use chemicals that could be obtained cheaper if bought in bulk (in combination with all other ABH pulp plants). FBK wood chips are also likely progressively cheaper the more volume taken (not a problem if you're also buying to fullfill a ABH order). Synergistic cost savings, & friendly shareholders, has to be putting FBK high on the list.

 

SD

 

 

[Uccmal]

SD, that had occurred to me when I read the interview with the new CEO.  He was also quoted as saying that he may be interested in acquisitions outside of newsprint and newsprint p&p.  FBKs higher grade fills that requirment 100%.  I think we can be pretty sure that FFH will want a minimum of $5.00 for their stake.

 

Lets hope for a bidding war on FBK... 

[Myth465]

Someone can have my shares right now for $3  ;).

[doc75]

Richard Garneau's recent history is interesting:

 

Garneau spent the last couple years as CEO of Catalyst Paper, with a mandate to cut costs and streamline the operation.  From what I can gather he was supported by the major shareholders (Third Avenue) and despised by the unionized workforce.  In spring 2010 he resigned as CEO of Catalyst.  His stated reason was to spend more time with family, but upon resignation he was immediately appointed to the Abitibi board (his new family?).  And now, with Abitibi's restructuring complete, he has immediately been appointed CEO.  Funny how life works out.

 

In any case, Garneau's position at Catalyst was eventually filled by Kevin Clarke, ex-CEO of Quebecor World. (Quebecor ousted Clarke when they emerged from bankruptcy.)  After taking the helm at Catalyst, Clarke has declared that the paper industry is far too fragmented and believes it is necessary for Catalyst to partner with another player.  To paraphrase, he says "we can wait for it to happen, or be proactive about it".  

 

So now we have the ex-CEO of Catalyst working for Abitibi and looking for acquisitions, and the new-CEO of Catalyst saying that their future is join with a bigger operation.  I'm not predicting a takeover here. The press reports say that Abitibi is looking for small-medium sized M&A opportunities and, despite their tiny market cap, Catalyst isn't in that category.  But an interesting circumstance nonetheless.  

 

It certainly looks like the Canadian pulp/paper industry will see some interesting changes.

 

 

As an editorial note:  I find it pretty sick how well management can be compensated when their company is sinking.  Garneau was getting a hell of a good salary and lots of low-priced options while essentially demanding that the unionized Catalyst employees tear up their current contract and agree to far lower wages.  The unions hated his tactics, and I can't say I blame them.  

 

 

[Christopher1]

Some initial rough calculation.

Based on SEC documents the 8% convertible note purchased by Fairfax (CUSIP: 003687AA8) for a total amount of around 385M and wrote-off, will be converted in 5,906,078 shares of the new ABITIBI yesterday trading around 22$. For a total market value around 130M.

 

The link to the SEC filings:

http://www.sec.gov/Archives/edgar/data/1393066/000119312510281335/d8k.htm

http://yahoo.brand.edgar-online.com/EFX_dll/EDGARpro.dll?FetchFilingHtmlSection1?SectionID=5853557-1235445-1523563&SessionID=9-UbHF63508FiP7

[JEast]

Nice observation and thanks for the update.

 

All FFH owners are glad we are recovering some of the previous write-off.

 

Cheers

JEast

[Smazz]

Didn't Fairfax throw in another couple of hundred million to help with the restructuring process?

I'm refering to the Debtor In Possession process or is this part of the 336 million?

 

I think so.  I am thinking that they will get a good portion of ABH equity. 

My memory is not great but i thought they were up to $400M All in

 

Seeing that this has been written off in M2M what does it look like they will reclaim out of bankruptcy?  I guess its impossible to know or even shoot a dart at here.

[doc75]

SD, that had occurred to me when I read the interview with the new CEO.  He was also quoted as saying that he may be interested in acquisitions outside of newsprint and newsprint p&p.  FBKs higher grade fills that requirment 100%.  I think we can be pretty sure that FFH will want a minimum of $5.00 for their stake.

 

Lets hope for a bidding war on FBK...

 

Oh how I miss those days of lofty dreams for Fibrek! 

 

Don't mean to pick on your post in particular, Al -- always love reading what you have to say.  Was just bringing up a little historical "colour" with respect to the current ABH takeover bid. 

 

Unlike many of the smarter ones on this board, a $1 cash buyout puts me down a significant amount.  I suppose I can tell myself that the ABH shares are substantially undervalued...