Resolute Forest Products Commences Takeover bid of Fibrek

[lessthaniv]

Fibrek suitor Resolute plans $130-million takeover

 

2011-11-28 19:43 ET - News Release

 

 

Mr. Remi Lalonde reports

 

RESOLUTE FOREST PRODUCTS TO COMMENCE TAKE-OVER BID TO ACQUIRE FIBREK INC.

 

Resolute Forest Products intends will make a formal takeover bid to acquire all of the issued and outstanding common shares of Fibrek Inc.

 

"The acquisition of Fibrek is consistent with our strategy," stated Richard Garneau, president and chief executive officer. "As we continue to focus on building a sustainable and profitable company, growth in expanding global pulp markets is the right move, at the right time, for Resolute Forest Products. The range of optimization opportunities that we expect from this acquisition will, over time, deliver increased value to our shareholders."

 

The offer would contemplate that holders of Fibrek shares could elect to receive for each Fibrek share:

 

 

Cash and share option: 55 cents in cash and 0.0284 of a Resolute share;

Cash only option: $1 in cash (subject to proration, as described herein);

Shares only option: 0.0632 of a Resolute share (subject to proration, as described herein).

 

The maximum amount of cash available will be approximately $71.5-million, and the maximum number of Resolute shares to be issued will be approximately 3.7 million shares. For purposes of calculating the applicable proration, the maximum cash available and the maximum shares available will first be reduced by the amounts necessary to satisfy the cash and share option fully. The cash only option and the shares only option will each be subject to proration in the event aggregate elections exceed the remaining cash or the remaining shares, respectively. If proration applies, the remaining consideration will be delivered in Resolute shares if the cash only option is prorated or in cash if the shares only option is prorated.

 

The offer will contain customary conditions for transactions of similar nature, including, among others, a 66-per-cent minimum tender condition, waiver or termination of all rights under any shareholder rights plan(s), receipt of all regulatory, governmental and third-party approvals, consents and waivers, Fibrek not having implemented or approved any issuance of shares or other securities or any other transaction, acquisition, disposition, capital expenditure or distribution to its shareholders outside the ordinary course of business, and the absence of occurrence or existence of any material adverse effect or material adverse change.

 

Resolute has entered into lock-up agreements with three significant shareholders of Fibrek, including Fairfax Financial Holdings Ltd. and Pabrai Investment Funds, holding, directly or indirectly, an aggregate of 59,502,822 Fibrek shares (representing approximately 46 per cent of Fibrek's issued and outstanding common shares). Under the lock-up agreements, each of the locked-up shareholders has agreed to tender, or cause to be tendered, all of its Fibrek common shares to Resolute's offer, subject to certain conditions. The lock-up agreements provide, among other provisions, that Resolute commence a formal takeover bid on or before Dec. 30, 2011, provided certain conditions are satisfied, including there not having occurred any material adverse change with respect to either Resolute or Fibrek. Under the lock-up agreements, which are being filed with the U.S. Securities and Exchange Commission, also available on the Canadian SEDAR filing system, the locked-up shareholders have no ability to withdraw any Fibrek common shares to tender to or facilitate any competing transaction.

 

The offer represents a premium of approximately 39 per cent over the closing price of Fibrek's shares on Nov. 28, 2011, and a premium of approximately 31 per cent over the volume-weighted average trading price of the shares on the Toronto Stock Exchange for the 20 trading days ending on that date.

 

Full details of the offer will be included in the formal offer and the takeover bid circular to be filed with the securities regulatory authorities and mailed to Fibrek shareholders.

 

Based on Fibrek's public disclosure, it has 130,075,556 issued and outstanding common shares (on a non-diluted basis), valuing the offer at approximately $130-million, or approximately $126-million (U.S.). Resolute currently owns no Fibrek common shares.

 

BMO Capital Markets is acting as financial adviser to Resolute, while UBS is acting as financial adviser to a special independent committee of the board of Resolute.

 

We seek Safe Harbor.

 

 

 

[alertmeipp]

damn that offer. 1$ cash?

[Myth465]

Wow. I guess FFH did have a plan here. This is what happens when the share price doesnt move....

[alertmeipp]

.. how can they agree this offer.

they must be taking a loss on this.. what's the plan there.

[SharperDingaan]

The price sucks at approx 2.7x projected stable EBITDA (with power) of 48.5M, but at least it will be more liquid (with better prospects) holding ABH over FBK. Think they could afford more, but a friendly bid was pretty much inevitable.

 

Looking forward to holding ABH!

 

SD

 

[alertmeipp]

I would much rather get a higher offer with all stock deal.

 

Looks like the FFH and friends are fed up with Fibrek's management and call them out.

[SharperDingaan]

Alert. Keep in mind that it is highly likely that most/all of the shares in lock-up will opt for conversion. Makes the sale a tax-free roll-over, & the holder indifferent as they have not lost any value.

 

Arguably, if enough shareholders opt for conversion (90%+) they could collectively negotiate for a better price (liquidation value) & 100% conversion. The buyer gets a bigger equity issue, & can use all of the sellers cash to pay down debt - improving their D/E ratio. $1.00/share may well just be the opening bid.

 

Here's to hoping that Santa is a little more generous!

 

SD 

[txlaw]

Wow.  I sold out of FBK this summer to harvest the capital loss and redeploy, but I've been watching, hoping to put money back into it at a later date.  I've always liked SD's idea of selling off the conventional facilities and holding onto the RBK facilities for the long term.

 

The price offered is a bit disconcerting.  Obviously, if you take all ABH shares, you're getting ABH at a big discount to IV, but the ratio still doesn't seem adequate to me.  Granted, I have not done a deep analysis of ABH.

 

What do people who own both FBK and ABH think of the stock for stock exchange?

 

Also, does anyone know FFH's cost basis on their FBK investment?

[alertmeipp]

>>improving their D/E ratio. $1.00/share may well just be the opening bid.

 

It would be... but with close to 50% locked in. That bargaining power isn't great.

 

Do you know what percentage of vote is needed for this to pass?

[SharperDingaan]

 

At 90% you can force the minority to sell. Given that this a friendly deal it'll be what the majority of the remaining shareholders want to do, that will decide it. The major players in that group will also negotiate the exchange rate on everyone's behalf.

 

Couple of beers around a table, & saw-off somewhere around half-way between $1.00 & IV.

 

SD

 

 

[alertmeipp]

I just shoot FBK an email questioning their take on it. They must be shocked by this.

 

I am cheap, just throw me a few dimes and we can call it a day.

 

Pissed about the price but kind of nice to have a way out of this mess.

[JHelg]

SD called it! Maybe a little off on the "pay full value" part, but nice call.

 

From SD's post from December of last year:

 

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

[finetrader]

I'm shocked! I've been disapointed by the drop in share price in the past months, but i was getting excited lately by maybe having the opportunity to buy more at maybe .50$/share.

 

Now  that won't happen..

 

This is an opportunistic bid at 1$. Sure hope other shareholders do like me and reject this offer.

[triedtestedand]

Sharper:

 

Well done ... you indeed called the ball ... almost a year or so ago! 

 

That said, I also see this as an opportunistically timed offer ... one that is "fair and friendly" mostly for FFH only.  Recognizing all the support they've given FBK, they're still way deeper into ABH's side than with FBK, so can't really believe they pushed hard on the valuation prior to locking up.  Also, the offer of a 39% "premium" to recent trading levels conveniently ignores the lack of liquidity, but I must admit that's probably been a key basis for FFH and Pabrai (as opposed to book value/intrinsic value/etc.), as they undoubtedly view this offer as getting a more liquid play in ABH at a much lower valuation ($15/share) than the re-organization levels (>$22/share) they got in at ... and in a tax-efficient rollover fashion as well.

 

Would any others have interest at this juncture, or indeed, the (independent members of the) board should indeed look to split the NBSK and RBK plants?  Canfor is picking up some assets from Tembec, and Fortress/Domtar/etc are all musing about things, so this can't represent a best-and-final offer, no?

 

We'll see what smokes out ... and just how tight the lock-up is, but 46% in lock-up is still a stretch from 66% (let alone 90%) ... and full disclosure, I'm materially into this, so if anyone at ABH is reading this, let me know where the pub is so that I can take Sharper's advice, get down there and have a "Couple of beers around a table, & saw-off somewhere around half-way between $1.00 & IV."

 

 

[Uccmal]

Its a real crappy deal for  fibrek shareholders.  I still hold 6000 shares in my wifes account.  If i held at my peak levels up toward 100k shares I would be mighty pissed. 

 

You all should get on the message boards and convince other shareholdedrs to hold out for way more than this. 

[cwericb]

FBK was in the $1.60-1.70 this Spring. At $1.00 I feel like a victim of incest.

[manualofideas]

It will be hard to get any more money or stock out of ABH. If Fairfax or Pabrai were gunning for a higher offer, they would not have agreed to this provision: "... the Locked-up Shareholders have no ability to withdraw any Fibrek Common Shares to tender to or facilitate any competing transaction."

 

Minority shareholders have been taken in much much more egregious ways recently, not least in the recap of Compton Petroleum, another TSE-listed company. The Fibrek deal doesn't even come close to the way minority shareholders were screwed in the Compton deal. Yet, the Compton deal went through.

 

With Fairfax and Pabrai on board with the ABH offer, it seems like wishful thinking that the offer will change between now and December 31.  It's a sad outcome for Fibrek shareholders because there was a lot more value in Fibrek (or at least potential value). Management really screwed up on the execution, and it's no surprise that Fairfax is kicking them now with no warning.

 

Probably the best option for Fibrek shareholders is to seriously consider the stock offer and to try to capture some of the upside by becoming ABH shareholders.  ABH does look interesting at current levels.

[SharperDingaan]

This proposal has to pass due diligence at both boards. FBK needs to prove (1) that its liquidation value (appraisals &/or getting bids on the plants) is above the offer price & (2) that the going concern (IV) value is above the offer price. The current price of $1.00/share is just the offer price the last time they went out. ABH needs to prove that they put up an appropriate initial offer (price & lock-up), & then settled on a number that was independently proved as reasonable. Most would argue that if you want FBK, you need to pay something between the liquidation and IV value.

 

The institutions that bought at $1.01 last time out will want an appropriate return on that additional investment. They will also want the bid to at the very least, materially cover their average cost bases. We would expect that most of the non lock-up group consists of these institutions, & that the lock-up group has essentially withdrawn (via the agreement) to allow them to set the final price.

 

It is highly likely that the bid was intended to raise a fuss, but the degree of distaste was unanticipated. Not a bad thing, but now is the time to demonstrate the elegance that would appear to be behind this bid.

 

It is highly likely that the ABH bid is the match that sets off an industry consolidation wave, raising the tide for all in the industry. To play the bid you really need to buy FBK & anticipate by how much ABH might improve the exchange rate for an all equity deal – then multiply by the probable increase in the ABH share price as a result of the offer. That kind of demand on the small FBK public float, should be an good indication as to where the true floor price might be.

 

May it be an interesting day.

 

SD 

 

[Guest Dazel]

 

SD,

 

 

You have been on this for a longtime....this thread may be the biggest in the boards history....if you look back through you will see my dismay with management....and they should have been selling assets at the peak of the cycle....we pleaded on this board to have this done...Cfx.un was $20....mercer was $13.... And fibrek was almost $2....

sad to see the salaries these guys got to screw us....we have sold most of our shares some time ago..but we still hold some...

 

We need more activists as managements will do what favors them! Very sad to see the lost opportunity here.

 

Dazel

[triedtestedand]

Manualofideas:

 

The statement "... the Locked-up Shareholders have no ability to withdraw any Fibrek Common Shares to tender to or facilitate any competing transaction."  I wonder just how tight can such a provision be, and what the caveats are.    What if <66% of shareholders reject the bid at this price?  What if FBK sold/split some of the assets (proving liquidation value > current offer)?  What if FBK found a new investor to pump some extra money in, and/or then instituted a partial buyback? 

 

I can see FFH locking up, but why would Pabrai and the 3rd (unnamed) shareholder consent so early? That part doesn't make sense to me ... nobody's calling in any markers are they?

 

FBK reached an important point last quarter where current assets roughly equaled all liabilities (save pension), so with continuously improving balance sheet they should have a few more levers to pull than they would have 18mo ago.  It may have had markings of a value trap, but illiquidity aside, there's not a lot of downside to the stock at this price ... and therefore leaning towards a "NO" vote from me in absence of anything else.

 

At least now we have the catalyst we've been waiting for.

[rmitz]

Mark me down as not at all happy with this offer.  I'd basically be breaking even here, and I'm sure some traders who just picked it up recently would be fine with it (and people who have equal or more value in ABH), but I'm not. 

[jeffmori7]

An interesting article on Richard Garneau, CEO of Resolute, on his leadership style and discussing among other things on the fiber prices in Quebec.

 

So, for those who speak french :

 

http://lapresseaffaires.cyberpresse.ca/dossiers/la-presse-affaires-magazine/201111/29/01-4472724-richard-resolu-garneau.php?utm_categorieinterne=trafficdrivers&utm_contenuinterne=cyberpresse_BO4_la_2343_accueil_POS2

[triedtestedand]

And for those who speak English only, and want a rough translation:

 

http://translate.google.ca/translate?sl=auto&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&layout=2&eotf=1&u=http%3A%2F%2Flapresseaffaires.cyberpresse.ca%2Fdossiers%2Fla-presse-affaires-magazine%2F201111%2F29%2F01-4472724-richard-resolu-garneau.php%3Futm_categorieinterne%3Dtrafficdrivers%26utm_contenuinterne%3Dcyberpresse_BO4_la_2343_accueil_POS2

[Viking]

The aquisition of the US mills were, in hindsight, a huge mistake. SFK/Fibrek were never able to drive the branding/profitability of the recycled pulp business. If Resolute is able to turn (or sell) the recycled pulp business in the US this aquisition will be a steal of a deal for them.

 

I always liked the Quebec pulp operations; I sold SFK way back because of their inability to turn around the US recycled pulp business.

 

I like the purchase (at $1.00) for Resolute shareholders... perhaps time to do a deep dive on Resolute.

[FFHWatcher]

Alert. Keep in mind that it is highly likely that most/all of the shares in lock-up will opt for conversion. Makes the sale a tax-free roll-over, & the holder indifferent as they have not lost any value.

 

Arguably, if enough shareholders opt for conversion (90%+) they could collectively negotiate for a better price (liquidation value) & 100% conversion. The buyer gets a bigger equity issue, & can use all of the sellers cash to pay down debt - improving their D/E ratio. $1.00/share may well just be the opening bid.

 

Here's to hoping that Santa is a little more generous!

 

SD

 

Tax free rollover only applies to those with a cost below $1. Not ffh or pabrai or me. If your cost is over $1, why would you do the rollover?  Just sell, realize loss and buy resolute if you really want too.  If you have millions of shares, it makes sense because you couldn't sell that many shares at $1 on the open mkt?  I'm just saying the tax-free rollover component of the take-over applies to few