Resolute Forest Products Commences Takeover bid of Fibrek

[SharperDingaan]

Back of the envelope - value per share is around 3.94+?

 

NBSK EBITDA (1): 21.7Mx6=130.2

RBK EBIDTA (2):  20.8Mx8=166.2

RBK EBIDTA saving (3)7Mx8=56.0

Power Generation (4): 16Mx10=160.0

Value/share: (130.2+166.2+56+160)/130.1 shares = 3.94

 

289M sales =367,500@787/ton. 7.5% net EBITDA = 21.7M. Ave EBITDA multiple (2) 277M sales = 377,300@735/ton. 7.5% net EBITDA = 20.8M. Higher EBITDA multiple for base loading & new product (3) P14 Directors Circular. 7M/yr saving x RBK EBITDA multiple. (4) P12 Directors Circular-could be 22M/yr (16+6). Higher EBITDA multiple for price & volume certainty.

 

... a ‘serious discussion’ at anything even close to this will please  anyone

 

SD

 

[SharperDingaan]

Assume: (1) All the additional shares tendered were from Steelhead. 11.1% at an average cost of $1.05/share (15.17M) (2) An all-stock ABH tender at 3.25 (3) The Steelhead interest is the RBK plants

 

130.1Mx3.25=422.8M ABH equity issue, of which Steelhead gets 46.93M (11.1%). RBK mills are valued at around 124.8M [(20.8+0)x6]. Steelhead swaps its ABH stock & pays 77.87M for the mills. Total cost to Steelhead is 93M (15.17+77.87) – for mills with a ‘true’ value of around 222.2M (166.2+56)?

 

A sceptic might argue .....

 

If  the majority of the additional shares ARE Steelheads, there is no intention that ABH actually wins the bid. (1) The lock-up group just wants out at the best price possible; otherwise they would be buying & putting the tender > the 66 2/3% threshold. (2)Steelhead is indifferent as the incremental gain on their FBK position is a hedge against the market price for the RBK mills that they would offer to buy from the winning  bidder (3) An all equity winning bid at higher multiples, a built in asset sale, & willing sellers, is worth a lot to both FBK’s shareholders & a highly leveraged bidder.

 

... another reason to be pleased.

 

SD

 

[Guest Quebec]

57% is great news and a clear message. The 66.67% hurdle seemed so easy with all the large motivated ABH friends behind it. It means current shareholders are strong hands that are not impressed by the illusional premium. Short termers, quick bucks and non believers must have all sold by now since there was buyers all day long around the bid. It's a welcome mat to a fair alternative offer. Personally, I am also willing to hold. Recent and current initiatives results should be clearly visible in 18 months or so.

[Guest Quebec]

Do we know if Steelhead has tendered already ?

[triedtestedand]

SD:

 

Interesting thesis regarding Steelhead ... remind me never to play chess with you.

 

That said, only 7.03M shares have traded from Dec 14th thru Jan. 20th ... and we know cardboard bought 150K of those, so Steelhead's theoretical max so far (assuming no off-market sales) would be about ~11.2M

[FFHWatcher]

17M shares have traded since the deal was announced.

Who would buy shares at .95-1.05, only to want to tender them a few months later at $1.?

There is good liquidity in the stock at >$1., so why would anyone hold their shares, only to tender at a lower price? 

They would just sell their shares for >$1. on any given day.

Therefore, I am concluding that everyone who bought those 17M shares won't tender (unless they are ABH friendly, which I don't think is permitted, at least in FFH case, what about others?).

 

43M (130M x 33.3%) have to vote against it, correct?

 

SD - FBK is not a half billion dollar company.  That would value FBK at more than Mercer and Fortress Paper.  The only way Fibrek goes for over $1.50 is if they change their name to Fibrek Cloud Computing.

 

Wager - I will wager $500 if Fibrek is sold for > or equal to $1.50 (any mix of cash and shares) by the time Sanjeev has the BRK/FFH dinner/April 25th to the The Crohn's & Colitis Foundation of Canada.  If it goes for under $1.50, than the person on the other side of the bet has to donate the same amt.  Any takers?  It is a good cause.  If the deal is called off, shareholders will need to preserve their cash. 

[alertmeipp]

>>That would value FBK at more than Mercer and Fortress Paper

 

I don't think you can buy Mercer or FTP out at the current market price. Buyout price and market trading usually has a gap.

[FFHWatcher]

>>That would value FBK at more than Mercer and Fortress Paper

 

I don't think you can buy Mercer or FTP out at the current market price. Buyout price and market trading usually has a gap.

 

Alertmeipp : I understand that there is a gap and FFH + ABH (possibly) feel their offer bridged that gap.  Taking that one step further, they likely feel that their offer closed that gap and if the deal goes through (maybe even at 25% more?), feel they are still buying the assets cheap.  Does that mean you're in on the wager?

[SharperDingaan]

FFHWatcher: We'll decline the bet! but we will make a donation to the foundation - the only condition being that the transaction has to close before the FFH dinner.

 

Triedtested: Funnily enough we all play speed chess, & simultaneous games, as an ongoing training tool. Goes along with walking around & adding up random number plates for highest score (not so simple in arabic), & card counting at Canasta.

 

SD 

[tyska]

As someone who doesn't think out nearly as complex of scenarios as SD. And maybe that is the answer to my question. :)

  My question is why wouldn't Fairfax and their group go the route of putting in board members that will realize the value of the operation. It seems to be a pretty strong consensus, even amongst those that haven't tendered,that this management team isn't competent at realizing shareholder value.

[alertmeipp]

for FFH, FBK is mini-mini investment. Probably doesn't worth the effort for them.

[SharperDingaan]

Thanks for the complement!. The usual process with this kind of loss of confidence is that you try to put the company 'in play', & get an outside bid for the company as a whole, &/or parts of - that you can sell into. If nothing comes forth you then try to replace management &/or asset strip to fund periodic returns of capital; usually a fractious process that requires the voting control of majority ownership - & which would likely occur if the ABH bid were unsuccessful, & Steelhead sold its FBK stake to FFH.

 

The reality is that FBK's senior management will be replaced, & they know it. That said, it is in ALL our mutual interests for management to get the power deals signed, & to get a sale at the highest possible price – following which management either goes with the mills &/or receive generous packages. If management cannot get a sale, the change of control premiums do not kick in, & the magnitude of the packages is materially reduced. The better management 'fights the ship'  the more marketable they will be in their next life, & they have done very well to date. It is accepted that the big $ come with risk, but selling the company is the fairest way of dealing with it.

 

SD

 

[triedtestedand]

Looks like some dirty laundry is going to be aired, starting tomorrow:

 

http://business.financialpost.com/2012/01/31/watsa-embroiled-in-takeover-dispute/?preview=true&preview_id=137828&preview_nonce=e8cb8bd866

 

 

[alertmeipp]

Looks like some dirty laundry is going to be aired, starting tomorrow:

 

http://business.financialpost.com/2012/01/31/watsa-embroiled-in-takeover-dispute/?preview=true&preview_id=137828&preview_nonce=e8cb8bd866

 

From the surface, it looks like Fairfax isn't in a great position to defend its acts. But evil is in the details.

[tyska]

That's funny, was it a Freudian slip?

 

"But evil is in the details."

[alertmeipp]

That's funny, was it a Freudian slip?

 

"But evil is in the details."

 

Don't pick on me, I missed the damn 15% run on FTP thinking maybe it was priced in!

[Grenville]

Looks like some dirty laundry is going to be aired, starting tomorrow:

 

http://business.financialpost.com/2012/01/31/watsa-embroiled-in-takeover-dispute/?preview=true&preview_id=137828&preview_nonce=e8cb8bd866

 

Interesting details regarding the proposed acquisition in the US, thanks for posting.

[SharperDingaan]

It is what it is. Management is doing what they are being paid to do, & the outcome will speak to whether this is actually an insider bid or not. If the assertion is true, there will be significant damages accruing to FBK, FFH included.

 

The fact is majority ownership at < 50%+1 does not give you absolute control, & low-ball bids for absolute control is abusive behaviour - the last guy with this view was Conrad Black. Ultimately, FFH has to get out of FBK through either a real tender for all of FBK (& resale to someone else), or a sale of FBK to some other party. 

 

With 20/20 almost everything about this bid points to zero foresight, bad advisement, & poor execution - & all because they wanted to be cheap? They need to end it, & soon: ABH either puts up a real bid before expiry, or steps aside to let FFH make one.

 

SD 

[Cardboard]

Where is the formal valuation? Where are the competing offers? What is taking so long for these guys to get things done?

 

If they think that they will be able to remain in power by suing and wasting shareholder capital in court they are wrong. I will tender my shares to ABH on Feb 13 and along with many of you I hope and send Côté, Ducharme and Lacroix find another host elsewhere.

 

Cardboard

[st96dgx8]

Where is the formal valuation? Where are the competing offers? What is taking so long for these guys to get things done?

 

If they think that they will be able to remain in power by suing and wasting shareholder capital in court they are wrong. I will tender my shares to ABH on Feb 13 and along with many of you I hope and send Côté, Ducharme and Lacroix find another host elsewhere.

 

Cardboard

 

If you are indeed tendering, that would make you an irrational investor.  Any competent person would sell their shares at the current $0.05 premium to the offer.  The people holding are not tendering but waiting for a bump in the bid.

 

 

That would be irrational, unless, of course, Cardboard owns such a large number of shares relative to the trading volume that s/he is unable to exit at the quoted price. :)

 

The independent formal valuation is likely a 6-8 week mandate and should be out in mid to late February.

 

SharperDingaan--couple of questions if I may--1) Why would there be "significant damages accruing to FBK, FFH included" if this is an insider bid? 2) You state that ABH needs to "steps aside to let FFH make one (a bid)." What makes you think FFH is interested in making a bid?

 

JetsFan--Do you have an excel spreadsheet listing the intial and final offer prices for takeover transactions in Canada? And would you be so kind as to attach the file to your next message?

 

[triedtestedand]

I would think, as SD notes, that stuff will get resolved soon, as the following all have February dates tagged to them:

 

a) regulator hearings ... Feb 1-8 ... embroiled w ABH of course regarding status of poison pill, and of insider bid designation.

b) independent valuation ... "mid-February" ... they have consistently communicated this would be done mid-February, and since it is "independent", I'm sure they can't just whitewash the valuator's "independent" delivery timeframes.

c) power purchase agreement ... "early 2012" ... again, exact timing is likely out of their control, but I would expect them to be applying as much pressure to get it approved soonest.

 

 

The poison pill, regulator hearings, and independent valuation are all serving to buy FBK time (and these have been successful so far, moving ABH's bid deadline at least once, from Jan 20 to Feb 13 ...), but still need to be mindful that patience will be wearing thin / nerves will be fraying with all parties.  So if FBK is indeed getting closer to any alternative transactions, then such will need to be effectuated soon.

 

That said, given this is a bit of a poker game, then in a perfect world I personally would try and wait until a) after the regulator hearings, b) after the independent assessment, c) after power purchase agreement is signed, but d) a few days (but no more) before the ABH bid expires (which could get extended a bit further depending on outcome of regulator hearings).

 

Late next week should get interesting ... no?

 

[SharperDingaan]

SharperDingaan--couple of questions if I may--1) Why would there be "significant damages accruing to FBK, FFH included" if this is an insider bid? 2) You state that ABH needs to "steps aside to let FFH make one (a bid)." What makes you think FFH is interested in making a bid?

 

1) FFH/ABH used their 'inside' knowledge to stop a value accretive bid, depriving all FBK shareholders (including the FFH 46% holding of FBK) of the benefit. FFH does not have 50%+1 control over FBK, & it was not their call to make - consequently FFH would have to make all FBK shareholders whole via a damage settlement to FBK.

 

2) FFH has no interest. If the bid fails (no competing bid, &/or no tenders at the price) their least damaging reputational exit is to take FBK private ASAP, & resell it ASAP. The bad press is spreading to other parts of their business (RIM), & they need to tie it off.

 

Its also Quebec .... they don't have to void the poison pill, the review is to give FBK as much time as possible to find an alternate, & you're guilty untill proved innocent. FBK is not going to reveal anything untill they absolutely have to, & I think we're all big enough to see the humour in the snub to Toronto & Montreal.

 

Good for them!

 

SD

 

       

 

[alertmeipp]

I got a feeling that somehow FBK management is going to screw this one up again...

 

Man, look at ABH.TO... it's pps performance in the recent up market just sucks.

 

I would rather own cash or FBK.

 

 

[NumquamPerdo]

Stock halted pending news.

 

Stay tuned...

[T-bone1]

just out: "MONTREAL, Feb. 3, 2012 /CNW Telbec/ - Fibrek Inc. ("Fibrek") announced today that a proposal has emerged from its strategic alternatives review process, which was initiated by Fibrek's Board following the unsolicited insider bid (the "Insider Bid") made by AbitibiBowater Inc. (carrying on business as Resolute Forest Products) ("Abitibi") on December 15, 2011. The Board of Directors and Management are currently in negotiations with a number of third parties in response to the Insider Bid. While it is impossible at this stage to predict whether any other competing offers will emerge, the Board expects to receive alternative proposals from such third parties. Third parties have until 5:00 p.m. today, February 3, 2012 to submit their proposals. Fibrek will update the market as appropriate as this process continues, but there can be no assurance that a transaction will take place. "