Resolute Forest Products Commences Takeover bid of Fibrek

[triedtestedand]

Here's the full  release:

 

http://finance.yahoo.com/news/Update-Fibrek-Ongoing-cnw-1861034109.html?x=0

 

An interesting few days coming up ...

[T-bone1]

I would assume we will find out tonight, or certainly by the open on Monday if they have recieved a higher bid.  If someone in Canada knows more about this proccess than me, please enlighten me.

 

I did not tender my shares, but would be willing to "go quietly" for $1.40 or so.

 

Looks like about 1,000 shares of FBKZF (US pink sheets) traded at 1.13 and the current market is $1.06/$3/42 . . . not that it means anything

[nielfiel]

I would assume we will find out tonight, or certainly by the open on Monday if they have recieved a higher bid.  If someone in Canada knows more about this proccess than me, please enlighten me.

 

I did not tender my shares, but would be willing to "go quietly" for $1.40 or so.

 

Looks like about 1,000 shares of FBKZF (US pink sheets) traded at 1.13 and the current market is $1.06/$3/42 . . . not that it means anything

 

Sizable Bid/Ask Spread. 

[T-bone1]

$1.06/$1.46 now . . . a bit more realistic

[SharperDingaan]

"As previously disclosed, Fibrek is currently in proceedings before the Bureau de révision et décision (Québec) (the "Bureau") following the application made by Abitibi and one of its affiliate for an order cease trading Fibrek's shareholder rights plan. Fibrek is issuing this press release in response to a request made by the Bureau during the course of the proceedings to provide an update regarding any proposals having emerged to date"

 

- So ABH didn't think FBK had anything, bullied - & it blew up in their face. Habs 1, Toronto 0

- Given that this is Quebec, ABH is very unloved, & FBK does have something - there is now very little risk to the Bureau in ruling against ABH 'on the balance of probabilities'. ABH/FFH go to the penalty box. Habs 2, Toronto 0

- It also makes it highly likely that a power deal will be signed before the final deal closes, & that the province will use the rate as a sweetener for these alternatives. Habs 3, Toronto 0 

 

Congratulations, gentlemen.

 

SD 

[SharperDingaan]

T-Bone: If just one of those proposals is from someone with a high multiple  ;) ... $3.00+

 

SD

[st96dgx8]

I would assume we will find out tonight, or certainly by the open on Monday if they have recieved a higher bid.  If someone in Canada knows more about this proccess than me, please enlighten me.

 

I did not tender my shares, but would be willing to "go quietly" for $1.40 or so.

 

Looks like about 1,000 shares of FBKZF (US pink sheets) traded at 1.13 and the current market is $1.06/$3/42 . . . not that it means anything

 

 

I will not "go quietly" at $1.40, but instead will likely exercise dissent rights. The NPV of a new PPA agreement with HyrdoQuebec and the 9.5MW contract alone could be worth $1.4 per share.

[T-bone1]

I don't know that much about the proccess, but I assume that in the spirit of being "fair and friendly" (as FFH is involved for better or worse), ABH will negotiate a better deal for FBK which will include a large consulting contract (bribe) for current management.  I figure $1.40 would be a reasonable number (same cash/share option) as an independant valuation will likely come in at well over $2.00

 

I say I would be happy to walk away with $1.40 in cash/stock because the same management clowns that are going to say $1.00 or $1.40 is way too low were willing to dillute us severely at well under a dollar.

[NumquamPerdo]

Well, at present they still have sweet FA. Not sure why they couldn't just tell us that after the close instead of halting the stock all day.

[alertmeipp]

it will be comical if no proposal come at the end.

[Cardboard]

Poor Hubert! Almost made me cry.

 

http://argent.canoe.ca/lca/affaires/canada/archives/2012/02/20120202-170428.html

 

At least, he may finally be worth his $85,000 this year. Being Chairman has to mean more responsibilities than just showing up at a meeting 5 or 6 times a year to endorse whatever the CEO is proposing. Hubert schedule might be a little easier nowadays if he had stopped his executives from thinking that they could simply issue shares to fund whatever. So Prem said no and sent him to do overtime!

 

Cardboard

[alertmeipp]

Based upon and subject to the analyses and assumptions set out in its Valuation, Canaccord Genuity is of the opinion that, as at February 3, 2012, the fair market value of a common share of Fibrek was in the range of $1.25 to $1.45.

 

Fibrek receives independent formal valuation and provides update on strategic alternatives review process

11 minutes ago - ACQUIREMEDIA

Fibrek Board of Directors Reaffirms its Recommendation that Shareholders REJECT the Abitibi Insider Bid

TSX: FBK

 

fibrek.com

MONTREAL, Feb. 6, 2012 /CNW Telbec/ - Fibrek Inc. ("Fibrek" or the "Company") announces the results of Canaccord Genuity Corporation's ("Canaccord Genuity") formal valuation of Fibrek's common shares ("Valuation") that complies with the requirements of Multilateral Instrument 61-101 - Protection of Minority Securityholders in Special Transactions ("MI 61-101"). Based upon and subject to the analyses and assumptions set out in its Valuation, Canaccord Genuity is of the opinion that, as at February 3, 2012, the fair market value of a common share of Fibrek was in the range of $1.25 to $1.45.

Fibrek Board Reaffirms Recommendation to Reject the Insider Bid

After a review of the Valuation, the Board has unanimously reaffirmed its recommendation to Fibrek shareholders that they REJECT the unsolicited insider bid (the "Insider Bid") made by AbitibiBowater Inc. (carrying on business as Resolute Forest Products) ("Abitibi") on December 15, 2011 and NOT TENDER their common shares to the Insider Bid.

"The valuation by Canaccord Genuity confirms our belief that the Abitibi insider bid significantly undervalues the common shares of Fibrek, and that the lock-up agreements between Abitibi and certain shareholders deprive minority shareholders of the opportunity to obtain full value for their common shares of Fibrek," stated Hubert T. Lacroix, Chairman of the Board of Fibrek. "The valuation demonstrates conclusively that Abitibi's insider bid conveniently ignores probable and material new streams of operating income. Our goal continues to be to ensure that our shareholders are fully compensated for the full value of their investment in our Company."

Background to the Valuation

As disclosed by Fibrek in a press release dated December 19, 2011, because of the close operational relationship between Fibrek and Abitibi and the fact that Fairfax Financial Holdings Limited is the largest shareholder of both companies, the Board determined that it was in the best interests of shareholders to benefit from a formal valuation of Fibrek's common shares and that the information provided by such formal valuation would be useful to shareholders in assessing the Insider Bid. Canaccord Genuity was subsequently engaged by the Board as an independent valuator to prepare the Valuation.

Update on Fibrek's Ongoing Strategic Alternatives Review Process

On February 3, 2012, Fibrek received proposals from third parties further to the strategic alternatives review process initiated by the Board following the Insider Bid made by Abitibi. The Board of Directors is currently reviewing and evaluating these proposals. The Company will update the market as appropriate as this process continues, but there can be no assurance that a transaction will result. Fibrek will remain in compliance with its obligations with respect to timely disclosure of information and, as applicable, disclose the terms of any transaction or proposal in the event that an agreement relating thereto has been reached.

Notice of Change to the Directors' Circular

Having received the Valuation and noted its results, a Notice of Change to the Directors' Circular including a complete copy of the Valuation and reaffirming the Board's recommendation that shareholders REJECT the Insider Bid will be filed on SEDAR at www.sedar.com and mailed to shareholders as soon as practicable. Shareholders are advised and encouraged to read the Notice of Change to the Directors' Circular in its entirety.

Questions and requests for assistance or any other inquiries regarding the Insider Bid may be directed to Fibrek's information agent, Phoenix Advisory Partners, at 1-800-398-1129 (North American Toll Free) or via e-mail at inquiries@phoenixadvisorypartners.com.

About Fibrek

Fibrek (TSX: FBK) is a leading producer and marketer of high-quality virgin and recycled kraft pulp. The company operates three mills located in Saint-Félicien, Québec, Fairmont, West Virginia, and in Menominee, Michigan with a combined annual production capacity of 760,000 tonnes. Fibrek has approximately 500 employees. The Saint-Félicien mill provides northern bleached softwood kraft pulp (product known as NBSK pulp) to various sectors of the paper industry mainly in Canada, the United States and Europe, for use in the production of specialized products. The Fairmont and Menominee mills manufacture air-dried recycled bleached kraft pulp (product known as RBK pulp) and primarily supply manufacturers of fine uncoated paper, tissue paper for commercial and industrial uses, and coated paper in the United States.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of applicable securities laws. These statements can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical facts and include statements concerning Fibrek's future outlook, business strategy, plans, expectations, results or actions, or the assumptions underlying any of the foregoing. Forward-looking statements can generally be identified by words such as "may", "should", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", "outlook" and similar expressions. These statements are based on information currently available to Fibrek's management and on the current assumptions, intentions, plans, expectations and estimates of Management regarding Fibrek's future growth, results of operations, performance, business prospects and opportunities and ability to attract and retain customers as well as the economic environment in which it operates. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors which could cause actual results of Fibrek to differ materially from the conclusion, forecast or projection stated in such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to: actions taken by Abitibi, actions taken by shareholders of Fibrek in respect of the Insider Bid, the possible effect of the Insider Bid on Fibrek's business, the award of a power purchase agreement to Fibrek under the new Québec government cogeneration program, general economic conditions, pulp prices and sales volume, exchange rate fluctuations, cost and supply of wood fibre, wastepaper and other raw materials, pension contributions, competitive markets, dependence upon key customers, increased production capacity, equipment failure, disruptions of production, capital requirements and other factors referenced in Fibrek's continuous disclosure filings which are available on SEDAR at www.sedar.com. Readers should not place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this press release and, except as required by applicable securities laws, Fibrek assumes no obligation to update or revise them to reflect new events or circumstances. 

[st96dgx8]

Based upon and subject to the analyses and assumptions set out in its Valuation, Canaccord Genuity is of the opinion that, as at February 3, 2012, the fair market value of a common share of Fibrek was in the range of $1.25 to $1.45.

 

Fibrek receives independent formal valuation and provides update on strategic alternatives review process

11 minutes ago - ACQUIREMEDIA

Fibrek Board of Directors Reaffirms its Recommendation that Shareholders REJECT the Abitibi Insider Bid

TSX: FBK

 

fibrek.com

MONTREAL, Feb. 6, 2012 /CNW Telbec/ - Fibrek Inc. ("Fibrek" or the "Company") announces the results of Canaccord Genuity Corporation's ("Canaccord Genuity") formal valuation of Fibrek's common shares ("Valuation") that complies with the requirements of Multilateral Instrument 61-101 - Protection of Minority Securityholders in Special Transactions ("MI 61-101"). Based upon and subject to the analyses and assumptions set out in its Valuation, Canaccord Genuity is of the opinion that, as at February 3, 2012, the fair market value of a common share of Fibrek was in the range of $1.25 to $1.45.

Fibrek Board Reaffirms Recommendation to Reject the Insider Bid

After a review of the Valuation, the Board has unanimously reaffirmed its recommendation to Fibrek shareholders that they REJECT the unsolicited insider bid (the "Insider Bid") made by AbitibiBowater Inc. (carrying on business as Resolute Forest Products) ("Abitibi") on December 15, 2011 and NOT TENDER their common shares to the Insider Bid.

"The valuation by Canaccord Genuity confirms our belief that the Abitibi insider bid significantly undervalues the common shares of Fibrek, and that the lock-up agreements between Abitibi and certain shareholders deprive minority shareholders of the opportunity to obtain full value for their common shares of Fibrek," stated Hubert T. Lacroix, Chairman of the Board of Fibrek. "The valuation demonstrates conclusively that Abitibi's insider bid conveniently ignores probable and material new streams of operating income. Our goal continues to be to ensure that our shareholders are fully compensated for the full value of their investment in our Company."

Background to the Valuation

As disclosed by Fibrek in a press release dated December 19, 2011, because of the close operational relationship between Fibrek and Abitibi and the fact that Fairfax Financial Holdings Limited is the largest shareholder of both companies, the Board determined that it was in the best interests of shareholders to benefit from a formal valuation of Fibrek's common shares and that the information provided by such formal valuation would be useful to shareholders in assessing the Insider Bid. Canaccord Genuity was subsequently engaged by the Board as an independent valuator to prepare the Valuation.

Update on Fibrek's Ongoing Strategic Alternatives Review Process

On February 3, 2012, Fibrek received proposals from third parties further to the strategic alternatives review process initiated by the Board following the Insider Bid made by Abitibi. The Board of Directors is currently reviewing and evaluating these proposals. The Company will update the market as appropriate as this process continues, but there can be no assurance that a transaction will result. Fibrek will remain in compliance with its obligations with respect to timely disclosure of information and, as applicable, disclose the terms of any transaction or proposal in the event that an agreement relating thereto has been reached.

Notice of Change to the Directors' Circular

Having received the Valuation and noted its results, a Notice of Change to the Directors' Circular including a complete copy of the Valuation and reaffirming the Board's recommendation that shareholders REJECT the Insider Bid will be filed on SEDAR at www.sedar.com and mailed to shareholders as soon as practicable. Shareholders are advised and encouraged to read the Notice of Change to the Directors' Circular in its entirety.

Questions and requests for assistance or any other inquiries regarding the Insider Bid may be directed to Fibrek's information agent, Phoenix Advisory Partners, at 1-800-398-1129 (North American Toll Free) or via e-mail at inquiries@phoenixadvisorypartners.com.

About Fibrek

Fibrek (TSX: FBK) is a leading producer and marketer of high-quality virgin and recycled kraft pulp. The company operates three mills located in Saint-Félicien, Québec, Fairmont, West Virginia, and in Menominee, Michigan with a combined annual production capacity of 760,000 tonnes. Fibrek has approximately 500 employees. The Saint-Félicien mill provides northern bleached softwood kraft pulp (product known as NBSK pulp) to various sectors of the paper industry mainly in Canada, the United States and Europe, for use in the production of specialized products. The Fairmont and Menominee mills manufacture air-dried recycled bleached kraft pulp (product known as RBK pulp) and primarily supply manufacturers of fine uncoated paper, tissue paper for commercial and industrial uses, and coated paper in the United States.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of applicable securities laws. These statements can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical facts and include statements concerning Fibrek's future outlook, business strategy, plans, expectations, results or actions, or the assumptions underlying any of the foregoing. Forward-looking statements can generally be identified by words such as "may", "should", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", "outlook" and similar expressions. These statements are based on information currently available to Fibrek's management and on the current assumptions, intentions, plans, expectations and estimates of Management regarding Fibrek's future growth, results of operations, performance, business prospects and opportunities and ability to attract and retain customers as well as the economic environment in which it operates. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors which could cause actual results of Fibrek to differ materially from the conclusion, forecast or projection stated in such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to: actions taken by Abitibi, actions taken by shareholders of Fibrek in respect of the Insider Bid, the possible effect of the Insider Bid on Fibrek's business, the award of a power purchase agreement to Fibrek under the new Québec government cogeneration program, general economic conditions, pulp prices and sales volume, exchange rate fluctuations, cost and supply of wood fibre, wastepaper and other raw materials, pension contributions, competitive markets, dependence upon key customers, increased production capacity, equipment failure, disruptions of production, capital requirements and other factors referenced in Fibrek's continuous disclosure filings which are available on SEDAR at www.sedar.com. Readers should not place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this press release and, except as required by applicable securities laws, Fibrek assumes no obligation to update or revise them to reflect new events or circumstances.

 

I'm assuming this valuation range gives no credit to the possibility of a new $16 million contract with Hydo-Quebec. Given that this cash flow stream could be worth an additonal $1 per share, any sale agreement that does not assign any value to the $16 million potential PPA should include contingent variable rights that would pay FBK shareholders an additional amount if the contract is signed.

 

Alternatively, I would prefer that FBK remained independent  under the following condition: 90-100% of free cashflow must be paid to shareholders. This could result in a 35% dividend yield and  a significantly higher stock price than is implied by this valuation range. See math below.

 

NBSK/RBK EBITDA ($49 million including $6.3 mill for IFRS reclassification of major maint expense as capex) over the past 5 years. Then add incremental EBITDA of $29 million ($6 mm from 9.5MW cogen, $16 mmm from new PPA, $7 million from new RBK take or pay). FBK has tax NOLs that should last for at least 4 years. Subtract capex of $20 million and interest of $10 million, then you get equity free cash flow of $48 million or $0.37 per share, which is a 35% yield on current share price.

 

[Guest Quebec]

Good proposal st96dgx8. I would prefer this route too. Not warm at all on tissue acq nor a sale at indicated (underwhelming) range. Pulp and power would make a nice income holding and yield would take care of stock price for those who want to leave. Personnaly, I feel its a good business and when you own one, you want to hold and not get rid of it. But dividend is a must

[SharperDingaan]

Interesting valuation .... at first blush;

(1) It seems to be a base valuation at around 3.75x EBITDA. Power generation is not included. STARTING point is $1.45, inclusive of the 7M/yr in expected RBK EBITDA savings.

(2) No control premium.  Given that industry is pricing at an EBITDA multiple range of 5.0-7.0x, it implies a control premium of roughly 33 1/3%. Pretty much, the industry standard.

(3) Power EBITDA of 16M/yr is worth roughly $0.62 [(16x5)/130]

 

So ....

.. if you believe nothing management says, & you’re not going to compete - pay $1.25

.. if you believe the saving on the RBK contracts, but you’re not going to compete – pay $1.45

.. if you want the going concern, pay the premium & buy at 5x EBITDA – pay $1.93

.. if the province also signs the power deal – pay $2.55

.. if you pay with all equity, & pay a 10-15% premium – pay $2.81 to $2.93

 

But ....

.. there could also be asset only sales. But to occur, they have to realize a value  > the EBITDA going concern value – pay > $2.93

.. there could also be a ABH damage settlement. You wouldn’t pay for it, but you would use it in the renegotiation of wood chip supply from ABH, & more so if you’re also a big player. St Feliceon margins increase over the near term.

.. there is  also re-engineering opportunity. Material value accretion if you pay with equity valued at a high multiple, then sell mills to losing bidders for cash. Your D/E significantly falls, & your multiple rises as it is more stable.

.. FBK shareholders. If you paid in equity & resold all the mills, within 1 yr, for cash – your BS would be materially stronger, but FBK shareholders could make up a good portion of your new ownership. Given how FBK shareholders have acted, most would see that a positive - particularly if they are not NA.

 

Lots of possibilities

 

SD   

 

[SharperDingaan]

Re independence. 3 big issues for us.

 

(1) Muscle: Realistically, they have to buy wood-chips from ABH - to do that long term, you really need to be their size - or bigger. Alternatively, break ABH's local monopoly through a provincial action (ie: forced ABH sale to Quebec, & a Quebec lease-back to FBK)

(2) Liquidity: FBK needs to consistently trade well > the $5 minimum, so that institutions can trade it. Share consolidation & dividends could get you there, but long-term it may not be sustainable. 

(3) Growth: We think it is better to own a small part of a bigger player, vs a big part of a small one. Quebec is great protection, but only if FBK remains primarily a Quebec company, & grows primarily only in Quebec. There is room for boutique's (Fortress), but it may well be safer/more reliable better to start/revive a new mill than try to change the probable outcome here.

 

SD

 

 

[st96dgx8]

Re independence. 3 big issues for us.

 

(1) Muscle: Realistically, they have to buy wood-chips from ABH - to do that long term, you really need to be their size - or bigger. Alternatively, break ABH's local monopoly through a provincial action (ie: forced ABH sale to Quebec, & a Quebec lease-back to FBK)

(2) Liquidity: FBK needs to consistently trade well > the $5 minimum, so that institutions can trade it. Share consolidation & dividends could get you there, but long-term it may not be sustainable. 

(3) Growth: We think it is better to own a small part of a bigger player, vs a big part of a small one. Quebec is great protection, but only if FBK remains primarily a Quebec company, & grows primarily only in Quebec. There is room for boutique's (Fortress), but it may well be safer/more reliable better to start/revive a new mill than try to change the probable outcome here.

 

SD

 

SD:

1) Under the new foresty law slated to begin April 1 2013, FBK will be able to directly bid for harvesting rights in Qubec, substantially reducing their reliance on ABH for woodchips.

3) You seem to have a lot of faith in value creation through acquisitions. The vast majority of acquisitions are value destructive and I have no reason to believe that FBK can create value for shareholders through acquistions either. Just return cash to shareholders and pay down debt. I'll take the 20-35% dividend yield. We don't need acquisitions or FBK to empire build to unlock value for shareholders.

[SharperDingaan]

Agreed re the bad rep on growth through acquisitions. A little different though, when you're the one getting acquired  ;) We're not against the dividend & independence route - but its hard to see why one wouldn't capitalize at todays record low rates, & get out - were one offered the equivalent PV.

 

SD

[st96dgx8]

Agreed re the bad rep on growth through acquisitions. A little different though, when you're the one getting acquired  ;) We're not against the dividend & independence route - but its hard to see why one wouldn't capitalize at todays record low rates, & get out - were one offered the equivalent PV.

 

SD

 

I don't have a problem selling or being acquired at fair value. But what if the best offer from third parties is in the $1.25-$1.45 range? I believe in such a scenario, the value maximizing alternative for FBK shareholders would be  to start returning cash to shareholders in the form of buybacks/dividends. If FBK earns trend EBITDA ($49 million=>average over the past 5 years plus $6.3 mill for IFRS reclassification of major maint expense as capex) and then tack on the green energy EBITDA ($6 mm from 9.5MW cogen, $16 mm from new PPA= $22 million) and the new RBK take or pay contract ($7 million) we are looking at 30%+ dividend yield. The stock could easily double if there was an ironclad proposal to return cash to shareholders.

[SharperDingaan]

It's unlikely to be a friendly deal.

 

The buyer is going to pay at/near the top of the range, add a control premium, & agree to a price adjustment if a power deal is subsequently signed. The buyer will agree to pay more if paying with stock, & the FBK board will agree to recommend the buyers bid & pay a sizeable break-up fee if they are outbid by ABH, or anyone else.

 

ABH needs the winning bid for St Feliceon, or it orphans its wood chip plant. If they fail - they will be trying to buy it from a Domtar, or Merc - neither of which will hesistate in temporarily switching  to other chip producers, to help the ABH orphan drown. Scratch my back ...

 

SD

[finetrader]

I doubled up my holding today.

 

This is a classic arbitrage a la Buffett where 1)you assess the probabilities that a higher bid will come. Which for me is very high.

 

2) How much gain you will make if this event happen. I'm guessing a bid around 1.2-1.3$.

 

3) Ho much you lose if this deal doesn't happen. For me, you don't lose in this situation because EBITDA in 1-2 years will be enough to justify an even higher share price. Also commodity and small cap stocks have rebounded from their december 2011 lows. And  I also think management will not proceed with the vertical acquisition they were planning to do if FBK stays by itself.

 

 

 

[Parsad]

I doubled up my holding today.

 

This is a classic arbitrage a la Buffett where 1)you assess the probabilities that a higher bid will come. Which for me is very high.

 

2) How much gain you will make if this event happen. I'm guessing a bid around 1.2-1.3$.

 

3) Ho much you lose if this deal doesn't happen. For me, you don't lose in this situation because EBITDA in 1-2 years will be enough to justify an even higher share price. Also commodity and small cap stocks have rebounded from their december 2011 lows. And  I also think management will not proceed with the vertical acquisition they were planning to do if FBK stays by itself.

 

Hi Finetrader,

 

That's actually not how Buffett would do it.  Generally, the deal would already have been announced and he would arbitrage between the deal offer price and the price the stock was trading at below the deal offer price.  You're making a bet that the offer price is going to be more than $1.08...current market price.  Whereas Buffett would be acquiring the stock below the previous announced deal price of roughly $1.00. 

 

If any proposed third-party deal falls through, Fibrek's stock will fall back down to the original offer price, and anyone who bought above that would have a loss.  Frankly, I think the deal will get done around $1.15-1.20, so chances are, anyone buying will make some money, but I'm not comfortable with the risk of the deal falling through.  Cheers!

[tyska]

I guess I'm in the minority here, in that I hope the deal falls through. Hopefully the management has learned a little lesson and that would be good for shareholders going forward. There are a lot of things in motion that should move the value past the 1.20 range, that many want to dump it for, in a short time. Assuming the management doesn't do anything stupid after it falls through, of course.

[finetrader]

Quote from: finetrader on Today at 12:21:27 PM

I doubled up my holding today.

 

This is a classic arbitrage a la Buffett where 1)you assess the probabilities that a higher bid will come. Which for me is very high.

 

2) How much gain you will make if this event happen. I'm guessing a bid around 1.2-1.3$.

 

3) Ho much you lose if this deal doesn't happen. For me, you don't lose in this situation because EBITDA in 1-2 years will be enough to justify an even higher share price. Also commodity and small cap stocks have rebounded from their december 2011 lows. And  I also think management will not proceed with the vertical acquisition they were planning to do if FBK stays by itself.

 

Hi Finetrader,

 

That's actually not how Buffett would do it.  Generally, the deal would already have been announced and he would arbitrage between the deal offer price and the price the stock was trading at below the deal offer price.  You're making a bet that the offer price is going to be more than $1.08...current market price.  Whereas Buffett would be acquiring the stock below the previous announced deal price of roughly $1.00. 

 

Agree that this is a variation from Buffett arbitrage strategy, but the same questions can be asked in this situation. ( 1. how much you gain if deal goes through, 2. How much you lose if not, and 3.what are the probabilities for this deal to happen.)

 

We know that this an opportunistic bid from Resolute and we know that FBK has reveived

more than 1 other proposal. So this gives me confidence that a higher deal has a lot of chances to happen. And like I said, 1.07$ is not too pricy for this company, as i would be willing to hold on to it, even if it goes lower in the short term.

 

To me it seems like a good proposition.

[cwericb]

"Assuming the management doesn't do anything stupid after it falls through, of course."

 

That's probably a generous assumption.