Resolute Forest Products Commences Takeover bid of Fibrek

[SharperDingaan]

Just means that ABH is going to have to negotiate  :'(,

 

SD

[Alekbaylee]

Don't see any $.10 premium, only a mere $.03/.04...

[SharperDingaan]

Just to build on Jets post #27, & st96dgx8 post # 325:

 

The new BASE bid that we're all expecting from ABH is the current value of Merc's bid ($1.24) + the PV of the PPA ($1.01 [average of .91+1.11]) - the MERC 8.5M break-up fee ($.065); or $2.185. The market is expecting about another $.945 (2.185-1.24) & is willing to ante up a pretty normal 10% premium ($.10) for it.

 

Our own expectation is a new BASE bid at around MERC's $1.30 + the $1.01 PV of PPA, or $2.31. Plus a reduction in the acceptance level to 50%+1 for swallowing the break-up fee & to put ABH on parity with MERC. Bid a little > $2.40 & ABH will probably ensure it.

 

SD 

[Alekbaylee]

Makes sense, JetsFan. Was only considering the cash-only option (at $1.30).

 

SD : You're a bit too optimistic as always. I'd be happy with $1.60. But if it ever reaches your guessestimate, I'll be more happier...  ;)

 

[SharperDingaan]

Just need to keep their head jammed in the toilet a little longer.

Not enough bubbles yet  ;)

[alertmeipp]

I sold additional 30% of what I have.

IF you think someone will pay $2.5 for FBK, CFX must be dirt cheap here.

[Alekbaylee]

The battle turning bitter instead of better...

 

http://www.newswire.ca/en/story/922523/fibrek-fights-for-the-right-of-its-shareholders-to-accept-a-superior-offer-company-to-vigorously-oppose-abitibi-s-application-to-cease-trade-the-1-30-

 

"Despite the results of an independent formal valuation that puts the value of Fibrek shares between $1.25 and $1.45 per share, and in the face of a significantly superior offer at $1.30 per share from Mercer, both Abitibi and Fairfax continue their tactics to allow Abitibi to acquire Fibrek at $1.00 per share," said Hubert T. Lacroix, Chairman of the Board of Directors of Fibrek.

 

"We would also like to remind shareholders that Fairfax and Steelhead are not only shareholders of Fibrek, but also important shareholders of Abitibi. The Mercer offer is fair and respects the rights and interests of all our shareholders and we will vigorously oppose Abitibi's application to block it," continued Mr. Lacroix.

 

President and Chief Executive Officer Pierre-Gabriel Côté added: "Our shareholders have been presented with two offers, Abitibi's offer at $1.00 and Mercer's offer at $1.30. Abitibi's application to cease trade the superior Mercer offer is a blatant attempt to abuse the regulatory process to prevent our shareholders from receiving superior value. In addition to providing additional liquidity to Fibrek, the warrants have been designed to level the playing field against abusive lock-up arrangements that favour the lower Abitibi insider bid. They have also been designed to ensure that they do not stand in the way of an offer which would be superior to Mercer's. If Abitibi wants the warrants to go away, all they have to do is make a superior offer to the Mercer offer."

 

"Our board has worked diligently to maximize value for all our shareholders and will continue to take action not to let Abitibi, Fairfax, Oakmont, Pabrai and Steelhead, whose interests appear to be very different from our other shareholders, take advantage of our other shareholders and deprive them of a fair offer," concluded Mr. Lacroix.

 

I doubt FBK will ever settle with ABH. After both parties loosing money in this battle, I think MERC will finally swallow FBK for the offered price.

 

ABH's bad faith is blatant here. It acts like a spoiled child.

 

What a waste of energy, time and money!

[cwericb]

Part of what bothers me about this situation is what has happened to the "fair" in Fairfax?

This is going to leave a bad taste in a lot of people's mouths long after this is over.

[SharperDingaan]

Once it is over it is hard to see why there will not be senior management terminations at ABH. This should be a routine small acquisition for them, & it was so heavily weighted in their favour that even a monkey could do it. Yet they've demonstrated an unbelievable level of incompetence, & it would appear to largely because of hubris.

 

We expect ABH to eventually win, but it will be more of the same. An ABH low-ball counter offer based on P/E multiple that includes the PPA. MERC earning their 8.5M fee & toping the counter based on PV of the PPA. ABH countering again with a finally fair offer. Obviously distasteful, but untill ABH changes its attitude we don't expect any improvement.

 

Fortunately they have shareholders with the muscle to make changes.

 

SD

 

   

[alertmeipp]

yeah.. don't give me those ABH shares please.

Cash is good.

[Uccmal]

Part of what bothers me about this situation is what has happened to the "fair" in Fairfax?

This is going to leave a bad taste in a lot of people's mouths long after this is over.

 

Why should it?  FFH presented an offer, and everyone had a choice as to whether to accept or not.

[Alekbaylee]

The whole thing was badly handled from day 1 if you ask me.

Why not start with a friendly and fair bid and, above all, negotiate with the target as business partners are supposed to do.

Why start by back-stabbing and then complain the victim is (over)reacting and should accept the fact?

This is beyond my understanding.

 

Enough ranting from me for today.

 

[triedtestedand]

Can someone find out who the third shareholder is, besides FFH and Steelhead, who is seeking to block the issuance of the warrant?  Presumably it is another FBK shareholder with ABH shareholdings/alignment as well?

 

That said, can someone provide a rational reason why FFH themselves would seek to block the issuance?  If, by their lockup agreement, they've implied a $1/share sale price valuation to FBK, then how can issuance of warrants at same value be dilutive from a valuation standpoint?  And from a control standpoint, if they considered their FBK position in isolation, then what should they care about owning a few % less of a bigger pie, especially if the proceeds are going straight to strengthening the balance sheet?  After all, they benefited 18 months ago with the backstop agreement where they raised their % ownership with the rights offering at $1.01/share.

 

Doesn't FFH's action go above and beyond any "duty" implied as part of their lockup agreement?  The only rational reason I can think of is that they would prefer to sell holdings and get ABH shares than get MERC shares (at higher valuation) ... but even there they've stated that they would seek the cash-only option (or as much of such as is pro-rata available).

 

Doesn't this cross a line somehow? Is Prem pissed that he was subpoenaed (although not actually called to testify) at last week's hearings regarding the FBK shareholder rights plan?

 

Something is not right in the state of Denmark ...

 

[Parsad]

Can someone find out who the third shareholder is, besides FFH and Steelhead, who is seeking to block the issuance of the warrant?  Presumably it is another FBK shareholder with ABH shareholdings/alignment as well?

 

That said, can someone provide a rational reason why FFH themselves would seek to block the issuance?  If, by their lockup agreement, they've implied a $1/share sale price valuation to FBK, then how can issuance of warrants at same value be dilutive from a valuation standpoint?  And from a control standpoint, if they considered their FBK position in isolation, then what should they care about owning a few % less of a bigger pie, especially if the proceeds are going straight to strengthening the balance sheet?  After all, they benefited 18 months ago with the backstop agreement where they raised their % ownership with the rights offering at $1.01/share.

 

Doesn't FFH's action go above and beyond any "duty" implied as part of their lockup agreement?  The only rational reason I can think of is that they would prefer to sell holdings and get ABH shares than get MERC shares (at higher valuation) ... but even there they've stated that they would seek the cash-only option (or as much of such as is pro-rata available).

 

Doesn't this cross a line somehow? Is Prem pissed that he was subpoenaed (although not actually called to testify) at last week's hearings regarding the FBK shareholder rights plan?

 

Something is not right in the state of Denmark ...

 

You could go either way.  You could say that Prem is forcing shareholders hands to Abitibi, but at the same time, you could say that FBK management is just trying to keep their paychecks going by selling to Mercer.  Interesting to watch though.  Cheers!

[triedtestedand]

I would also like to know if Steelhead has bought any more shares on the open market the past few days.  They are the proxy for other ABH alignees.  13M shares have traded since the MERC offer was announced ... So there are some votes there to be had. That said, buying at $1.30+ to then seek to tender to ABH at lower price would reinforce argument of backroom dealings.

 

Maybe it's just that I can't process FFH going down such rathole ... We have not seen precedent for such before have we?  And Sanjeev, your argument about mgmt wanting to keep their paycheques is moot, because the board is making the call ... and more importantly essentially ALL non-lockup/Steelhead shareholders (48%) have said NO to current ABH offer.

 

Et tu, Brutus?  (Note that I'm going to fast run out of high-school day Shakespeare quotes, so I'll shut up now.)

 

 

[lessthaniv]

Can someone find out who the third shareholder is, besides FFH and Steelhead, who is seeking to block the issuance of the warrant?  Presumably it is another FBK shareholder with ABH shareholdings/alignment as well?

 

That said, can someone provide a rational reason why FFH themselves would seek to block the issuance?  If, by their lockup agreement, they've implied a $1/share sale price valuation to FBK, then how can issuance of warrants at same value be dilutive from a valuation standpoint?  And from a control standpoint, if they considered their FBK position in isolation, then what should they care about owning a few % less of a bigger pie, especially if the proceeds are going straight to strengthening the balance sheet?  After all, they benefited 18 months ago with the backstop agreement where they raised their % ownership with the rights offering at $1.01/share.

 

Doesn't FFH's action go above and beyond any "duty" implied as part of their lockup agreement?  The only rational reason I can think of is that they would prefer to sell holdings and get ABH shares than get MERC shares (at higher valuation) ... but even there they've stated that they would seek the cash-only option (or as much of such as is pro-rata available).

 

Doesn't this cross a line somehow? Is Prem pissed that he was subpoenaed (although not actually called to testify) at last week's hearings regarding the FBK shareholder rights plan?

 

Something is not right in the state of Denmark ...

 

 

TTT,

 

As I mentioned in my last post, I'm not yet convinced the warrants will be allowed. Possibly, but it's not a done deal by any stretch. The precedent cases cited earlier are instructive. The private placement in the Hudbay deal was squashed because it was deemed to be abusive. The Paramount deal was found to be a real financing and the panel did not intervene. In that issue the financing was not bathing in "conditions". My understanding is that money was available to the company regardless of the outcome of the deal.

 

In this case, FBK's deal structure looks a little more suspect to me and I'm not sure whether the BDR will see it as such. The reason for my concern is that funds are heavily conditional and the funds are currently in trust (not available to the company). The outcome of the warrants will be influenced by the outcome of ABH's offer.  Will the BDR see this as a real financing? I'm really not sure. 

 

ABH will argue that the warrants are abusive. Here's why; If ABH came to the table with a $1.30 offer tomorrow to match Mercers under the assumption that this was indeed a better deal because ABH paper is worth more they still would not likely get a deal done. Assume for a minute that ABH stock is more valuable. This is a complete grey area but that's my point. Under these conditions ABH would not likely get the Boards support. The Board must be convinced that ABH has offered a superior deal and there is way too many variable involved  to confidently determine who's paper is better. Therefore, it would cost ABH $40M even if they did indeed have a superior offer and under this scenario it will therefore cost the other shareholders.

 

If on the other hand, ABH comes in with a new offer at $1.45/share. It would be hard for the Board to not see that as a superior offer, imo. Remember, Fibrek has the right to redeem the warrants if it supports a superior proposal. So, the money could flow out of trust to buy back the warrants.

 

Is that a true financing or more of a strategic tatic to force ABH to come to the table with a materially higher bid?

 

We'll see what the BDR/ TSX say ....

 

Re your question: FFH wants the excess value within FBK to accrue to the largest shareholders of ABH, which is of course -FFH.

 

<IV

[triedtestedand]

IV

 

Thx for comments.  I see the rationale.  That said, what were circumstances in the precedents you note?  I can see ABH arguing against it ... It's when FBK shareholders who stand to gain (in isolation, without insider/backroom dealings) seek to block it that something smells.

[tyska]

I would also like to know if Steelhead has bought any more shares on the open market the past few days.  They are the proxy for other ABH alignees.  13M shares have traded since the MERC offer was announced ... So there are some votes there to be had. That said, buying at $1.30+ to then seek to tender to ABH at lower price would reinforce argument of backroom dealings.

 

Maybe it's just that I can't process FFH going down such rathole ... We have not seen precedent for such before have we?  And Sanjeev, your argument about mgmt wanting to keep their paycheques is moot, because the board is making the call ... and more importantly essentially ALL non-lockup/Steelhead shareholders (48%) have said NO to current ABH offer.

 

Et tu, Brutus?  (Note that I'm going to fast run out of high-school day Shakespeare quotes, so I'll shut up now.)

 

Exactly, if this is allowed to be settled by an unsavory fight, the questions are going to hang onto FFH. Whether true or not.  Sorry to say, but this has changed my perception of FFH, because something just doesn't seem right. And they are letting it go on, over what is an insignificant investment for them. So that sort of reinforces the perception that something else must be going on.

[SharperDingaan]

Something to consider:

 

FFH/Pabrai/Oaktree may have agreed to a lock-up, & a lowball tender, to put FBK into play. The intent was to exit either via ABH share issuance (& resale to the secondary market), or a direct sale to the winning bidder. Clean, elegant, & the fairest way to deal with a problem holding. No additional involvement from FFH other than lend their credibility via the lockup.

 

Then ABH decides to play the thug, & CONTINUES to play the thug right up to the present. Most senior management recognizes that the job comes with risk, & OK - you might have been overly aggressive in the intial delivery to spur the desired reaction. But attempting to have the courts throw out a subsequent superior & COMPETING bid just because you don't like it ? What are your lockup shareholders supposed to do - when you've just tried to legally rob them by attempting to remove the competing offer that they were trying to obtain ?

 

ABH is a bankrupt & hoping to use 50M of its reformed stock as currency. Now nobody wants the stock (unless deeply discounted) & they need maybe an additional 130M to pay for the PV of the PPA. If you held your bowl out to me for an additional 180M, just after trying to rob me, I'd also be supremely p*ssed. I'm working with the Marx brothers, to protect my existing investment I don't have a choice but to fund them, I'm going to very close to the complications of 50% ownership, & I have to act to protect my business reputation. Some might even think that I'm being greenmailed.

   

Most would want this resolved, & quickly, behind closed doors. Simplist is to put up the fair bid, end the event, then use the votes to make the changes neccessary.

 

SD

 

 

[Parsad]

Something to consider:

 

FFH/Pabrai/Oaktree may have agreed to a lock-up, & a lowball tender, to put FBK into play. The intent was to exit either via ABH share issuance (& resale to the secondary market), or a direct sale to the winning bidder. Clean, elegant, & the fairest way to deal with a problem holding. No additional involvement from FFH other than lend their credibility via the lockup.

 

Then ABH decides to play the thug, & CONTINUES to play the thug right up to the present. Most senior management recognizes that the job comes with risk, & OK - you might have been overly aggressive in the intial delivery to spur the desired reaction. But attempting to have the courts throw out a subsequent superior & COMPETING bid just because you don't like it ? What are your lockup shareholders supposed to do - when you've just tried to legally rob them by attempting to remove the competing offer that they were trying to obtain ?

 

ABH is a bankrupt & hoping to use 50M of its reformed stock as currency. Now nobody wants the stock (unless deeply discounted) & they need maybe an additional 130M to pay for the PV of the PPA. If you held your bowl out to me for an additional 180M, just after trying to rob me, I'd also be supremely p*ssed. I'm working with the Marx brothers, to protect my existing investment I don't have a choice but to fund them, I'm going to very close to the complications of 50% ownership, & I have to act to protect my business reputation. Some might even think that I'm being greenmailed.

   

Most would want this resolved, & quickly, behind closed doors. Simplist is to put up the fair bid, end the event, then use the votes to make the changes neccessary.

 

SD

 

Could very well be possible SD.  If anyone wants, you can call in and ask tomorrow morning.  They may not answer anything, as they are in the middle of the whole process still.  Cheers!

[lessthaniv]

IV

 

Thx for comments.  I see the rationale.  That said, what were circumstances in the precedents you note?  I can see ABH arguing against it ... It's when FBK shareholders who stand to gain (in isolation, without insider/backroom dealings) seek to block it that something smells.

 

TTT,

 

The basic math for Mergers works like this; IValue of Combined Firm = IValue of Acquirer + IValue of Target + Synergies - Cash.  You'll note that IValue of Combined Firm is maximized if synergies are high and IValue of the Target > cash paid. This much is intuitive.

 

I believe that FFH felt ABH stock was worth more than it's  market value at the time of the offer. The ABH offer at $1/share implies a stock paper price $15.83/ABH share for investors who want  to end up with ABH stock. (.0632 * X = $1). My guess is  this would include FFH & Pabrai given their existing positions in ABH.

 

Now, if the cash paid < IV of Target (which I believe it is) and synergies are high (wood chips) .... the IV of the Combined firm would be maximized.  But the benefit is even greater given your using ABH paper at $15.83 and you think its worth $25 or more.

 

In other words,  FFH gave up deal value on the FBK side but is gaining it back on the ABH side. Remember, when all this started FBK was potentially on the verge of doing an acquisition which would have been diluted; FBK was at $.70; pulp prices were weaking; and FBK management was not shopping the assets to competitors to maximize shareholder value.  In order for ABH to agree to doing the deal they required the hard lock agreement to protect themselves. At the time, given the choice of the hard lock agreement vs. FBK's prospects under current management, I suspect they decided they had enough.

 

This deal hurts the minority shareholder of FBK who doesn't want to own ABH going forward. I believe those are likely the biggest voices at this time. They are getting lessthan IV for FBK which pisses them off and they won't accrue the gains back through ownership of ABH.

 

But ... that's business.

 

Frankly, I don't understand a lot of comments regarding FFH. Their loyalty lies with their own shareholders first. 

 

 

 

 

 

 

 

 

 

 

 

 

[Parsad]

Frankly, I don't understand a lot of comments regarding FFH. Their loyalty lies with their own shareholders first.

 

You got it!  Alot of people on here are double-dipping themselves by owning FBK and FFH, yet they chide Prem for protecting his shareholder's interests.  Pot calling the kettle black, me thinks!  ;D  Cheers!

[tyska]

Frankly, I don't understand a lot of comments regarding FFH. Their loyalty lies with their own shareholders first.

 

You got it!  Alot of people on here are double-dipping themselves by owning FBK and FFH, yet they chide Prem for protecting his shareholder's interests.  Pot calling the kettle black, me thinks!  ;D  Cheers!

 

Seeing I may be one of those referred to as a pot or kettle  :D, I'll clarify. It may be business, but they have tried to brand themselves as " fair and friendly". It may be as SD said, that they locked themselves up with someone whose future behaviour they didn't anticipate. But it is hard to imagine them being without influence. While I like the Fairfax team I don't love them, so find it hard not to see this tarnishing the brand they are trying to portray, as far as acquisitions.

[triedtestedand]

IV

 

I would more easily subscribe to the rationale IFF FFH were opting for ABH shares, but doesn't the tender circular state that FFH would opt for the cash? That would mitigate thesis that they are giving up on one end to get on the other (recognizing they would still gain as existing ABH shareholders).

 

I'm a long time FFH admirer, so it just seems something is different here.  However it plays out, I'm sure there are a few good bar stool stories that will come out of this.

[Parsad]

I suspect Richard Garneau, CEO of Abitibi, may be at our dinner like last year.  So feel free to ask him questions.  Again, whether he'll be able to give any real answers because they are in the middle of the whole process is another matter. 

 

You can also ask Mohnish, as he tendered his shares to Abitibi, and due to his frank Munger-like nature, will probably tell you exactly what he feels.  ;D  Cheers!