Resolute Forest Products Commences Takeover bid of Fibrek

[JHelg]

I have an elementary question here, but I genuinely don't know the answer:

 

Why isn't FBK now selling at 1.00? Is it just a matter of not being a done deal?

[Uccmal]

There is really no way to compare fbk to ABH.  This is just a tiny bolt on for ABH.  Ffh and Pabrai must have been looking for an exit. 

[lessthaniv]

I find the price of ABH interesting. Upon an initial cursory glance, the value of ABH seems much higher than $15.84/share. The value appears closer to mid twenties. Roughly a 58% upside to get to $25/share. Fairfax and Pabrai likely have more confidence in ABH returning to IV sooner that FBK could. Having ABH return to fair value would be the rough equivalent of getting $1.58/share for FBK.

 

FBK is heading into some headwinds at the moment on pulp pricing. The deal seems to be valued around 4X a reasonable estimate of EV/2012e EBITDA . That's perhaps a little too cheap but in the vicinity of proper multiples for a single product pulp company. Most seem to garner multiples of 4.5X to 5X EV/EBITDA.

 

 

 

 

[SharperDingaan]

Trading at <$1.00/share. For many - there is simply disgust & little confidence that ABH will improve their offer. They just want out, & are willing to give up a few cents for the liquidity. The price is not rising above $1.00 because there is so much selling. But ... that $1.00 price will still be there over the next month, & everyday that goes by increases the pressure to be more accommodating – especially if a chunk of the 3M+ shares sold today are going to less polite activists.

 

It is not hard to see what FBK paid for its plants, & to come up with an approximate market value in today’s market.  That MV is > the carrying value, & at a minimum - that difference needs to get reflected in the price.

 

Stay 30 days & make a certain 5% (1.00/.95) - possibly a lot more. Or sell now for an uncertain > 5% somewhere else. It doesn’t cost anything to stay & bitch loudly.

 

SD

 

[SharperDingaan]

"The deal seems to be valued around 4X a reasonable estimate of EV/2012e EBITDA . That's perhaps a little too cheap but in the vicinity of proper multiples for a single product pulp company. Most seem to garner multiples of 4.5X to 5X EV/EBITDA"

 

1) Keep in mind the power generation EBITDA of 4-6M/yr starting 01/01/2013. Roughly 5 x 5M discounted at 7% ? (debt rate) for 1 yr; 23.36M/130M shares - or an additional 0.18c MINIMUM.

2) Assume another 35M MINIMUM of market value > book value for all the P&E. Another 0.27c/share.

 

They need to be thinking about getting above at least $1.45.

 

SD   

 

[doc75]

Trading at <$1.00/share. For many - there is simply disgust & little confidence that ABH will improve their offer. They just want out, & are willing to give up a few cents for the liquidity. The price is not rising above $1.00 because there is so much selling. But ... that $1.00 price will still be there over the next month, & everyday that goes by increases the pressure to be more accommodating – especially if a chunk of the 3M+ shares sold today are going to less polite activists.

 

It is not hard to see what FBK paid for its plants, & to come up with an approximate market value in today’s market.  That MV is > the carrying value, & at a minimum - that difference needs to get reflected in the price.

 

Stay 30 days & make a certain 5% (1.00/.95) - possibly a lot more. Or sell now for an uncertain > 5% somewhere else. It doesn’t cost anything to stay & bitch loudly.

 

SD

 

I can't see how this is a "certain" 4-5% in a month. 

 

Seems to me it's trading at < $1 because proration makes it UNcertain that you will actually get $1.  And ABH is down 4-5% today so at current market price the buyout is < $1. 

 

I imagine that few expect the intrinsic value of ABH (whatever it may be) to surface by the time of the buyout.  In fact, there's a good chance ABH will be trading for less in a month than it does today.  So you would only buy at >= $1 today if you believe the offer will improve.

 

 

 

 

 

[lessthaniv]

"The deal seems to be valued around 4X a reasonable estimate of EV/2012e EBITDA . That's perhaps a little too cheap but in the vicinity of proper multiples for a single product pulp company. Most seem to garner multiples of 4.5X to 5X EV/EBITDA"

 

1) Keep in mind the power generation EBITDA of 4-6M/yr starting 01/01/2013. Roughly 5 x 5M discounted at 7% ? (debt rate) for 1 yr; 23.36M/130M shares - or an additional 0.18c MINIMUM.

2) Assume another 35M MINIMUM of market value > book value for all the P&E. Another 0.27c/share.

 

They need to be thinking about getting above at least $1.45.

 

SD 

 

The problem as I see it is ... There isn't going to be any competition for the assets to drive the price higher. What other Eastern operators are in a position to bid? I'm assuming you expect the board to reject this offer and then Resolute counter at $1.45 but I'd be surprised to see that high of a counter. With 130M shares extended and 59M already committed, 46% of the required 66% has already been attained. That means that of the remaining 71M shares only 28M  (or roughly 40%) need to tender to complete the bid.  In this market with other opportunities abound, I expect that a good chunk of very tired shareholders are going to take the 39% premium and reallocate the cash.

 

My gut feeling is that ABH steals these assets. If Prem and Mohnish take ABH stock they now have "their guy" running the show and as I mentioned previously, it appears to my eye that ABH stock is itself quite undervalued. (need to do more work here). But it's likely that their confidence in ABH passing them back that value is greater than their confidence in FBK passing them back that value. That's the only reason I can see for the signing the lock up agreement at this price.

 

Perhaps it takes a slightly higher bid but I don't expect a huge improvement. 

[rmitz]

opportunities abound, I expect that a good chunk of very tired shareholders are going to take the 39% premium and reallocate the cash.

 

FBK has only been around in its current form for not quite a year and a half.  If investors can get "very tired" over that kind of timeframe, that says an awful lot about people's attitude these days.

[SharperDingaan]

Doc. We know the stock in lock-up is going the share route; that leaves a remaining 70.5M shares that could take the $1.00/share in cash - yet there is $71.5M of cash allocated. Hence you can be pretty certain that if you want the $1.00 in cash, you are going to get it. What the ABH stock price does in the interim is essentially irrelevant. 

 

LessThanIV. Agreed it is unlikely there will be another bidder, but FBK does not have to agree with the price & can put its plants up for sale to extract a better price (which diligence requires them to at least attempt). Also agreed that ABH will likely prevail - but they are going to have to cough up. 

 

Even if ABH offers $1.45 - it is only 59M (3.7M shares), all of it will be additional equity, & the Dec-30 working capital sale adjustment (Q4-2011 earnings) will cover some of it. How much is your reputation worth to you ? & do you really want to smear it by being cheap, when you should be gracious ?

 

These things happen, & price is a negotiation, but you still have to put up.

No cheap suds!

 

SD

 

[lessthaniv]

Rmitz,

 

Respectfully,

 

I think the remaining float is owned by many investors who bought this company longer ago than the year and half you mention. Many investors purchased SFK back in 2005/2006 when Fairfax was building their position.

 

Incidentally, judging by the decision to lock up their shares at this price ... I can only assume that Prem and Mohnish have become "very tired" too.

 

 

[lessthaniv]

 

LessThanIV. Agreed it is unlikely there will be another bidder, but FBK does not have to agree with the price & can put its plants up for sale to extract a better price[/b] (which diligence requires them to at least attempt). Also agreed that ABH will likely prevail - but they are going to have to cough up. 

 

Are you thinking the assets may generate more interest if they are split up and sold off in pieces?

[KFRCanuk]

 

They need to be thinking about getting above at least $1.45.

 

 

http://img.tweetimag.es/i/davethemogul_o.jpg

[alertmeipp]

I need about ~1.45 just to break even. Sucks.

 

I will say No for 1 bucks. Do we need 90% or just 66%?

[lessthaniv]

I need about ~1.45 just to break even. Sucks.

 

I will say No for 1 bucks. Do we need 90% or just 66%?

 

66% total but Prem and Mohnish represent about 46% of that... so really out of the remaing shares, only 40% has to accept the offer. (see my math above)

[alertmeipp]

that's what I thought.

 

Anyone know what's the latest insiders' %?

 

 

[SharperDingaan]

"Are you thinking the assets may generate more interest if they are split up and sold off in pieces?"

 

1) We think FBK needs an appraisal on each of their mills.

2) We think the mills need to be shopped to determine buyer interest & the accuracy of the appraisal.

3) We think FBK needs to reconcile & explain why the Sep-30-2011 $369,719 BV of the P&E is only receiving a market value of $112,519 (at best). A $257,200 (70%) difference of $1.98/share.

4) We think FBK needs to review the results of the IFRS Dec-31-2010 long term asset impairment testing & explain why either the bid valuation, or the P&E BV, is not appropriate.

5) Our expectation is that FBK will be able to show that the P&E BV is about what the independent appraisals/bids/DCF valuations come in at. ABH either pays up or walks away. 

6) We think there is a >50% chance that a FBK mill will get sold, FBK shares get consolidated, & FBK rebrands into just a RBK recycler.

 

Best guess is that ABH pays up (with equity), then sells the RBK mills (for cash). Materially improves the ABH D/E ratio, takes out the FBK shareholders cleanly, & lets everybody move on.

 

An elegant solution, but we suspect that it may well be Plan B.

 

SD

   

[manualofideas]

Best guess is that ABH pays up (with equity), then sells the RBK mills (for cash). Materially improves the ABH D/E ratio, takes out the FBK shareholders cleanly, & lets everybody move on.

 

SD, from your mouth into God's ears...  However, the realist in us says the most likely scenario is that the deal announced today is consummated without any changes.

[triedtestedand]

SD:

 

What about FBK's tax losses? Isn't there some untapped value there as well that can be leveraged in any negotiations?

 

They've never shown up on the balance sheet as a deferred tax asset (like I've seen with FFH and ABH), but that said there has been ongoing issue with Canada Revenue Agency about reassessment of past values, so until such is resolved am guessing FBK has opted to be conservative and not attach value to them.

 

 

[triedtestedand]

Hey all:

 

The lock-up agreements have been filed on sec.gov

 

http://www.sec.gov/cgi-bin/browse-edgar?company=&match=&CIK=abh&filenum=&State=&Country=&SIC=&owner=exclude&Find=Find+Companies&action=getcompany

 

Haven't read through them thoroughly yet, but at first glance did see that FFH would elect to take either cash, or cash+shares ... NOT shares-only as first option.  That was unexpected.

[Myth465]

They probably just want out. Its a drop in the bucket.

[tyska]

They probably just want out. Its a drop in the bucket.

 

  Doesn't sound either fair or friendly to other shareholders on their part. They've held onto a lot of other stocks with less probabilities of pulling out of the slump. And like you said it's a drop in the bucket, so why bail now at a hugely discounted value, is there some dispute between them and management that we don't know about.

[Myth465]

Its not but I dont think fair and friendly applies to everything they do. They said they wouldnt do an unfriendly acquisition. They didnt say they wouldnt throw in the towel and move on unless the price reflected fair value for everyone involved. They have sold SD which was a big holding for them, and are also short many Chinese linked commodities. I dont think they want to hold Fibrek through another down cycle. Might as well consolidate holdings and focus.

 

Management sucked. Lesson learned, I sold earlier for a gain overall, and might have gotten back in at 50 cents. I have been burned elsewhere though in the meantime  by Management if it makes you feel any better  ;D

[doc75]

Hey all:

 

The lock-up agreements have been filed on sec.gov

 

http://www.sec.gov/cgi-bin/browse-edgar?company=&match=&CIK=abh&filenum=&State=&Country=&SIC=&owner=exclude&Find=Find+Companies&action=getcompany

 

Haven't read through them thoroughly yet, but at first glance did see that FFH would elect to take either cash, or cash+shares ... NOT shares-only as first option.  That was unexpected.

 

I just don't see why this is  particularly surprising, given that FFH agreed to lock up at such a low price.  That was the real shocker.  I mean, how much evidence do we need to prove that FFH is looking at this differently than us?

 

I see that Fibrek has acknowledged this "hostile / opportunistic" bid.  Can't be much love between Prem and the management:

 

http://www.proactiveinvestors.com/companies/news/21784/fibrek-confirms-130-mln-hostile-bid-from-resolute-forest-products-21784.html

[doc75]

Management sucked. Lesson learned, I sold earlier for a gain overall, and might have gotten back in at 50 cents. I have been burned elsewhere though in the meantime  by Management if it makes you feel any better  ;D

 

I've been following Catalyst Paper for a while. They've been "looking into" a restructuring of their balance sheet for a while now, and my small position has turned into a minuscule position as the stock trades down to 0 on fears of a massive debt-equity swap.  I mention this because it's been a very interesting lesson  in management overcompensation, poor communication, information "leakage" etc .    (And yes, I knew their balance sheet was a minefield when I made my initial investment.)

 

Couldn't just have invested in CFX.un.  No.  That would've been far too simple & smart!

[Myth465]

Ya Kuppy recommends buying the best of breed in whatever space though I believe he is in FBK. I think its good advice. If you think an industry is going through hell you might as well do it with the cream of the crop.

 

Management road an up cycle, and didnt want to do anything to realize value. They inmo were quite happy to recap the balance sheet and continue collecting pay checks and making incremental improvement for years to come. Sucks for shareholders, but in the future I will assume that this is what most none value investing oriented Management teams will do.