Resolute Forest Products Commences Takeover bid of Fibrek

[alertmeipp]

The lower ABH goes, it would appear the stronger the $1 offer gets as you are getting very discounted ABH shares.  No holdings in either, but good business lesson for future reference.

 

 

Cheers

JEast

Not following ur logic there

[JEast]

Just a little logic arithmetic.

Either take ($1.40), or (.50¢ cash + .50¢ worth of shares that are potentially a .50¢ Dollar = $1.50).

If the shares go lower, that may mean that you are getting a .45¢ dollar or $1.55.

 

Cheers

JEast

[alertmeipp]

no, the share price is fixed @ $15+ for the deal.

 

[Guest Quebec]

...The friendly shares have gone; now they have to deal with the hard cases - or tender to Mercer.

 

Would it make sense for ABH to tender their 48.8% of FBK to MERC ?

 

ABH makes 40% profit on their recent 65m$ investment. The resulting 91m$ is invested in mercer shares and gives them about a 20% position. In one move they are thus circling both FBK and MERC, nice focused cheap little pulp and power producers! Improving ABH current mix in the right direction.

Abh would tender for all shares while i suspect most minority fbk shareholders would want the 1.40 all cash.

 

They would be influential enough at Merc to ensure they buy their woodchips from them.

They may implements some of the synergy they had planned

They may in fact make an offer for Merc and truly swing their portfolio!

 

The Merc bid then becomes a success and everyone is happy!

[FFHWatcher]

I like the line of thinking that puts ABH and MERC together.  Let's face it, the entire industry is tough and the fewer competitors there are, the better.  Perhaps a deal could be even be more complex than that.  Perhaps have ABH tender to MERC @ $1.40, and in return sell the US mills to ABH and also have St Felicien sign a long term chip supply deal with ABH?  ABH would make 40% or $26M on their $65M investment, use some of that $26M profit on the US mills and then get a major long term chip supply deal for St. Felicien in Quebec.  Maybe even some sort of 50/50 joint venture?

[lessthaniv]

Just a little logic arithmetic.

Either take ($1.40), or (.50¢ cash + .50¢ worth of shares that are potentially a .50¢ Dollar = $1.50).

If the shares go lower, that may mean that you are getting a .45¢ dollar or $1.55.

 

Cheers

JEast

 

JEast,

 

I agree 100% with this line of thinking although I'd make the following caveat: One can drastically improve their position by transacting manually.

 

The cash/share option from ABH is:

 

$.55/sh in cash

.0284 of a Resolute share

 

The cash option from ABH is $1:

 

Therefore;

 

Cash/share deal is valuing the Resolute shares as (1-.55)/.0284 = $15.84. This was ABH's market value when the deal was announced. If you tender to ABH and get the cash/share option your ABH is being valued at this level.

 

However, the market value of ABH has dropped below $13/share or roughly 22% below the transaction valuation above. An investor who wants to go the ABH route can capture this upside (less friction costs) by transacting manually.

 

Here is an example using the all shares option:

 

Investor A has 1000 shares of FBK and tenders to the deal:

Gets : 

 

(.0632 ) * 1000 = 63 shares of ABH

 

Investor B has 1000 share of FBK and transacts manually:

Gets :

 

Sells 1000 FBK @ $.97 = $970

Buys $970 ABH @ $13 = 75 shares of ABH

 

Now .... if a guy was smart enough to transact when FBK was trading at $1.15/share well the benefit would have been even bigger.  ;)

 

 

 

 

[alertmeipp]

If u like ABH, just go ahead to buy it; ABH pps going down just means the deal value goes down.

[SharperDingaan]

Just to flesh the idea out ....

- Steelhead sits tight untill the PPA is announced 

- Merc sells the US mills to Steelhead for FBK stock +/- cash

- Merc sells the PPA power contract for cash

- Merc sells St F to ABH for their Merc stock +/- cash

 

Steelhead waits for the PPA because it will add +/- $1/share to the bid. With a high enough bid they could even get the US Mills + cash back, in return for their control block. Minority shareholders see a real bid.

 

ABH & Merc get a gracefull exit. ABH gets a super profitable vertically integrated mill. Merc gets an equity issue & a whack of cash & treasury stock.

[lessthaniv]

Just to flesh the idea out ....

- Steelhead sits tight untill the PPA is announced 

- Merc sells the US mills to Steelhead for FBK stock +/- cash

- Merc sells the PPA power contract for cash

- Merc sells St F to ABH for their Merc stock +/- cash

 

Steelhead waits for the PPA because it will add +/- $1/share to the bid. With a high enough bid they could even get the US Mills + cash back, in return for their control block. Minority shareholders see a real bid.

 

ABH & Merc get a gracefull exit. ABH gets a super profitable vertically integrated mill. Merc gets an equity issue & a whack of cash & treasury stock.

 

SD, I'm trying to follow your logic here but got lost on the second bullet point.  How does MERC sell FBK's assets?

[SharperDingaan]

- PPA is announced. Merc increases bid to $2.40 (Guess @ current $1.40+$1.00 for PPA)

- Steelhead, ABH, Minority shareholders all tend to the superior Merc bid for cash & Merc stock. FBK board appoves the bid, the tender is successfull. Merc pays with 70M cash, + newly issued Merc sock, & takes over FBK.

 

- Merc sells FBK's US Mills to Steelhead for their newly issued Merc stock +/- cash. Merc sells St F (with/without PPA) to ABH for their Merc stock +/- cash. The valuations used being close to that established in the Q1 consultant report.

 

..... everybody wins.   

 

[Guest Quebec]

Sorry but I don't follow why merc would buy fbk only to sell it back for the shares they issued to buy it ?!

 

Abh wants to grow its pulp and power business (a better niche than newsprint). Abh wants to ensure a market for its chips. Getting fbk does it, but letting merc gets fbk and then becoming a large Merc shareholder would do it too, while opening up new possibilities. Over time, they could grow even larger in pulp and power by way of increasing merc ownership. An chip supply agreement as ffhwatcher suggested would make sense in this deal.

 

[SharperDingaan]

- Assume Merc would prefer NOT to have ABH or Steelhead as shareholders. Merc does NOT cancel the Merc shares it buys back.

- Assume FBK gets the PPA, PV of 130M ($1/FBK share). ABH, Steelhead, own 55% of all FBK. Final bid is $2.40/share, total of 312M

 

Back-of-the-envelope example:

- Merc pays with 242M of new common & 70M cash. But 55% of the new common (133M) would go to ABH & Steelhead, then return to Merc as part of the asset sale proceeds (treasury shares), leaving a net new common issue of only 109M. Dont cancel the treasury shares, & the books will show 242M of new equity (improving ratios), but earnings will only be diluted by 109M of new equity. Very usefull to those with high multiples.

- Winning the PPA effectively gave FBK 130M of ADDITIONAL equity that will stay with Merc as soon as Merc pays off the FBK liabilities wih the FBK asset sale proceeds. Merc walks away cash heavy.

- Cash heavy, & good slug of treasury stock that can be sold at any time, is not a bad incentive  ;)       

[Viking]

Sharper, I am not sure that ABT (or anyone) will pay anything close to $300 million for Fibrek. EBITDA in 2011 was $28 million and $41 million in 2010 when NBSK pulp prices were at cyclical highs; yes, the power agreement will add to EBITDA but it will cost money to build and NBSK prices are much lower so it is not a given that EBITDA will spike in future years. In past years overpaying for assets was normal and put pretty much all the large players into bankruptcy. This industry needs to consolidate and prices paid need to be low. Fortress just bought a mothballed NBSK facility for $1 that likely has similar economics to St Felicien. The RBK plants in the US struggle to make money. And yes, I own a small position in ABT so I am clearly biased.

 

My guess is ABT is looking to pick up assets for cheap, especially strategic ones like Fibrek. Given what the CEO has said about aggressively paying down debt I would be shocked if they got into a bidding war for Fibrek. Especially when they already have 48% of the shares in lock up. Should ABT up its offer materially I will look to sell my small position in ABT as it will be clear to me that they have not learned from their past. My guess is ABT will play hard ball and try and buy for cheap; should this not be possible then perhaps Mercer gets their chance.

[lessthaniv]

Mercer International Announces Expiry of Offer for Fibrek Inc.

 

 

2012-04-30 09:00 ET - News Release

 

 

NEW YORK, April 30, 2012 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq:MERC)  (TSX:MRI.U) ("Mercer") announced that its offer (the "Offer") for all of the common shares (the "Fibrek Shares") of Fibrek Inc. ("Fibrek") expired on April 27, 2012 (the "Expiry Time"). The Offer was conditioned upon, among other things, at least 50.1% of the outstanding Fibrek Shares, on a fully-diluted basis, having been tendered thereunder, which was not met as of the Expiry Time. Accordingly, Mercer and MERC Acquisition Inc. will not acquire any Fibrek Shares that were tendered under the Offer.

 

In connection with the foregoing, the Support Agreement between Mercer and Fibrek dated February 9, 2012, as amended, has been terminated. All Fibrek Shares that were previously tendered under the Offer and not withdrawn will be returned promptly.

 

Important Notice

 

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. Mercer has filed with the United States Securities and Exchange Commission (the "SEC") a Registration Statement on Form S-4, as amended in connection with the Offer. INVESTORS AND SECURITYHOLDERS OF MERCER AND FIBREK ARE URGED TO READ THESE DOCUMENTS, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS THERETO, AND ANY OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Such documents will be available free of charge through the website maintained by the SEC at www.sec.gov or by calling the SEC at telephone number 800-SEC-0330. Such documents may also be obtained for free on Mercer's website at www.mercerint.com.

 

About Mercer

 

Mercer International Inc. is a global pulp manufacturing company. Mercer operates three NBSK pulp mills with a consolidated annual production capacity of 1.5 million tons. To obtain further information on the company, please visit its web site at www.mercerint.com.

 

Forward-Looking Statements

 

This document and/or certain information incorporated by reference herein include forward looking statements. Actual results and outcomes may differ materially from what is expressed or forecasted in these forward-looking statements. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Among those factors which could cause actual results to differ materially are the following: the highly cyclical nature of our business, raw material costs, our level of indebtedness, competition, foreign exchange and interest rate fluctuations, our use of derivatives, expenditures for capital projects, environmental regulation and compliance, disruptions to our production, market conditions and other risk factors listed from time to time in our SEC reports.

 

CONTACT: APPROVED BY:

        Jimmy S.H. Lee

        Chairman & President

        (604) 684-1099

       

        David M. Gandossi

        Executive Vice-President & Chief Financial Officer

        (604) 684-1099

 

[Guest Quebec]

With Mercer gone and Abh likely to reach > 50.1% by friday, are we strong enough to prevent them from reaching 67% ?

 

What if we succeed and we are minority in an Abh controlled Fbk ?

 

We'll share dividends but what's to prevent them from selling us overpriced chips and sucking out the profits to ABh benefits ?

[lessthaniv]

This thread may be used in future behavioural science classes as a case study in anchoring.

[rmitz]

This thread may be used in future behavioural science classes as a case study in anchoring.

 

I disagree with this assessment.  The only reason the price makes sense is if you already have a significant interest in ABH.  That's the only way it makes sense.

[racemize]

Reading this thread over the last year has been like watching a soap opera.  I hope ABH works out for you guys as well as Prem thinks (or at least indicated).

[lessthaniv]

This thread may be used in future behavioural science classes as a case study in anchoring.

 

I disagree with this assessment.  The only reason the price makes sense is if you already have a significant interest in ABH.  That's the only way it makes sense.

 

My comment was not meant to be read as sarcasm. So, please don't read it as such.

 

We are all trying to become better investors. That's why we're here. Go back and start from the very first post. Read through the 6 month progression. There is a valuable lesson to be learned within.  In my opinion, this thread (for the most part) has been anchored to the idea that FBK would garner a much higher take out price. Clues pointing investors to an alternative outcome were present but largely ignored. Instead, new scenarios in favour of the highest bid were spun.

 

Anchoring.

 

Obviously, Mercer got it ...

 

[rmitz]

My comment was not meant to be read as sarcasm. So, please don't read it as such.

 

We are all trying to become better investors. That's why we're here. Go back and start from the very first post. Read through the 6 month progression. There is a valuable lesson to be learned within.  In my opinion, this thread (for the most part) has been anchored to the idea that FBK would garner a much higher take out price. Clues pointing investors to an alternative outcome were present but largely ignored. Instead, new scenarios in favour of the highest bid were spun.

 

Anchoring.

 

Obviously, Mercer got it ...

 

There's a difference between Anchoring and "expecting not to be swindled".  That is still a valuable lesson, though.

[FFHWatcher]

Not to beat this dead horse more than it needs to be beaten but how do others feel about loading up at $0.95 and tendering to ABH?  Risk of lower ABH share valuation, risk of ABH not moving ahead to get the other 50% and just letting it dangle until it declines again?  I am thinking that there is an 80% chance that FBK shareholders, now that MERC is gone, realize that it is likely that ABH will gather enough shares.  Perhaps there is a 5% short term gain here?  Or this just another opportunity for shareholders to lose on FBK stock, yet again?

[cwericb]

"There's a difference between Anchoring and "expecting not to be swindled".  That is still a valuable lesson, though."

 

Agree with both those sentences.

[lessthaniv]

Not to beat this dead horse more than it needs to be beaten but how do others feel about loading up at $0.95 and tendering to ABH?  Risk of lower ABH share valuation, risk of ABH not moving ahead to get the other 50% and just letting it dangle until it declines again?  I am thinking that there is an 80% chance that FBK shareholders, now that MERC is gone, realize that it is likely that ABH will gather enough shares.  Perhaps there is a 5% short term gain here?  Or this just another opportunity for shareholders to lose on FBK stock, yet again?

 

My best guess is that the ARB guys are doing this. However, knowing the cash is limited to $70M they would likely recieve a combination of cash and shares. They could offset the risk by shorting ABH knowing they will get shares back shortly to replace and make a nice, hedged return.

 

That could explain the ABH downside recently and supports my line of thinking to manually transact.

[tyska]

This thread may be used in future behavioural science classes as a case study in anchoring.

 

I think the main thing to take from all this, is how the regulators and Fairfax view minority shareholders rights.

[Hielko]

Not to beat this dead horse more than it needs to be beaten but how do others feel about loading up at $0.95 and tendering to ABH?  Risk of lower ABH share valuation, risk of ABH not moving ahead to get the other 50% and just letting it dangle until it declines again?  I am thinking that there is an 80% chance that FBK shareholders, now that MERC is gone, realize that it is likely that ABH will gather enough shares.  Perhaps there is a 5% short term gain here?  Or this just another opportunity for shareholders to lose on FBK stock, yet again?

 

My best guess is that the ARB guys are doing this. However, knowing the cash is limited to $70M they would likely recieve a combination of cash and shares. They could offset the risk by shorting ABH knowing they will get shares back shortly to replace and make a nice, hedged return.

 

That could explain the ABH downside recently and supports my line of thinking to manually transact.

I actually thought that was a good idea (and bought the shares before reading the fine print closer...), but it doesn't work. The amount of cash that's available is prorated based on the number of shares tendered, and the share part of the offer isn't worth as much as it used to because ABT is down since the offer was made. So no way to make easy money (unfortunately...)