Resolute Forest Products Commences Takeover bid of Fibrek

[Alekbaylee]

Battle turning sour...

 

http://www.newswire.ca/en/story/897411/fibrek-s-board-rejects-unsolicited-insider-bid-by-abitibibowater-and-takes-additional-measures-to-ensure-shareholders-are-treated-fairly

[finetrader]

That is the kind of response i wanted to hear from management.

 

Of course when your biggest shareholder is not with you, your power is limited.

 

But could be enough to get a higher offer, something like 1.20-1.25$.

[SharperDingaan]

Very nice to read ....

 

We have an authoratative independent assessment that the bid price is inadequate, a systematic/open process by which to establish the true value for FBK, & an implied agreement to sell if the price is fair.

 

Standard defence, they have elected to 'fight the ship', & focused the dispute on the price - not the merits of the deal itself. They can go the knock-down gutter route if needs be, but it is not in anyones interest.

 

The simple solution is to pay up against independent valuation assessments - & Prem has to be more than happy with the FBK response. FFH cannot be in the same room, FFH has too many shares to get out without the deal, & FFH will now almost certainly get out at a gain over their average cost.

 

Elegant.

 

SD

 

 

 

 

[JHelg]

FFH will now almost certainly get out at a gain over their average cost

 

Do you know off the top of your head what their average cost is? Before the rights offering I was thinking their average cost was 4 or 5 dollars. Just wondering if you know of the top of your head what their average cost actually is.

[SharperDingaan]

Suspect that it is in the $1-2 range. Closer to $1 end.

 

Keep in mind that FFH would have doubled down with the $1.01 rights offer, & added materially again at the $.80 range. Then  .... given that they got a 400K fee ? for backstopping the issue (top of the head), & probably arbitraged some of their position at the same time (as we did) - those 80c shares were probably at minimal net cost. Double down, then add 1M+ shares at no cost.

 

SD

 

[SharperDingaan]

Quick & dirty ....

 

Prior to the rights offering:

17,443,300 @4.50 [assumed average] ($78,494,850)+7,635,495 @1.01 ($7,711,849) + 8,549,506 @ 1.01 ($8,635,001). Total gross investment of approx $95,241,700.

 

Bid itself at time of launch: Assume 1 in every 3 shares of the missing % ownership.

8,598,233 @ 1.01 ($8,684,215). Total net investment of roughly $100,000,000 (gross of $103,925,915 less $3,925,915 fees/distributions received over the years. Ave cost of $2.37.

 

Bid since launch: Assume 67% collective ownership with 1 in every 3 shares of the additional %

9,225.666 @1.01 ($9,317,923). Total net investment of 109,317,923. Ave cost of $2.12.

 

Assume the max investment is approx $110M, & add an additional $1.5M of aggregate capital recovery, with all the funds invested at 1.01/share. Additional 2,160,472 shares. All-in average cost of +/- $2.05 

 

The wild cards are how 1) many of these additional shares is FFH buying? ; if FFH is taking > 1/3 of them, their cost is lower 2) how much of the arbitraging around the rights issue was FFH responsible for?; if they did around 16M shares at an average spread of $0.45 they reduced their cost by around $7.2M.

 

Conclusion: 1) At about $2.05-$2.12 FFH gets out without a loss, 2) It is about double the intial price, 3) It is around the same number that many others are coming up with.

 

SD

 

 

[gordoffh]

Based on above and news today is anyone buying? what is the downside no deal?

[alertmeipp]

could be >40 percent I think

[Guest Quebec]

Should we now worry about the Fibrek valuation exercise ? I mean, the recent cashflows and earnings are not what they can be... Most valuations rely on multiple of these, but we're just about ready to fire on most cylinders. We have yet to reap the benefits from the past year efforts/expenses, including:

 

- employee contract settlement

- reduced shutdown duration

- costs for rebranding

- costs for office moving

- expense for refis

- expense for debs retirement

- reduced interest

- costplus contracts

- power production

 

Resolute got their offer timed real good to pay minimum and reap maximum.

 

Nothing better than a bidding contest to put a real price tag but the locked-up shares prevent that unfortunately

[Alekbaylee]

More news about this saga... The word "friendly" is certainly missing in this takeover attempt...

 

"We never saw this coming at all," he said after urging shareholders not to tender their shares.

 

The two sides haven't held discussions and Cote said he only learned of the bid when a message was left on his voice mail 10 minutes before it was announced last month.

 

"We are very surprised that Fairfax has taken such a position. We've been exchanging with them and never expected this behaviour at all from them," added Cote.

 

http://ca.finance.yahoo.com/news/Fibrek-sets-roadblocks-capress-1779106915.html?x=0

[SharperDingaan]

Quebec:

 

Keep in mind that there will be a range of values. The lower values will be based on liquidation comparables, the mid & upper values will reflect going concern comparables which will include the power generation, labour peace, & a premium for the lower contribution margin risk from the cost plus contracts. Most would expect that the focus will be almost entirely on the strength, trend, & quality of the forward EBITA - & what multiple you should pay for that quality & stability.

 

The (synergy) negotiation will be over the cost of woodchips (ABH controlled), &  improved efficiencies (ABH determined) post sale. Material $ involved. The (assumed) refinancing penalty is also not a obstruction (deduct penalty from the sale price & get the PV of the future interest saving over the remaining term of the debt).

 

It does not mean that ABH will want to pay; but it does mean that it will be difficult for ABH to materially disagree, especially as ABH is part paying with stock - ABH is not Cascades or Canfor, & neither of those two has the capital & debt restrictions that ABH has.

 

Every day horse trading at this point.

 

SD 

 

 

[st96dgx8]

Additional Observations:

 

Conspiracy?

 

On May 5 2011 ABH approached FFH with an offer of buying their FBK shares and FFH balked at selling FBK at $1.80 per share because it was too low and again rejected to sell on Sept 27 2011 at $0.92 (these prices assume maximum 115% premium to market).  However, at the Nov 16 2011 meeting between ABH and FFH in which they "discussed the wood fibre landscape in Quebec" apparently turned Watsa.  What was the inside information that Watsa received on this date that made him hit the first bid that ABH presented (which was 44% lower than the first bid he rejected 6 months earlier)?  Obviously this most likely has to do with negative developments in FBK's wood fibre supply.  Anyone have any thoughts on this?

Steelhead, who holds $150mm of ABH as the 2nd largest holder next to FFH, has aggressively accumulated FBK stock, spending $4.3mm on 3.3% of the company at negative spreads on average (i.e. paying more than the consideration if they were to short the prorated ABH shares).  They have indicated their intention to tender to the ABH offer.  It is obvious what is going on here: ABH holders see the substantial value in FBK and want all of it to accrue to ABH owners and none to FBK owners.  Clearly this is a company that’s in play for substantially less than what it is worth to a company that can make it work (from a synergies perspective).

 

What Can FBK Do?

 

FBK has 2 options: A friendly deal with ABH or a White Knight (dividend recap not an option due to high leverage position):

 

1. Friendly deal with ABH – ABH management discussed with the Board its interest in acquiring FBK on Jan 17 2011, when the stock was at $1.35.  They were interested in a deal when the stock was 35% higher, so clearly they are willing to pay more. Take-overs are notoriously difficult to complete on a hostile basis and therefore almost always turn friendly (in the technical sense).  If no White Knight shows up, the Board will fight for additional scraps for shareholders.  I bet that the Board will support a deal at a $0.10 bump.  The first rule of a hostile take-over is you never put forth your best offer first.  ABH can and will pay more.  I view a $0.10 bump as a 60% probability. (Note: As a precedent look to Vitol’s acquisition of AAK in early 2009).

 

2. White Knight – The hard lock-ups will be unpalatable to many potential interlopers and will stifle a robust sale process.  I believe that FBK could request that the OSC force the lock-ups to soft, given the application of MI61-101 (at least for FFH).  Note that at this point no precedents come to mind.  Alternatively, a White Knight could bid higher than ABH, which would cause ABH’s offer to expire unsuccessfully (no rational non-locked-up shareholder would tender) which in turn would cause the lock-ups to expire.  I view the probability of a $0.25 White Knight overbid at 10%.  Potential interlopers include Domtar and Weyerhaeuser.

 

Conclusions

 

In the past 5 years, there have been 23 successful M&A transactions that began hostile.  Of these, only 1 did not see a bump in price, either from the initial bidder or a white knight.  On average, there has been a 32% bump in price from the initial bid for a deal to get done (median of 21%).

I see the current consideration ($0.981) as a floor.  A deal for FBK will get done.  The question is – is the deal done at the current consideration or is it done higher?  From an expected value perspective, I have a target price of $1.085 over the next 2-3 months (30%-60% annualized).

 

 

Great post JetsFan!

 

A couple of questions if I may:

1) Over the past 5 years how many hostile txns have failed? 

2) Can I chat with you offline? I can be reached at [email protected]

 

 

In response to your question regarding the Nov 16 2011 meeting between ABH and FFH in which they "discussed the wood fibre landscape in Quebec", I think it is worth noting that on Oct 31st 2011, Richard Garneua, CEO of ABH, stated:

“The province of Quebec recently announced that harvesting rights are located to us and our sawmill partners would be reduced by at least 930,000 cubic meters per year, or a reduction of 11% of ABH’s harvesting right in the province. This reduction represents about 374,000 bone dry metric tons of fiber. The change is set to take effect on April 1, 2013. After the reduction we will continue to meet our internal supply requirements, but the reduction is likely to affect our ability to sell wood chips to others. We expect that the reduction in our harvesting rights will likely increase the cost of wood delivered to our sawmills as well as reduce current lumber capacity.”

 

 

FBK's Saint Felicien mill requires 775,000 tons of wood fibre. FBK has a 3 year agreement that requires ABH to provide at least 67% of this requirement or ~520,000 tons. I estimate FBK pays ABH ~$60 million for 520,000 tons. Any ideas what ABH's margin on the wood chips might be?

[SharperDingaan]

Agreed re the disparity on the plant valuations. On a purely theoretical basis the lowest price should be the Q3-2011 BV, as after netting - the equity consists almost entirely of the mill BV's, & those BV's are impairment tested under IFRS every year.

 

What is being missed here is 1) that in relative terms FBK is a lot better than ABH (hence Steelhead), & 2) what the ABH ratios look like with a +/- 350M equity issue.

 

Should be interesting ....

 

SD

 

[st96dgx8]

Dissent Rights

 

Anyone on here with experience in exercising Disstent Rights? Can ABH or FBK (with ABH appointed mgmt) appeal a judicial valuation that is materially higher? How long can the dissent process drag on? Thanks for sharing.

[st96dgx8]

Dissent Rights

 

Anyone on here with experience in exercising Dissent Rights? Can ABH or FBK (with ABH appointed mgmt) appeal a judicial valuation that is materially higher? How long can the dissent process drag on? Thanks for sharing.

 

There are no dissent rights in a take-over bid, only in a plan of arrangement.  The only way to get dissent rights is if they have to do a second step plan of arrangement if they get over 66 2/3 tender but less than 90%.  If they get 90% they can do a compulsory.

 

Jetsfan--I should have clarified that my question regarding dissent rights assumes ABH acquires at least 66 2/3% of shares through the tender offer. However, I don't think your statement that "The only way to get dissent rights is if they have to do a second step plan of arrangement if they get over 66 2/3 tender but less than 90%" is accurate. Dissent rights should be available even in a compulsory acquisition when an offeror has acquired >90% of shares.

 

"The CBCA provides that shareholders of a

corporation are entitled to exercise dissent

rights and to be paid the fair value of their

shares as determined by the Board of

Directors of the corporation or, failing that,

by the appropriate Canadian court upon an

application timely brought by the

corporation or a dissenting shareholder, in

connection with specified matters,

including:

 

the carrying out of a going-private

transaction or a squeeze-out

transaction (as defined in the

CBCA);"

 

 

"Compulsory Acquisition

If, within 120 days after the date of the Offer, the Offer is accepted by Fibrek shareholders holding not less than

90% of the issued and outstanding Fibrek Shares (calculated on a fully-diluted basis), other than Fibrek Shares held at the date of the Offer by or on behalf of us or our affiliates or associates (as defined in the CBCA), and we acquire such deposited Fibrek Shares, then we will acquire the Fibrek Shares not deposited under the Offer on the same terms as theFibrek Shares acquired under the Offer pursuant to either the provisions of Section 206 of the CBCA (a “Compulsory Acquisition”) or pursuant to a Subsequent Acquisition Transaction (see below).

To exercise the statutory right of Compulsory Acquisition, we must give an Offeror’s Notice to each Dissenting

Offeree and the Director under the CBCA of such proposed acquisition on or before the earlier of 60 days following the termination of the Offer and 180 days following the date of the Offer. Within 20 days after having given the Offeror’s Notice, we must pay or transfer to Fibrek the consideration we would have had to pay or transfer to the Dissenting Offerees if they had elected to accept the Offer, to be held in trust for the Dissenting Offerees. Within 20 days after receipt of the Offeror’s Notice, each Dissenting Offeree must send the certificates evidencing the Fibrek Shares held by such Dissenting Offeree to Fibrek, and must elect either to transfer such Fibrek Shares to us on the terms on which we acquired Fibrek Shares under the Offer or to demand payment of the fair value of the Fibrek Shares by so notifying us. If the Dissenting Offeree fails to notify us within the applicable time period, the Dissenting Offeree will be deemed to have elected to transfer its Fibrek Shares to us on the same terms (including the Offer Consideration) on which we acquired the Fibrek Shares under the Offer. If a Dissenting Offeree has elected to demand payment of the fair value of its Fibrek Shares, we may apply to a court having jurisdiction to hear the application to fix the fair value of the Fibrek Shares of that Dissenting Offeree. If we fail to apply to such court within 20 days after they made the payment or transferred the consideration to Fibrek, the Dissenting Offeree may then apply to the court within a further period of 20 days to have the court fix the fair value. If no such application is made by the Dissenting Offeree or by us within such periods, the Dissenting Offeree will be deemed to have elected to transfer its Fibrek Shares to us on the same terms on which we acquired Fibrek Shares from the Fibrek shareholders who accepted the Offer. Any judicial determination of the fair value of the Fibrek Shares could be more or less than the amount of the Offer Consideration per Fibrek Share paid pursuant to the Offer."

[Cardboard]

"If a Dissenting Offeree has elected to demand payment of the fair value of its Fibrek Shares, we may apply to a court having jurisdiction to hear the application to fix the fair value of the Fibrek Shares of that Dissenting Offeree. If we fail to apply to such court within 20 days after they made the payment or transferred the consideration to Fibrek, the Dissenting Offeree may then apply to the court within a further period of 20 days to have the court fix the fair value. If no such application is made by the Dissenting Offeree or by us within such periods, the Dissenting Offeree will be deemed to have elected to transfer its Fibrek Shares to us on the same terms on which we acquired Fibrek Shares from the Fibrek shareholders who accepted the Offer. Any judicial determination of the fair value of the Fibrek Shares could be more or less than the amount of the Offer Consideration per Fibrek Share paid pursuant to the Offer."

 

Tough to say what the judge will decide. It seems that the worst case is likely the offer price or below if he considers the bid to be above fair market value. That is where the stock traded before the offer. Time to judgement is also hard to assess. Also, if Abitibi does not apply to the court within 20 days, you are the one who will need to initiate the judicial process as I underlined above. I would imagine that this could be costly. However, if you don't do anything then you are guaranteed the offer price. Might be worth a shot if the bid is not improved.

 

Please keep us posted if you dissent as I would be interested to learn more about this process.

 

Cardboard

[SharperDingaan]

The process is essentially as follows:

 

(1) Bidder gets an accept with > 66 2/3% of the voting stock. Sellers tend into the offer

(2) At 90% dissenting shareholders tender to a trust which tenders to the bidder. Consideration is the bid price + a judicial FV evaluation. Judge decides & dissenters get paid any additional difference between the judges/FBK's FMV evaluation, & the bid price.

(3) Bid stalls if > 10% refuse to tender, as the buyer cannot compell the minority to sell. Buyer either (a) accepts minority interest (unlikely) or (b) pays a premium to FMV to force the dissent position to <10% (ugly process) & engage the complusory action.

 

The realities of the FBK bid are largely as follows:

(4) The buy-out group probably has between 66 2/3% & 90%. They could force a vote at the current terms, but it is unlikely that they can force a compulsory tender. Therefore, ABH has to make the minority an offer at FMV + a premium to force a compulsory action.

(5) The FMV is being determined by FBK & its advisors. There will be some discussion between buyer & seller, but ultimately FBK will make a announcement as to what the FMV range for FBK is, & that is the price the judge will use if he/she is required to decide.

(6) ABH wants to use ABH stock in at least part consideration - but ABH will have to pay a premium for doing so. The buy-out group will largely decide how much of a premium- & it will be a function of ABH's future prospects, liquidity, & the posibility of ABH ultimately walking away.

(7) Although compulsory tender premiums can be material, they are negotiated, & it is usually on an artifically low base. 

 

What does it mean:

(8) Numbers example using Q3/2011 as the base:

Q3/2011 BV/Share = (350,575/130,076) = proxy for Q3/2011 FMV = 2.70

Premium for ABH shares vs cash = assumption = 10%

Compulsory tender premium = assumption = 5%

- Price for FBK, if paid for with ABH stock = approximation = 2.70*(1.10) = 2.96

- Price for FBK, to get a compulsory tender = approximation = 2.96*(1.05) = 3.11

- ABH equity issue for approximately 405M

 

Considerations:

(9) Most would agree that ABH/FBK is the best combination, & that the synergies would be both material & readily realizable. While there are other possibilities the issue for this combination has really always only been price. Readily fixable.

(10) The lockup group put FBK into play for a reason. Most would think the demonstration on how to release value, additional ABH stock at low cost, & a match to industry consolidation are exceptionally good reasons.

 

Always nice to see the masters at work.

 

SD

 

 

[triedtestedand]

SD:

 

Although lockup group put FBK into play, according to your 10 point scenario, would they benefit from a judicial FV valuation if such path is followed, or is it just the dissenters (i.e. just those who don't tend into the $1/share offer) who would benefit?

[SharperDingaan]

Keep in mind that most would expect the judicial FV to be the FBK determined FV as there is/will be (1) Independent & credible evidence that the bid undervalues, & (2) Independent & credible evidence of the reasonable FMV range (at a higher price). 

 

Everybody gets the highest price (if they haven't sold on the market).

Shares allready tendered get the higher price because the original terms of the tender (price) have been broken. Shares not tendered receive the higher offer directly, & all shareholders receive the compulsory tender premium. Lockup generally does not affect the price received, it just guarantees a minimum of X votes in favour.

 

The lockup group directly benefits from a price hike. (1) The sellers get more value for their stock, & (2) influence the cash/stock mix + any related premium. (3) The buyer gets assurance that they can issue some of their shares as currency, & (4) possibly go all equity if there are favourable statements.

 

ABH & FBK shareholders benefit massively if it is an all equity deal. The ABH D/E ratio drops immediately to around 14%, from 16%, & roughly zero (via defeasance) if the RBK plants are then sold off. But it's $15/share - until FBK shareholders accept the offer, & those RBK plants are sold.

 

Given that the FFH forestry portfolio could well revalue upward by $1B+ once its over, it is not hard to see why FFH put FBK into play.

 

SD   

 

 

[Guest Quebec]

Michel Nadeau, a former Caisse de dépot hi level executive and now a governance expert, also believes the AMF (Autorité des marchés financiers) should look into the Fibrek take-over which smells like an insider bid. Details here:

 

http://lejournaldequebec.canoe.ca/journaldequebec/actualites/quebec/archives/2011/12/20111219-184936.html

[tyska]

 

 

Nice to see the masters at work?  I cannot believe anyone on this board still has respect for these guys.  This deal shows that they are anything but Fair and Friendly.  More like predatory and hostile.  They are robbing FBK minority shareholders - stealing from the poor and giving to the rich.  Not to mention I believe that they are acting on material non-public information that none of us possess (see my previous post addressing the private meeting that he had with Garneau where he flipped and hit a bid 45% below his previous rejection 5 months earlier). 

 

.

 

That's pretty much along the line I posted when the bid came out.Nothing fair or friendly, any way you look at it. No matter what they have done in the past, they'll have to wear this one also.

[st96dgx8]

The process is essentially as follows:

 

(1) Bidder gets an accept with > 66 2/3% of the voting stock. Sellers tend into the offer

(2) At 90% dissenting shareholders tender to a trust which tenders to the bidder. Consideration is the bid price + a judicial FV evaluation. Judge decides & dissenters get paid any additional difference between the judges/FBK's FMV evaluation, & the bid price.

(3) Bid stalls if > 10% refuse to tender, as the buyer cannot compell the minority to sell. Buyer either (a) accepts minority interest (unlikely) or (b) pays a premium to FMV to force the dissent position to <10% (ugly process) & engage the complusory action.

 

The realities of the FBK bid are largely as follows:

(4) The buy-out group probably has between 66 2/3% & 90%. They could force a vote at the current terms, but it is unlikely that they can force a compulsory tender. Therefore, ABH has to make the minority an offer at FMV + a premium to force a compulsory action.

(5) The FMV is being determined by FBK & its advisors. There will be some discussion between buyer & seller, but ultimately FBK will make a announcement as to what the FMV range for FBK is, & that is the price the judge will use if he/she is required to decide.

(6) ABH wants to use ABH stock in at least part consideration - but ABH will have to pay a premium for doing so. The buy-out group will largely decide how much of a premium- & it will be a function of ABH's future prospects, liquidity, & the posibility of ABH ultimately walking away.

(7) Although compulsory tender premiums can be material, they are negotiated, & it is usually on an artifically low base. 

 

What does it mean:

(8) Numbers example using Q3/2011 as the base:

Q3/2011 BV/Share = (350,575/130,076) = proxy for Q3/2011 FMV = 2.70

Premium for ABH shares vs cash = assumption = 10%

Compulsory tender premium = assumption = 5%

- Price for FBK, if paid for with ABH stock = approximation = 2.70*(1.10) = 2.96

- Price for FBK, to get a compulsory tender = approximation = 2.96*(1.05) = 3.11

- ABH equity issue for approximately 405M

 

Considerations:

(9) Most would agree that ABH/FBK is the best combination, & that the synergies would be both material & readily realizable. While there are other possibilities the issue for this combination has really always only been price. Readily fixable.

(10) The lockup group put FBK into play for a reason. Most would think the demonstration on how to release value, additional ABH stock at low cost, & a match to industry consolidation are exceptionally good reasons.

 

Always nice to see the masters at work.

 

SD

 

Yes the lockup group put FBK into play for a reason, but unfortunately not the reason you are claiming.  As I said before, they put FBK into play to allow all the intrinsic value + synergies to accrue to themselves through ABH, at the detriment of FBK minority shareholders.  Otherwise, they would have signed soft lock-ups.

 

Nice to see the masters at work?  I cannot believe anyone on this board still has respect for these guys.  This deal shows that they are anything but Fair and Friendly.  More like predatory and hostile.  They are robbing FBK minority shareholders - stealing from the poor and giving to the rich.  Not to mention I believe that they are acting on material non-public information that none of us possess (see my previous post addressing the private meeting that he had with Garneau where he flipped and hit a bid 45% below his previous rejection 5 months earlier). 

 

I don't know if dissent is the right way to go.  I have initiated a dialogue with the AMF regarding to legality of hard lock-ups under MI61-101.  Also, I have notified them of the possible material non-public information transferred from ABH to the locked-up shareholders.

 

JetsFan--I can see how FFH with their large stake in ABH might be conflicted and agree to a hard lockup. But what about Pabrai and Oakmont? Why would they agree to a hard lockup? How do they benefit from "robbing FBK minority shareholders?"

ME thinks that Pabrai and Oakmont agreed to a hard lock-up either because they believe: 1) ~$1/share is close to intrinsic; or 2) view ABH to be simlarly undervalued and therefore prefer to own a more liquid stock; or 3) as SD suggests, they hope to set in motion a chain of event that would put FBK "into play."

 

 

With regards to the hard lock-up, I think you face an uphill battle...

 

 

See http://lawjournal.mcgill.ca/documents/1224868704_Nicholls.pdf

 

"Before formally launching a bid, it is common practice for prospective takeover

bidders to negotiate with major shareholders of the target corporation. If those

negotiations are successful, the bidders and these major target shareholders will

typically sign lock-up agreements. There are two basic modes of lock-up agreement:

the “hard” lock-up and the “soft” lock-up. A hard lock-up agreement contains a

commitment on the part of the target shareholder to tender his or her shares to the

takeover bid that is to be launched by the bidder, provided that the bid price is no

lower than the price specified in the lock-up agreement. A soft lock-up agreement

would typically contain a conditional commitment by the shareholder to tender to the

bid and a covenant not to actively solicit competing offers (i.e., not to “shop” the bid),

but would nevertheless have an “out”, allowing the shareholder to tender to a higher

bid from a third party should one materialize.

At one time, the shares acquired by a bidder from shareholders who had

previously entered into lock-up agreements could not be voted in subsequent goingprivate

transactions.23 It was feared that allowing locked-up shares to be counted in

the postbid “majority of the minority” approval vote would discourage takeover

auctions.24 The regulators’ views on this issue have evolved. In a process of reform

that began with the proposed reformulation of OSC Policy 9.1 as Rule 61-501,25 the

OSC has come to the view that shares acquired in a takeover bid from shareholders

who had signed prebid lock-up agreements may (in the same way as any other shares

tendered to the bid) properly be included in the subsequent minority approval vote if

certain conditions are met. The locked-up shareholders must not have received

different consideration for their shares, any collateral benefit, or any consideration for

other securities they held in the target company that was greater than the entitlement

of other security holders.26 In other words, it is important that such shareholders have

not been treated differently from other shareholders; otherwise, their decision to

tender to the bid might well have been influenced by special considerations that

would not be relevant to the minority shareholders generally, and thus could not

necessarily be viewed as an approval of the bid on its terms. The OSC recognized that

lock-ups might stifle some takeover bid auctions. It was nevertheless persuaded that

the use of lock-ups to entice potential bidders to make offers in the first place

outweighed the possible disadvantages of the auction-inhibiting effect that lock-ups

could have.27" 

[lessthaniv]

 

Yes the lockup group put FBK into play for a reason, but unfortunately not the reason you are claiming.  As I said before, they put FBK into play to allow all the intrinsic value + synergies to accrue to themselves through ABH, at the detriment of FBK minority shareholders.  Otherwise, they would have signed soft lock-ups.

 

 

EXACTLY, unless you take ABH stock and go along for the ride.

[SharperDingaan]

We might all want to keep the following in mind:

 

(1) Just because FFH/Oakmount/Pabrai could vote what they've bought since lockup - does not mean that they will. After FBK's management presents the independent valuation of FBK, all they need do is voluntarily abstain.

(2) To really benefit, we need to accept ABH stock to get full capture of FBK's IV, & then retain ABH as it delevers &/or sells off FBK mills. In the interim, we are all quite free to sell our FBK today at $1, sell our ABH right after we receive it, or sell our ABH some time later.

(3) Most would argue that FBK will be materially more profitable, & a less risky investment, were it part of ABH. The bid is solely about how much ABH we should receive for our FBK, & FBK management is required to independently & credibly demonstrate the FMV range of FBK.

(4) To date we do not have a FMV range for FBK. All that we know is that it is higher than the $1/share offered, but is it $2, $3, etc. To have the ABH discussion we first need to know the FMV of FBK.

 

The angst is because the clock is ticking, & FBK's management has not yet put forward its alternatives. Let the strategic committee do its thing, & save the speculation until we have the full picture.

 

SD

 

[SharperDingaan]

We are voting right now - as you vote by either selling your stock at $1 - or holding on in the expectation that the bid will stall at < 90%, & you will receive a higher offer.

 

The lockup only applies to the 45.7%. Additional shares purchased by the group that are not part of the agreement - do not have to be tendered. The king makers are sitting in excluded entities.

 

To get out. All FBK need do is deliberatly break a condition.

Or put in an issuer bid for enough of its own shares at FMV to force ABH into a compulsory offer.

 

SD