Resolute Forest Products Commences Takeover bid of Fibrek

[triedtestedand]

Word on the street ... ??

 

http://www.montrealgazette.com/business/Resolute+Forest+Products+Fibrek/5957704/story.html

 

Am not sure $.13/share extra will get to 90% ... maybe to 66.6% for those wanting to get out quick??

 

 

[gordoffh]

FBK closed at 1.12 -  keep the bids coming

[SharperDingaan]

Couple of messages;

(1) They cant buy in enough stock at the current price of 1.03. They're telling the market they're willing to pay more in $0.10 increments. FBK's additional 23M of annual EBITDA at 6x EBITDA is an extra $1.06 - so expect around 10 incremental jumps.

(2) They think FBK has a probable & credible alternate to their bid, & feel they cannot sit back. The bids momentum has slipped considerably, & we would expect that ABH does not want to see any sizeable break-up fee attached to any alternate bid/combination.

(3) They may have a developing short attack on ABH stock, & they need to come over strong in order to spike it. For the last few days they have had minimal Cdn trading volume, around what is supposed to be a liquid stock - & that has to be concerning. Short ABH & go Long FBK (by buying out the market) ... if you're pretty sure there is going to be an alternate FBK bid to take you out? 

 

It would appear that ABH is in trouble, & are trying to do damage control.

 

SD 

[Alekbaylee]

$0.13? Almost insulting!

This puppy deserves way more than that. Maybe they could up their bid by $1.13 to  $2.13. Then it would start to be interesting...  ;)

[Guest Quebec]

0.13 bump if true is really pathetic. I'm afraid abh started too low to be credible or go friendly. I would not spit on Mercer stock. This would be a well positioned pulp&energy powerhouse. Anyone sighting Canfor or Domtar in Saint Félicien?

 

Just can't believe we're talking a nickel when it's a buck matter...

[alertmeipp]

I would say if they can secure 16 million in power contract, that alone worth 130millions.

 

that's stable 12% yield. I am tempted to buy back my previously sold position.

 

Should have bot them all back.

[Guest Dazel]

 

We sold a lot of what we had in the last few years....but we still have about 20% of our original holdings....we are going to follow Fairfax lead...it is our thinking that they got fed up with current management at fbk. There was an opportunity to sell their assets substantially higher when Mercer, ca for et all were hitting all-time highs! The former post was extremely vocal about these options at that time....management incentives were put in place for that reason several years ago...We think that the management have know all along that a liquidation was the best option for realizing value and now that they are forced to pursue it they will proceed. We are not buying....but we are not selling either.

 

Dazel

[SharperDingaan]

At this point there's 2 weeks to go to bid expiry, & comes next friday after close (assumption) we should start seeing some hard numbers on the alternatives.

 

Our preference is stock over cash, as long as we're paid for it. Merc, Domtar, ABH are essentially all the same to us .... we don't have to marry them, & can always sell into the secondary market.

 

Let the games begin!

 

SD

 

[st96dgx8]

 

We sold a lot of what we had in the last few years....but we still have about 20% of our original holdings....we are going to follow Fairfax lead...it is our thinking that they got fed up with current management at fbk. There was an opportunity to sell their assets substantially higher when Mercer, ca for et all were hitting all-time highs! The former post was extremely vocal about these options at that time....management incentives were put in place for that reason several years ago...We think that the management have know all along that a liquidation was the best option for realizing value and now that they are forced to pursue it they will proceed. We are not buying....but we are not selling either.

 

Dazel

 

I am no fan of FBK mgmt's capital allocation skills either, but if FBK shareholders propose that any acquisitions be put to a vote and that cashflows be used solely to de-lever, buyback stock or pay dividends, I estimate the fair value of FBK to be north of $2.7 per share if the new PPA is signed in "early 2012."

 

Dazel & others planning to tender--I am looking for quantifiable counter arguments to my estimate of intrinsic value. Consequently, I would appreciate your thoughts on the following questions:

1) What is your estimate of Fibrek's intrinsic value? (Assumptions regarding cost of capital, normalized cash flows/EBITDA, or multiples would be much appreciated.)

2) Does the IV estimate above take into consideration the $6 million in EBITDA from the announced 9.5 MW cogen and the $7 million EBITDA from the RBK take or pay contract?

3) Do you assign any value to the potential for an incremental $16 million in EBITDA (with no additional capex) from a new PPA with Hydro Quebec?

4) How do you think about the free cash flow generation at ABH (or lack thereof going back to 1991) and the fact that a significant amount of ABH's equity comes from deferred tax assets?

 

 

Thanks!

 

 

 

[Ghost]

I feel important today.

Got a call from Fibrek asking me to not tender my shares.  Even got a 1-800 number.

For a small time investor that was empowering.

[SharperDingaan]

We gather the PPA was signed yesterday

http://www.cyberpresse.ca/le-quotidien/actualites/201201/13/01-4485689-gilles-potvin-assiste-a-la-rencontre.php

 

Assume around 60M EBITDA x 6/130M, with no asset sales,

 

SD

[st96dgx8]

We gather the PPA was signed yesterday

http://www.cyberpresse.ca/le-quotidien/actualites/201201/13/01-4485689-gilles-potvin-assiste-a-la-rencontre.php

 

Assume around 60M EBITDA x 6/130M, with no asset sales,

 

SD

 

 

Thanks for the link SD.

Unfortunately my French and Google translate aren't that great.

What makes you think the PPA was signed yesterday?

Is it the last sentence "Un projet à l'image du parc agrothermique de Saint-Félicien qui progresse lentement?" Do you mind translating that?  Here's how google translates it..."A project like the park of Saint-Félicien agrothermique slowly progressive."

 

 

 

[SharperDingaan]

Don't have access to the full article, but it goes on to describe what was signed. Basically, it is as FBK said it would be. 

http://translate.google.ca/translate?hl=en&sl=fr&u=http://www.cyberpresse.ca/le-quotidien/actualites/201201/13/01-4485689-gilles-potvin-assiste-a-la-rencontre.php&ei=m8sRT83dFKP20gHr7ZzEAw&sa=X&oi=translate&ct=result&resnum=2&ved=0CD8Q7gEwAQ&prev=/search%3Fq%3Dfibrek%26hl%3Den%26sa%3DX%26biw%3D1024%26bih%3D640%26tbs%3Dqdr:d%26prmd%3Dimvns

 

Also a flavour as to the Quebec view as to whether this is an inside bid or not. If ABH plays fair there shouldn't be a problem.

http://translate.googleusercontent.com/translate_c?hl=en&prev=/search%3Fq%3Dfibrek%26hl%3Den%26sa%3DX%26biw%3D1024%26bih%3D640%26tbs%3Dqdr:d%26prmd%3Dimvns&rurl=translate.google.ca&sl=fr&u=http://www.cyberpresse.ca/le-quotidien/actualites/201201/13/01-4485459-fibrek-cherche-a-gagner-du-temps.php%3Futm_categorieinterne%3Dtrafficdrivers%26utm_contenuinterne%3Dcyberpresse_B4_en-manchette_322_section_POS3&usg=ALkJrhjE6IZjfFs0BtQvn340GylTQYmLAg

 

SD

 

[st96dgx8]

Don't have access to the full article, but it goes on to describe what was signed. Basically, it is as FBK said it would be. 

http://translate.google.ca/translate?hl=en&sl=fr&u=http://www.cyberpresse.ca/le-quotidien/actualites/201201/13/01-4485689-gilles-potvin-assiste-a-la-rencontre.php&ei=m8sRT83dFKP20gHr7ZzEAw&sa=X&oi=translate&ct=result&resnum=2&ved=0CD8Q7gEwAQ&prev=/search%3Fq%3Dfibrek%26hl%3Den%26sa%3DX%26biw%3D1024%26bih%3D640%26tbs%3Dqdr:d%26prmd%3Dimvns

 

Also a flavour as to the Quebec view as to whether this is an inside bid or not. If ABH plays fair there shouldn't be a problem.

http://translate.googleusercontent.com/translate_c?hl=en&prev=/search%3Fq%3Dfibrek%26hl%3Den%26sa%3DX%26biw%3D1024%26bih%3D640%26tbs%3Dqdr:d%26prmd%3Dimvns&rurl=translate.google.ca&sl=fr&u=http://www.cyberpresse.ca/le-quotidien/actualites/201201/13/01-4485459-fibrek-cherche-a-gagner-du-temps.php%3Futm_categorieinterne%3Dtrafficdrivers%26utm_contenuinterne%3Dcyberpresse_B4_en-manchette_322_section_POS3&usg=ALkJrhjE6IZjfFs0BtQvn340GylTQYmLAg

 

SD

 

Thanks. So how many years is the PPA for? Does it make any mention of the number of MW being sold and the EBITDA?

 

 

Let's assume the tender fails, how do we know FBK isn't going to squander the cashflows on value destructive acquisitions? FBK overpaid for the NBSK and RBK mills and they were on the verge of acquiring a "tissue" company in the US?  If FBK's stock is so cheap, mgmt should buy back stock instead of issuing new equity to fund acquisitions. 

If the stock is not cheap, then reduce debt and pay dividends. Doing so will ensure a stock price >$2.5.

I hope shareholders convey this to mgmt. Perhaps  we need to pass a resolution at the AGM or EGM that forbids FBK from making acquistions without prior shareholder approval.

 

 

[link01]

Thanks. So how many years is the PPA for? Does it make any mention of the number of MW being sold and the EBITDA?

 

 

Let's assume the tender fails, how do we know FBK isn't going to squander the cashflows on value destructive acquisitions? FBK overpaid for the NBSK and RBK mills and they were on the verge of acquiring a "tissue" company in the US?  If FBK's stock is so cheap, mgmt should buy back stock instead of issuing new equity to fund acquisitions. 

If the stock is not cheap, then reduce debt and pay dividends. Doing so will ensure a stock price >$2.5.

I hope shareholders convey this to mgmt. Perhaps  we need to pass a resolution at the AGM or EGM that forbids FBK from making acquistions without prior shareholder approval.

 

you make some good points.

 

but some pundits argue that it is especially the "tissue" segment of the pulp/paper market that is poised for growth:

 

<<When I was in China this summer, I was a bit disturbed by the bathroom facilities in the rural areas—the communal poo rag had not yet been replaced by toilet paper. Even in tourist locations like the Great Wall, the restrooms had a rag attached to the wall to be used for wiping your ass. I had to ask our tour guide for confirmation that I wasn’t just imagining this—unfortunately I wasn’t. At the time, I just shrugged my shoulders and thought about it as little as possible. That was until I was alerted to the investment implications of this. Put simply, the average westerner uses over 25 lbs of tissue and toilet paper a year (hereafter simply called tissue). In most of the undeveloped world, the usage is a tiny fraction of that number, but it is growing rapidly....>>

 

http://adventuresincapitalism.com/post/2011/01/09/What-Happens-When-4-Billion-People-Decide-To-Wipe-Their-Ass.aspx

 

never the less, this mngt hasnt exaclty distinguished itself to date & should discounted with a skeptical eye, imo.

[Guest Quebec]

"Don't have access to the full article, but it goes on to describe what was signed. Basically, it is as FBK said it would be."

 

I wish LeQuotidien was sold around here because I read french and can't see anything regarding a fibrek PPA in the online partial article and this is big wrt to valuation...

[Guest Quebec]

http://lequotidiensurmonordi.ca/

 

This site let us read a carbon copy of the leading newspaper around st-felicien. There's a 2 week free trial and it's easy to search "fibrek" or "resolu". A bunch of multipages articles this week-end on both. Will read tomorrow. One title says that Fonds de Solidarité FTQ visited and may want to bid!

[st96dgx8]

http://lequotidiensurmonordi.ca/

 

This site let us read a carbon copy of the leading newspaper around st-felicien. There's a 2 week free trial and it's easy to search "fibrek" or "resolu". A bunch of multipages articles this week-end on both. Will read tomorrow. One title says that Fonds de Solidarité FTQ visited and may want to bid!

 

So do you see anything on the PPA?

Google translate doesn't seem to work on this site.

[st96dgx8]

Thanks. So how many years is the PPA for? Does it make any mention of the number of MW being sold and the EBITDA?

 

 

Let's assume the tender fails, how do we know FBK isn't going to squander the cashflows on value destructive acquisitions? FBK overpaid for the NBSK and RBK mills and they were on the verge of acquiring a "tissue" company in the US?  If FBK's stock is so cheap, mgmt should buy back stock instead of issuing new equity to fund acquisitions. 

If the stock is not cheap, then reduce debt and pay dividends. Doing so will ensure a stock price >$2.5.

I hope shareholders convey this to mgmt. Perhaps  we need to pass a resolution at the AGM or EGM that forbids FBK from making acquistions without prior shareholder approval.

 

you make some good points.

 

but some pundits argue that it is especially the "tissue" segment of the pulp/paper market that is poised for growth:

 

<<When I was in China this summer, I was a bit disturbed by the bathroom facilities in the rural areas—the communal poo rag had not yet been replaced by toilet paper. Even in tourist locations like the Great Wall, the restrooms had a rag attached to the wall to be used for wiping your ass. I had to ask our tour guide for confirmation that I wasn’t just imagining this—unfortunately I wasn’t. At the time, I just shrugged my shoulders and thought about it as little as possible. That was until I was alerted to the investment implications of this. Put simply, the average westerner uses over 25 lbs of tissue and toilet paper a year (hereafter simply called tissue). In most of the undeveloped world, the usage is a tiny fraction of that number, but it is growing rapidly....>>

 

http://adventuresincapitalism.com/post/2011/01/09/What-Happens-When-4-Billion-People-Decide-To-Wipe-Their-Ass.aspx

 

never the less, this mngt hasnt exaclty distinguished itself to date & should discounted with a skeptical eye, imo.

 

 

Managers chasing "growth" through acquisitions generally wind up overpaying. Furthermore, areas commonly perceived to be growing at fast rates tend to attract competitors/new supply that compete away excess returns (if any.) If tissue demand in China grows by leaps and bounds then that will be reflected in the NBSK pulp prices which should benefit FBK. WE DON"T NEED FBK TO MAKE NO STINKING ACQUISITIONS.  :) Just return cash to shareholders. If this PPA for $16 million comes to fruition and FBK would pay out all cash flows to shareholders, that would translate to a dividend yield of >35%!

[alertmeipp]

how do u get 35%?

[Guest Quebec]

There was a blitz of articles on LeQuotidien over the last few days and upto the saturday edition. Overall it painted Resolute in a bad light, asking for wood above capacities (they show confidential figures), losing the hydro dam because of no commitment to invest, going for a monopoly over woodchip in the region, closing shops abruptly... Not much love from ministers, union, citizens... Even the mayor Potvin which was supportive early on is backpedaling.

 

Fibrek gets good coverage and support, just the opposite of Resolute. Their business model and their plans are all explained. They work with many regional suppliers that would be shut off if resolute win. They will benefit from wood supply auction if they go alone. That's all nice, but it does not get much echo in Montreal, and even less in Toronto.

 

I did not find anything that says that a new PPA is signed for the core 33mw power generation. There was some background tough. Basically, the last PPA was a 20 years term which expired in 2011 and was paying about 7 cents (approx, lost reference) . Hydro has opened in December 2011 a new program that pays 10.6 cents for qualified renewable power generator. Fibrek believes it qualifies for this program/rate for its core 33mw and thus stands to get the ebitda boost.

 

The expansion of the power gen that starts up in december 2012 is signed on a new ppa but that's old news.

 

Now, my question, what happens to those that don't tender in the event that abh gets 70% ? My feeling is that Steelhead Partners, a big Abh holder, has been buying a whole lot since the November annoucement and committed to tender. I know this from filed prospectus.

 

 

[st96dgx8]

There was a blitz of articles on LeQuotidien over the last few days and upto the saturday edition. Overall it painted Resolute in a bad light, asking for wood above capacities (they show confidential figures), losing the hydro dam because of no commitment to invest, going for a monopoly over woodchip in the region, closing shops abruptly... Not much love from ministers, union, citizens... Even the mayor Potvin which was supportive early on is backpedaling.

 

Fibrek gets good coverage and support, just the opposite of Resolute. Their business model and their plans are all explained. They work with many regional suppliers that would be shut off if resolute win. They will benefit from wood supply auction if they go alone. That's all nice, but it does not get much echo in Montreal, and even less in Toronto.

 

I did not find anything that says that a new PPA is signed for the core 33mw power generation. There was some background tough. Basically, the last PPA was a 20 years term which expired in 2011 and was paying about 7 cents (approx, lost reference) . Hydro has opened in December 2011 a new program that pays 10.6 cents for qualified renewable power generator. Fibrek believes it qualifies for this program/rate for its core 33mw and thus stands to get the ebitda boost.

 

The expansion of the power gen that starts up in december 2012 is signed on a new ppa but that's old news.

 

Now, my question, what happens to those that don't tender in the event that abh gets 70% ? My feeling is that Steelhead Partners, a big Abh holder, has been buying a whole lot since the November annoucement and committed to tender. I know this from filed prospectus.

 

Qubec--Thanks so much for looking into this. With regards to your question "what happens to those that don't tender in the event that abh gets 70%"

 

Answer: FBK's recently adopted shareholder rights plan will make it harder for ABH to acquire the 66 2/3% shares necessary to take FBK private. But assuming that ABH does indeed obtain the sufficent # of shares, the bidder (ABH) will be able to effect a transaction that squeezes out the remaining minority shareholders (at the same price as was offered under the bid.) 

However, target (FBK) shareholders who object to a going private transaction are entitled to appraisal/dissent rights – that is, they are entitled to apply to a court for an appraisal of the value of their shares. The appraised “fair value” will be paid by the surviving company to objecting shareholders who satisfy all the requirements of the relevant corporate law.

 

 

Sharper Dingaan: For the sake of fellow FBK shareholders and your credibility, do you mind citing the name of the publication, date, and page # of the article that says a new PPA "was signed yesterday"? If it's just something you heard though the grapevine, then just say so. 

 

 

[SharperDingaan]

st96, Quebec: We googled fibrek in the early evening of Friday looking for management announcements & came on the article by luck. Believe the publication was The Daily, & at the time we could see the entire article & use the translate function on it. We didn't post as we were expecting to read a FBK press release on the subject. We googled again on Saterday but could only get partial access to the article.

 

We understood that there was a contract signing for the 33MW on Friday, but if we misread we sincerely apologize to all board members.

 

SD 

[beerbaron]

Next time pass it by me if you need confirmation of a translation on an article, I'm fully bilingual and from Longueuil (FBK HQ). I have no FBK interest but I'd be glad to take 5 minutes of my time to save you some dollars.

 

BeerBaron

[alertmeipp]

I have decided not to tender as I don't think $1 is a fair at all.