Resolute Forest Products Commences Takeover bid of Fibrek

[alertmeipp]

F,P&O is constrained by the lock-up, how would Steelhead justify tender to ABH?

 

Is it legal to tender to A even if B offer is better?

Is it legal to tender at X and your cost is X+ ?

 

Anyone expect some sort of lawsuit here?

[alertmeipp]

 

 

(I assume ABH is not going to take 40% profit to tender to MERC :))

 

This is so bizarre.

 

Anyone who pays a 'fair' price for something and is offered 40% more the next day and decides not to take it, would be considered...what?  Unless of course, $1.00 is WAY below a fair price?

 

No way ABH will take $1.40 from MERC and, unfortunately, I doubt MERC wants to be in partnership with ABH, although I know of no competition between the two.  Maybe???  Why not??  Perhaps ABH needed to pay $1. for about half the shares and is now willing to pay $1.40 for the remaining half (via matching MERC offer)?  It would seem fair from a minority shareholders position and save ABH from paying $1.40 on 50% of the shares.  FFH, Pabrai and Oakmont would get screwed a bit...but they're the ones who signed the hard lock up.  Steelhead would want $1.40...after all, money is money, even if you own, MERC, ABH and FBK (not sure if that is a mess for Steelhead or brilliant?). 

 

I think only a corporate lawyer would have true insight into this, the rest of us are guessing with a conflict of interest.

 

It's obvious ABH is trying to rip the minor shareholders off here. No one is tendering to them except the lock-up triplet.

 

If the supreme court kills the warrant, do you think MERC will stick around?

At 1.05, it seems the market is saying no.

 

This maybe legal but it's not ethical and absolutely not fair.

 

 

[triedtestedand]

Here is what we do ... We see it for what it is ... And we act accordingly.  All remaining minority shareholders collectively offer Steelhead an 8% tender "protection fee" in return for their tendering to MERC.  That gives them a 100% bonus on top of their regular 40%.  The rates are in line w the situation, no? ;)

[alertmeipp]

but what I see if even if steelhead tender to MERC, MERC's deal is dead in a sense that they will never get over 2/3 with ABH.

 

 

[triedtestedand]

Alertmeipp:

 

All MERC needs is 50.1% to get control of the company, and ability to work it onto their books, if even with restrictions.  It might be kind of like how Canfor Pulp is 50.1% owned by Canfor (although that's just a thought of top of my head).  In this case, instead of public float, the minority shareholdings would then be owned by a single entity -> ABH.  Might make for an semi-symbiotic relationship, presuming egos could be tamed.

 

Getting total ownership drops restrictions, allows them to integrate into other operations, flow funds more freely, etc. ... which is likely what would work best with ABH being the total owner -> of course though that should be valued more, eh?  ;-)

 

Or maybe MERC gets control, then flips it back to ABH?

 

Now ... back to reality.

[alertmeipp]

Yeah in theory, after ABH owns 50%+, they can cut FBK some nice wood chip deals and FBK can flow dividend back to ABH to increase the valuation of both companies.

 

WOW!

 

Now.. back to reality.

[SharperDingaan]

Step out for a day or so, & the whole world simplifies  ;)

 

Very nice move by Mercer to bump to $1.40. Indicates willingness to change, willingness to sell into a superior bid, makes it more difficult for Steelhead to refuse, & gives the Court of Quebec the opportunity to smear ABH. The opportunity loss on the Mercer placement, now becomes everyone’s gain - as Mercer forces up the price of a superior bid.

 

ABH is now clear to make a 2nd stage offer. New ball game, & they need a price high enough for BOTH Steelhead & Mercer to tender. If ABH does not include the PPA - Mercer need only marginally top the ABH bid - to give Steelhead the argument not to tender their control block to the inferior ABH bid.

 

Must be very hot in the ABH kitchen. Management will be expected to end this, & do it quickly; to concentrate the mind – a bonus if they get it done, find a new job if they fail? The strategic response is a knock-out high bid that kills the gaming, & soothes the resistance.

 

Of course if it is still the Marx brothers running the show ... we know strategic sense is limited!

 

[tyska]

 

 

ABH is now clear to make a 2nd stage offer. New ball game, & they need a price high enough for BOTH Steelhead & Mercer to tender. If ABH does not include the PPA - Mercer need only marginally top the ABH bid - to give Steelhead the argument not to tender their control block to the inferior ABH bid.

 

 

Not quite sure if I follow your line of thought there SD. Are you meaning the shares that are tendered to Mercer now, in connection to getting both Steelhead and Mercer to tender. As I understand it the Mercer offer doesn't close until the 21st or 25th of April now, not sure if it is 10 calendar or business days. Is ABH going to hold out till then before making this offer and do you think they would  really slap the lockup group in the face buying their shares for a dollar then turning around and offering more to others. Not saying that I doubt it, just wondering if you think they are capable also. ;)

[SharperDingaan]

The lock-up group tendered enough shares for ABH to meet it 46%+ acceptance requirement, which permits ABH to make a follow-up 2nd stage bid for the rest of ABH. However, ABH did not get the 50%+1 they need for control, because their bid price is inferior.

 

We expect Mercer & Steelhead will eventually tender to ABH, but they will work together to force ABH to increase its bid. If ABH underbids, Mercer could marginally raise its bid above the ABH offering, Steelhead would tender to to it, & ABH would be forced to either bid up or sell into Mercers better bid. Both ABH & Mercer have incentive to keep bidding up, to maximize the losers gain on capitulation. The virtuous spiral that ABH is petrified of.

 

The reality of course, is that this is no different to auction bidding on a storage locker. To spike the spiral - the strategically minded would throw out their best bid, & make it high enough that Mercer & Steelhead would appear to be chiselling if they contested it. To cave - Mercer gets a gain of the (bid price - their cost) x the number of shares + the 8M break-up fee. Steelhead gets the (bid price - their cost) x the number of shares + whatever they make on the US Mills (assumed). FBK shareholders get the higher price - & most would assume that will include the lock-up group in some form or another  ;)

 

We live in interesting times.

 

 

[tyska]

The lock-up group tendered enough shares for ABH to meet it 46%+ acceptance requirement, which permits ABH to make a follow-up 2nd stage bid for the rest of ABH. However, ABH did not get the 50%+1 they need for control, because their bid price is inferior.

 

We expect Mercer & Steelhead will eventually tender to ABH, but they will work together to force ABH to increase its bid. If ABH underbids, Mercer could marginally raise its bid above the ABH offering, Steelhead would tender to to it, & ABH would be forced to either bid up or sell into Mercers better bid. Both ABH & Mercer have incentive to keep bidding up, to maximize the losers gain on capitulation. The virtuous spiral that ABH is petrified of.

 

The reality of course, is that this is no different to auction bidding on a storage locker. To spike the spiral - the strategically minded would throw out their best bid, & make it high enough that Mercer & Steelhead would appear to be chiselling if they contested it. To cave - Mercer gets a gain of the (bid price - their cost) x the number of shares + the 8M break-up fee. Steelhead gets the (bid price - their cost) x the number of shares + whatever they make on the US Mills (assumed). FBK shareholders get the higher price - & most would assume that will include the lock-up group in some form or another  ;)

 

We live in interesting times.

 

 

 

That part I understand, but does Mercer have shares outside of what is being tendered to them  now, through their offer. And the offer is still open if I understand it correctly, not sure till when though. So if another offer came from ABH now wouldn't those shares tendered just be moved over to the ABH bid. So Mercer wouldn't gain on them, the shareholders would. So many changes, trying to remember, did Mercer have a minimum share number on their bid?

[alertmeipp]

SharperDingaan,

 

I would be very happy to just get that 1.4. Your talk about bidding war is off the chart IMO.

[lessthaniv]

The lock-up group tendered enough shares for ABH to meet it 46%+ acceptance requirement, which permits ABH to make a follow-up 2nd stage bid for the rest of ABH. However, ABH did not get the 50%+1 they need for control, because their bid price is inferior.

 

We expect Mercer & Steelhead will eventually tender to ABH, but they will work together to force ABH to increase its bid. If ABH underbids, Mercer could marginally raise its bid above the ABH offering, Steelhead would tender to to it, & ABH would be forced to either bid up or sell into Mercers better bid. Both ABH & Mercer have incentive to keep bidding up, to maximize the losers gain on capitulation. The virtuous spiral that ABH is petrified of.

 

The reality of course, is that this is no different to auction bidding on a storage locker. To spike the spiral - the strategically minded would throw out their best bid, & make it high enough that Mercer & Steelhead would appear to be chiselling if they contested it. To cave - Mercer gets a gain of the (bid price - their cost) x the number of shares + the 8M break-up fee. Steelhead gets the (bid price - their cost) x the number of shares + whatever they make on the US Mills (assumed). FBK shareholders get the higher price - & most would assume that will include the lock-up group in some form or another  ;)

 

We live in interesting times.

 

This doesn't make sense to me, unfortunately SD:

 

1) I don't trust nor expect Steelhead to not tender to the ABH offer:

 

a) When Steelhead put out their press release on Saturday, March 31 it must be read with the knowledge that they were heading into a hearing on Monday morning with The Bureau de decision et de revision (Quebec). Mercer was going to argue that Steelhead was working in concert with ABH and other shareholders. In my opinion, this press release was nothing but a CYA move in advance of going into that hearing. Also, the actual newswire coming from Steelhead reads very differently than the press releases from Fibrek and Mercer on the same subject. The later parties eliminate key language and in my opinion attempt to positively spin this press release in their favour. The full press release is pasted below with the key language highlighted.

 

Steelhead Partners, LLC Announces Position with respect to Resolute and Mercer Offers for Fibrek, Inc.

 

BELLEVUE, WA, March 31, 2012 /CNW/ - Steelhead Partners, LLC ("Steelhead") announced today that it has reserved its decision whether or not to tender shares of Fibrek, Inc. ("Fibrek") held by Steelhead Navigator Master, L.P. ("Steelhead Navigator") to the offer made by AbitibiBowater, Inc. doing business as Resolute Forest Products ("Resolute") until the minimum tender condition contained in the Resolute offer (as it may be amended) has been met.  Steelhead has not yet made any decision or commitment to tender Steelhead Navigator's Fibrek shares to the Resolute offer should such condition be satisfied.  Steelhead has not currently tendered Steelhead Navigator's shares to either the Resolute offer or to the competing offer of Mercer International Inc. ("Mercer").

 

Both Steelhead and Steelhead Navigator are independent parties in this matter.  Steelhead Navigator is a shareholder of each of Fibrek, Mercer and Resolute.  Steelhead's only goal has been to support the offer which creates the greatest possible value for Steelhead Navigator's investment.  In evaluating any tender offer, Steelhead seeks to look past the cash price.  Instead, Steelhead carefully examines the overall package of consideration offered and focuses on the potential synergies that will be created by the combined companies as the true drivers of long-term value.  Steelhead expects that such an offer will have the support of a significant majority of Fibrek shareholders and will ultimately be successful.

 

Steelhead Navigator holds 6,479,000 common shares of Fibrek, representing 4.98% of the outstanding shares.  Steelhead Navigator's weighted average acquisition cost of its Fibrek common shares is $0.993 per share.  Steelhead Navigator's weighted average acquisition cost for Fibrek common shares purchased subsequent to the announcement of the Resolute offer is $0.991 per share and the highest price paid was $1.02 per share.

 

For further information:

Brent Binge, Steelhead Partners, LLC

Tel:  425.974.3788

 

It's important to note that immediately following this press release, ABH dropped the minimum tender amount below the lock up threshold. By doing so, were able to take up the locked up shares (which they subsequently have done) and put Steelhead in a position where they could follow up on a  subsequent extension.

 

b) Secondly, Steelhead has already shown us their cards. At the end of February when Mercer's warrants were thwarted a press release was issued to announce this. In the press release it was revealed that ABH had 51.5% under their offer. Any guesses where that 5% came from?

 

FP/wire say Fibrek private placement to Mercer thwarted

 

2012-02-27 07:28 ET - In the News

 

The Financial Post reports in its Saturday edition that Fibrek shed six cents to close Friday at $1.23. A Reuters dispatch to the Post reports that the shares advanced after Quebec regulators blocked a private placement by Fibrek to friendly suitor Mercer International, boosting chances that AbitibiBowater's hostile lower bid may succeed. "This ruling makes it significantly more difficult for Mercer to gain control of Fibrek, given Resolute's hard lock-up of 46 per cent of Fibrek's shareholder base," says RBC Capital Markets analyst Paul Quinn. AbitibiBowater, which operates under the name Resolute Forest Products, has 51.5 per cent of Fibrek shares tendered under its offer. AbitibiBowater has extended its $130-million offer, which is lower by 30 per cent than Mercer's bid, till March 9. Mercer has offered $170-million and has also agreed to buy 32.3 million special warrants from Fibrek for $1.00 each. This has been blocked by the provincial tribunal of Quebec. "Mercer's management was creative in its first bid, so we would not rule them out at this time," says Mr. Quinn. AbitibiBowater and Mercer are competing to get access to Fibrek's three mills with a combined annual production capacity of 760,000 tonnes.

 

2) Finally, pari passu ensures that should a price increase be offered as you suggest, it must be extended to the entire equity class. So, any increase would cost ABH significantly if its done under the same offer. They may be willing to do that but given my view that Steelhead will give them 50.1% - I don't expect it. 

 

On the other hand, if ABH puts out a new offer once they have acquired the 50.1% they wouldn't be bound by the limits of pari passu. The downside, of course, is that those previously acquired shares are not part of the minority in any eventual majority of the minority vote. I'm not sure that ABH wants to get into that either.

 

I expect, Steelhead will tender and cite the internal synergies as reasons for doing so. This gives ABH 50.1%+ and control. At that point ... the Mercer offer is dead in the water.  At this point, I will expect ABH to extend their offer at $1 again to see if anyone else will tender knowing the Mercer offer is dead.

[FFHWatcher]

IV, I appreciate your input and opinion on this.

 

Fact (as I understand it) : Steelhead owns about $170M of ABH and $7M of FBK (approx. 24x's more money in ABH than FBK).  FFH has approx. 7x's more money in ABH than in FBK** per NASDAQ.com

 

Do you feel it is possible for Steelhead to make a purely financial decision based entirely and only on their FBK position, at this point in time, knowing how it affects their other holdings? 

 

Or do you feel that their financial interest in Resolute Forest Products, due to it being 24x's larger than their FBK holdings, is best to sacrifice their FBK value to ensure a higher future value in ABH?  Based on a multiple on 24:1, wouldn't $2M lost on FBK result in $48M made/saved for ABH?

 

It would seem that Steelhead holds all the cards right now, so why would they settle for $1.00?  There is no way that ABH wants less than 100% of FBK and they certainly don't want 46%.  How does Steelhead lose, if they decide not to tender to ABH at $1.00?

 

 

 

 

 

 

[Guest Quebec]

http://www.newswire.ca/en/story/955843/mercer-superior-1-40-per-share-offer-remains-in-force

 

I demonstrated my support to the superior Mercer $1.40 offer by calling my broker and tendering without delay (as suggested)

 

 

[lessthaniv]

Scuttlebut I'm hearing is leave to appeal has been denied. I'm looking to confirm.

 

[lessthaniv]

Scuttlebut I'm hearing is leave to appeal has been denied. I'm looking to confirm.

 

Here's the confirmation directly from the Supreme Court's website.  Application for leave to appeal was dismissed (ie. refused).  Private placement is dead.

 

DISMISSED WITH COSTS / REJETÉES AVEC DÉPENS

 

Fibrek Inc. et al. v. AbitibiBowater Inc., doing business as Resolute Forest Products and RFP Acquisition Inc. et al. (Que.) (Civil) (By Leave) (34757)

(The applications for leave to appeal are dismissed with costs to the respondents. /

Les demandes d’autorisation d’appel sont rejetées avec dépens en faveur des intimées.)

Coram: McLachlin / LeBel / Deschamps

 

[alertmeipp]

wow.... that's not good. Now what's next?

[lessthaniv]

wow.... that's not good. Now what's next?

 

It would appear it's all up to Steelhead. If they tender to ABH then the game is over for Mercer.

The ABH offer expires on the 23rd. The Mercer offer expires on the 27th.  So, you'll know shortly.

[alertmeipp]

I bot some back at the recent plunge.

Hopefully - a quick 30%.

 

Or I will stuck with FBK again.

[alertmeipp]

down to 1  :o

[Guest Quebec]

Steelhead is in a position to buy millions of shares around 1.00 and flip them to Merc at 1.40 almost overnite if they elect to vote merc and merc is much better paper and future than abh imo

[rmitz]

Steelhead is in a position to buy millions of shares around 1.00 and flip them to Merc at 1.40 almost overnite if they elect to vote merc and merc is much better paper and future than abh imo

 

On the other hand, that's an argument that they should want to feed money to ABH to protect their investment there...

[alertmeipp]

MERC can't take the whole thing as ABH has 46% already.

 

I am a buyer at 90 some cents.

[tyska]

Steelhead is in a position to buy millions of shares around 1.00 and flip them to Merc at 1.40 almost overnite if they elect to vote merc and merc is much better paper and future than abh imo

 

On the other hand, that's an argument that they should want to feed money to ABH to protect their investment there...

I thought they had an interest in Mercer also.

[lessthaniv]

IV, I appreciate your input and opinion on this.

 

Fact (as I understand it) : Steelhead owns about $170M of ABH and $7M of FBK (approx. 24x's more money in ABH than FBK).  FFH has approx. 7x's more money in ABH than in FBK** per NASDAQ.com

 

Do you feel it is possible for Steelhead to make a purely financial decision based entirely and only on their FBK position, at this point in time, knowing how it affects their other holdings? 

 

Or do you feel that their financial interest in Resolute Forest Products, due to it being 24x's larger than their FBK holdings, is best to sacrifice their FBK value to ensure a higher future value in ABH?  Based on a multiple on 24:1, wouldn't $2M lost on FBK result in $48M made/saved for ABH?

 

It would seem that Steelhead holds all the cards right now, so why would they settle for $1.00?  There is no way that ABH wants less than 100% of FBK and they certainly don't want 46%.  How does Steelhead lose, if they decide not to tender to ABH at $1.00?

 

Hey FFHWatcher, my apologies - I missed your note above.

 

Honestly, I'm just an observer like everyone else but it would appear to me from afar that Steelhead's actions suggest they are partial to the ABH offer and shareholder group. I'm guessing last Fall large shareholders of FBK discussed their displeasure with the direction of FBK and came up with an exit strategy using ABH (common to everyone) as the medium. In a previous offer ABH had 51.5% tendered. I think that include the Steel head shares. (just a guess but the math works). When Mercer screamed foul play, then and  only then did Steel head issue the press release suggesting they were not part of the group. I think that was just covering there butt because immediately following that announcement ABH lowered their tender. In fact, Steel head even suggested they would in their own press release. So, they went from making this a one step process to a two step process. The minimum extension to an offer is 10 days. So, as of the 23rd we'll all know for sure. I'm guessing that they are tendering.  As suggested, I suspect they probably made a closed door handshake agreement last Fall and I suspect they will honor it. ( Just speculation on my part based on what I've observed).