Resolute Forest Products Commences Takeover bid of Fibrek

[rmitz]

Mark me down as not at all happy with this offer.  I'd basically be breaking even here, and I'm sure some traders who just picked it up recently would be fine with it (and people who have equal or more value in ABH), but I'm not. 

[jeffmori7]

An interesting article on Richard Garneau, CEO of Resolute, on his leadership style and discussing among other things on the fiber prices in Quebec.

So, for those who speak french :

http://lapresseaffaires.cyberpresse.ca/dossiers/la-presse-affaires-magazine/201111/29/01-4472724-richard-resolu-garneau.php?utm_categorieinterne=trafficdrivers&utm_contenuinterne=cyberpresse_BO4_la_2343_accueil_POS2

[triedtestedand]

And for those who speak English only, and want a rough translation:

http://translate.google.ca/translate?sl=auto&tl=en&js=n&prev=_t&hl=en&ie=UTF-8&layout=2&eotf=1&u=http%3A%2F%2Flapresseaffaires.cyberpresse.ca%2Fdossiers%2Fla-presse-affaires-magazine%2F201111%2F29%2F01-4472724-richard-resolu-garneau.php%3Futm_categorieinterne%3Dtrafficdrivers%26utm_contenuinterne%3Dcyberpresse_BO4_la_2343_accueil_POS2

[Viking]

The aquisition of the US mills were, in hindsight, a huge mistake. SFK/Fibrek were never able to drive the branding/profitability of the recycled pulp business. If Resolute is able to turn (or sell) the recycled pulp business in the US this aquisition will be a steal of a deal for them.

I always liked the Quebec pulp operations; I sold SFK way back because of their inability to turn around the US recycled pulp business.

I like the purchase (at $1.00) for Resolute shareholders... perhaps time to do a deep dive on Resolute.

[FFHWatcher]

Alert. Keep in mind that it is highly likely that most/all of the shares in lock-up will opt for conversion. Makes the sale a tax-free roll-over, & the holder indifferent as they have not lost any value.

Arguably, if enough shareholders opt for conversion (90%+) they could collectively negotiate for a better price (liquidation value) & 100% conversion. The buyer gets a bigger equity issue, & can use all of the sellers cash to pay down debt - improving their D/E ratio. $1.00/share may well just be the opening bid.

Here's to hoping that Santa is a little more generous!

SD

Tax free rollover only applies to those with a cost below $1. Not ffh or pabrai or me. If your cost is over $1, why would you do the rollover?  Just sell, realize loss and buy resolute if you really want too.  If you have millions of shares, it makes sense because you couldn't sell that many shares at $1 on the open mkt?  I'm just saying the tax-free rollover component of the take-over applies to few

[JHelg]

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

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

[Uccmal]

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

[lessthaniv]

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

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

[SharperDingaan]

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

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

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

SD

[SharperDingaan]

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

1) Keep in mind the power generation EBITDA of 4-6M/yr starting 01/01/2013. Roughly 5 x 5M discounted at 7% ? (debt rate) for 1 yr; 23.36M/130M shares - or an additional 0.18c MINIMUM.
2) Assume another 35M MINIMUM of market value > book value for all the P&E. Another 0.27c/share.

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

SD