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Resolute, Mercer Make Competing Bids for Fibrek

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The developing offer by Montreal, Que., Canada-based AbitibiBiowater (doing business as Resolute Forest Products) to acquire Fibrex Inc. was disturbed beginning late last week by an offer from Mercer International, New York, N,.Y, USA, to also acquire the Montreal-based producer of virgin and recycled kraft market pulps. The Mercer offer was announced last Friday (February 10), following an announcement by Resolute the day before (February 9) that the Bureau de décision et de révision (Quebec) had ordered all rights and securities issued or issuable under Fibrex's shareholder rights plan be "cease traded" beginning at 3:00 p.m. EST on February 13, the day that Resolute's offer was set to expire at 5:00 p.m.

Then on February 13 (this past Monday), Resolute extended its offer (originally announced on Nov. 28, 2011) to February 23, and on the same day also reported that it had applied to the Bureau de décision et de revision for an order to cease trade the proposed offer by Mercer. In its application, Resolute requested that the Bureau exercise its public interest jurisdiction to cease trade the offer on the basis, among other things, that it includes an improperly discounted and dilutive private placement of warrants and an unreasonable break fee.

According to its February 10 announcement, Mercer had entered into a support agreement with Fibrek to acquire all of its issued and outstanding common shares by way of a take-over bid. Pursuant to its offer, Mercer said that Fibrek shareholders will have the ability, on an individual basis, to elect to receive:

  • C$1.30 in cash per Fibrek share
  • 0.1540 of a share of Mercer's common stock (a Mercer Share) per Fibrek Share
  • C$0.54 in cash plus 0.0903 of a Mercer Share per Fibrek Share.

The three options above are subject to proration necessary to effect maximum aggregate cash consideration of C$70.0 million and maximum aggregate share consideration of 11,741,496 Mercer shares.

According to Mercer, the offer provides for consideration of C$1.30 per Fibrek Share or a total consideration of approximately C$170 million for the Fibrek Shares, representing a premium of 30% over the unsolicited insider bid made by AbitibiBowater (Resolute), 81% over the closing price of the Fibrek Shares on Nov. 28, 2011, the date of announcement of the Abitibi Bid, and 70% over the volume-weighted average trading price of the Fibrek Shares on the Toronto Stock Exchange for the 20 trading days ending on such date.

Mercer further reported that the board of directors of Fibrek, after consulting with its financial and legal advisers, had unanimously approved entering into the Support Agreement and unanimously recommends that Fibrek shareholders tender to the offer. Fibrek's board of directors reportedly has received a fairness opinion from Fibrek's financial advisor, TD Securities Inc., that the consideration offered by Mercer is fair, from a financial point of view, to the Fibrek shareholders (other than shareholders that entered lock-up agreements in connection with the Abitibi bid). In addition, Mercer said that, in conjunction with the Support Agreement, certain directors and officers of Fibrek have entered into lock-up agreements with Mercer.

"We are pleased to have the full support of Fibrek's board of directors for a transaction that we believe will deliver significant benefits to both companies' customers, employees, and shareholders. The acquisition of Fibrek clearly fits within our strategy of focusing on world-class production assets that produce high quality pulp. Additionally, the ability of Fibrek's St. Felicien mill to produce and sell surplus renewable energy is in line with our goal of increasing our revenues from energy sales," said Jimmy S.H. Lee, president and CEO of Mercer.

Lee added that "we believe Fibrek's mills are complementary to our existing operations and we feel that, through active management, the acquisition of Fibrek will generate increased value for our shareholders."

The Support Agreement provides for, among other things, a non-solicitation covenant on the part of Fibrek, subject to customary "fiduciary out" provisions, a right in favor of Mercer to match any superior proposal and a termination fee of C$8.5 million payable to Mercer in certain circumstances, including if Fibrek accepts a superior proposal.

The offer is expected to be made pursuant to a take-over bid circular and related documents to be mailed to Fibrek shareholders in accordance with applicable laws (all subject to the terms and conditions of the Support Agreement), Mercer noted.

Mercer plans to finance the cash portion of the offer by way of new credit facilities to be established with Quebec based capital providers.

Resolute owns or operates 18 pulp and paper mills and 23 wood product facilities in the U.S., Canada, and South Korea. Mercer operates three NBSK (northern bleached softwood kraft) pulp mills with a consolidated annual production capacity of 1.5 million tons.

Fibrek operates three pulp mills in North America, one in Saint-Félicien, Qué., and two U.S. mills at Fairmont, W. Va., and Menominee, Mich.. Its annual combined production capacity is 760,000 air-dried metric tpy. Fibrek has approximately 500 employees.

 

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