MONTREAL – Fibrek’s shares surged by nearly 10 per cent Wednesday after Mercer International raised its friendly bid by nearly eight per cent, putting new life into its takeover battle with Resolute Forest Products.
The pulp producer’s shares were up 10 cents, or 9.52 per cent, at $1.15 in afternoon trading on the Toronto Stock Exchange.
Fibrek (TSX:FBK) attracted Mercer as an ally to fend off a hostile takeover by fellow Quebec-based Resolute (TSX:ABH), formerly called AbitibiBowater.
Mercer’s (TSX:MRI.U) previous offer had already been the higher of the two bids but some of Fibrek’s largest shareholders have been backing Resolute.
The new bid, which raises the offer by 10 cents to $1.40 per share, represents a 40 per cent premium over Resolute’s $1 per share offer.
“Mercer has once again brought a superior offer to the table — one which recognizes the intrinsic value of Fibrek shares as confirmed by the independent valuation presented to the board in February,” stated Fibrek chairman Hubert Lacroix.
Mercer has increased the cash component of its offer by $13 million to a maximum of $83 million. That’s $11.5 million more cash than Resolute’s offer.
Shareholders have the option of $1.40 in cash, 0.1659 of a Mercer share or 64 cents in cash plus 0.0903 of a Mercer share.
Fibrek CEO Pierre Gabriel Cote said Mercer’s revised offer recognizes the potential value the pulp producer, including a 33-megawatt power purchase agreement with Hydro-Quebec that could generate up to $16 million in additional pre-tax operating earnings.
The forest products company also announced it has put in place a new shareholder rights plan expiring May 11 that is designed to give investors more time to consider their options and to wait for a Supreme Court of Canada decision on special warrants made available to Mercer.
“We have fought vigorously to protect the rights of our shareholders since day one and we will continue to do so,” Lacroix said.
The plan would allow Fibrek to be acquired through a bid other than Resolute’s “insider bid” that is made to all shareholders and is accepted by a majority of Fibrek’s independent shareholders.
The plan could issue one right for each outstanding share, diluting the stake held by Resolute and its partners. The rights would be exercisable as part of a “flip-in event” if any person or entity increases their shares to 20 per cent.
Resolute has secured hard lock-up agreements with Fairfax Financial Holdings Ltd. (TSX:FFH), Pabrai Investment Funds and Oakmont Capital Inc. for 45.74 per cent of Fibrek shares.
Resolute and Fairfax, which each control more than 20 per cent, are grandfathered under the rights plan and would not trigger a “flip-in event” with the shares they own.
However, the event would be triggered if they add more shares or lock-up agreements as of the close of business Wednesday.
“Faced with Abitibi’s continued oppressive conduct, which has effectively prevented an unrestricted auction for the common shares of Fibrek, we are taking measures to promote shareholder democracy in the face of a highly coercive unsolicited bid by Abitibi,” said Lacroix.
Fibrek said Abitibi’s opportunistic strategy to acquire Fibrek shares at a discount while proceedings over the cease trade order are pending “takes advantage of the uncertainty existing in the market.”
“The adoption of the shareholder rights plan is a genuine attempt by the board to provide our shareholders with the ability to choose Mercer’s vastly superior offer,” Lacroix said.
Resolute could become Fibre’s controlling shareholder when its offer expires at midnight Wednesday night after it reduced the minimum tender conditions to the number of shares it has already achieved through lock-up agreements.
Meanwhile, Fibrek announced earlier Wednesday that the Supreme Court of Canada has agreed to fast-track the appeal process of a Quebec court decision in Resolute’s favour.
The high court has set a Friday deadline for all submissions on whether it should grant leave to hear the appeal. If leave is granted, a panel of judges will decide whether the appeal will be expedited.
If it hears the case, the court will decide whether to overturn a Quebec Court of Appeal’s decision that maintains a cease trade order of 32.3 million special warrants to purchase Fibrek shares by Mercer.