AbitibiBowater Inc., doing business as Resolute Forest Products, has applied to the Bureau de décision et de révision (Québec), the administrative tribunal with statutory jurisdiction in securities law and regulatory matters in Quebec, for an order to cease trade the proposed offer by Mercer International Inc. to acquire all of the issued and outstanding common shares of Fibrek Inc.
Fibrek and Mercer announced the offer on February 10.
A Resolute offer to purchase all of Fibrek’s common stock was to expire today, but, three days after the announced purchase by Mercer, Fibrek announced that it would extend its offer until February 23. A source at Phoenix Advisory Partners, Fibrek’s information agent, told The Paper Stock Report this afternoon that Resolute’s offer was off the table.
“They were outbid (by Mercer),” he said.
A call to Resolute was not returned.
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. Resolute requested that the Bureau hear its application on an expedited basis, and will argue that these measures are unlawful and inappropriate defensive measures to Resolute's offer.
Mercer announced on February 10 that it had entered into a support agreement with Fibrek through which Mercer will acquire all of the issued and outstanding common shares of Fibrek by way of a take-over bid. Pursuant to the Offer, 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 per Fibrek Share; or
C$0.54 in cash plus 0.0903 of a Mercer Share per Fibrek Share, subject to proration necessary to effect maximum aggregate cash consideration of C$70 million and maximum aggregate share consideration of 11,741,496 Mercer Shares.
The offer provides for consideration of C$1.30 per Fibrek Share or total consideration of about C$170 million for the Fibrek Shares, representing a premium of 30 percent over the unsolicited insider bid made by AbitibiBowater Inc., 81 percent over the closing price of the Fibrek Shares on November 28, 2011, the date of announcement of the Abitibi Bid, and 70 percent over the volumeweighted average trading price of the Fibrek Shares on the Toronto Stock Exchange for the 20 trading days ending on such date.
The board of directors of Fibrek, after consulting with its financial and legal advisers, has unanimously approved entering into the Support Agreement and unanimously recommends that Fibrek shareholders tender to the offer. Fibrek's board of directors has received a fairness opinion from Fibrek's financial advisor, TD Securities Inc., that the consideration offered by Mercer for the Fibrek Shares under the Offer 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, 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,” said Jimmy S.H. Lee, president and CEO of Mercer. “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. We believe that 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.
The Mercer Shares to be issued under the Offer will be registered pursuant to a registration statement on Form S-4 (the "Registration Statement") to be filed with the U.S. Securities and Exchange Commission (the "SEC"). The offer will be open for acceptance for a period of not less than 35 days from its commencement and may be extended from time to time. The offer will be subject to customary conditions, including, among other things, there being deposited under the offer, and not withdrawn at the expiry date, at least 50.1 percent of the Fibrek Shares, receipt of requisite regulatory consents, the Registration Statement being declared effective by the SEC and the absence of a material adverse change with respect to Fibrek.
Mercer intends to hold a special meeting of its shareholders in order to obtain shareholder approval of the issuance of the Mercer Shares, as required under the rules of the NASDAQ Global Market. In connection with such approval, Mercer has entered into voting support agreements with two institutional shareholders and its president and CEO, who collectively hold, directly or indirectly, about 44 percent of the outstanding Mercer Shares, to vote all of their Mercer Shares in favor of the Shareholder Approval.