MONTREAL – Resolute Forest Products, the former AbitibiBowater, has made an unsolicited takeover offer of $130 million to acquire Fibrek Inc. (TSX:FBK), an acquisition that would increase its pulp production and diversify its products.
“The proposed acquisition will increase our capacity in growing global pulp markets, which really provides overall balance to the company’s product offering,” Resolute’s Seth Kursman said Tuesday.
Fibrek produces high-quality virgin and recycled kraft pulp at three mills in Quebec, West Virginia and Michigan.
If the acquisition goes ahead, the St-Felicien mill, in the Lac-St-Jean region north of Quebec City, will increase Resolute’s bleached kraft pulp by about 35 per cent, Kursman said.
The pulp from the Quebec mill is used in printing and writing papers, specialty and packaging as well as tissue in markets in North America and Europe.
“The St-Felicien pulp is also used for tissue, which is obviously very much a growing market,” said Kursman, Resolute’s vice-president of corporate communications, sustainability and government affairs.
Resolute (TSX:ABH) has entered into lock-up agreements with three big Fibrek shareholders, including Fairfax Financial Holdings Ltd. (TSX:FFH) and Pabrai Investment Funds, which together hold about 46 per cent of Fibrek’s shares.
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But Montreal-based Fibrek said it’s evaluating the offer and will make a formal recommendation to shareholders as soon as possible.
Fibrek said Tuesday that Resolute’s offer will be 55 cents in cash and 0.0284 of a Resolute share for each Fibrek common share. The company couldn’t be reached for further comment.
CRT Capital Group senior analyst Amer Tiwana said Resolute has much of its business in newsprint, a declining market.
“Since they have emerged from bankruptcy, they have outlined a strategy where they know they’re in a business that’s in secular decline and they need to diversity away from it,” Tiwana said from Stamford, Conn.
The Montreal company emerged from a bankruptcy restructuring nine months ago with wage and benefit reductions that range from eight per cent for forestry workers to 17 per cent for pulp and paper employees.
“I think they are looking to do these ‘tuck in’ acquisitions and this seems to fit that bill because pulp is probably one of the better areas when you look at the paper and packaging sector,” Tiwana said.
“They’re actually adding a better component to their mix of products.”
There’s a lot of demand in North America and China for pulp but the market has softened a bit in China, he said. Pulp prices have been going up and newsprint prices and demand have been going down, Tiwana added.
“From the shareholders’ perspective at Fibrek, I would say they’re getting a pretty reasonable exit strategy.”
Resolute’s chief executive officer Richard Garneau said the proposed takeover is consistent with the Montreal company’s strategy.
“As we continue to focus on building a sustainable and profitable company, growth in expanding global pulp markets is the right move, at the right time, for Resolute Forest Products,” Garneau said in a statement.
“The range of optimization opportunities that we expect from this acquisition will, over time, deliver increased value to our shareholders.”
Fibrek has a combined annual production capacity of 760,000 tonnes and approximately 500 employees.
Resolute produces newsprint, commercial printing papers, market pulp and wood products at 18 pulp and paper mills and 23 wood product mills in the United States, Canada and South Korea.
The Montreal-headquartered company has 30 per cent of its pulp and paper capacity and 80 per cent of its wood products capacity in Quebec.
Fibrek shares were up 35 per cent, or 25 cents, to 97 cents while Resolute’s shares were down 47 cents, or three per cent, in early afternoon trading on the Toronto Stock Exchange.
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