One of the best opportunities to learn is when reviewing mistakes, and in the case of Fibrek I certainly made one. I did not properly read the tender offer documents and assumed (you know what they say about assumptions…) that enough cash was available to not get prorated and get partly paid in ABH shares. While in total there was enough cash, this was not all available since the amount of available cash was prorated based on the number of shares tendered. ABH also dropped since the tender offer was made making the deal value lower than the all cash result.

I’m guessing that I’m far from the only one who missed this, because ABH managed to get several millions of shares accepted the past weeks while the market price of FBK was at all times above the deal value. Thanks to this I managed to reduce my losses a little bit because I did catch this before tendering my shares, and sold my shares back to the market yesterday at a loss. At yesterdays close the deal value (0.55 + 0.0284 * 12.37 = CA$0.901 ) and price of FBK ($CA0.90) was nearly identical .

So what lessons should I learn from this:

1. Never be lazy reading the details in important documents.
2. Don’t cut corners when something is time sensitive: if I don’t have enough time to do proper research, just skip it.

Disclosure

No FBK.TO position anymore

Today Fibrek’s share price dropped 11% to CA$0.96 after a court decision related to the battle over the control of the company. This is interesting because Resolute has made a tender offer for CA$1.00/share and Mercer is trying to buy the company for CA$1.40/share. Resolute has already bought 46.8% of the outstanding shares, and has extended the tender deadline to April 23 for remaining shareholders. So this seems to be an opportunity to make an easy 4.1% in a short time period with minimal risk.

I’m going to keep the write-up fast and quick because the idea is time sensitive, but there is quite a soap story behind the tender offer. The offer was made in November 2011 and besides the buying party and some other big shareholders that entered lock-up agreements with Resolute there has been little enthusiasm from minority shareholders for the CA$1.00 deal because they think (probably rightly so) that it’s a lowball offer, and that the parties agreeing to the deal have misaligned incentives because they also have a stake in the company buying Fibrek.

A second party – Mercer – emerged after the initial bid was made, and has made the offer to buy the company at CA$1.40 per share, but because of the lock-up agreements that Resolute has with other big shareholders this bid is probably not going to be accepted (so minority shareholders here have every right to be unhappy!) and the court decision referenced above was also a negative for the higher bid. The company issued warrants in a private placement with Mercer to break the voting power of the Resolute group, but this move was not allowed by the court.

Buying some shares at CA$0.96 and tendering them at CA$1.00 seems to be the easiest and least risky way to make some money, but there are also some other moves possible. I’m not really familiar with how the process exactly works in Canada, so take everything (as usual) with a grain of salt, but to take the company private they need to acquire 90% of the shares to be able to take compulsory action against remaining shareholders. Since Resolute has so far only acquired 46.8%, shareholders that do not accept the current bid could get a higher bid in the future. But it is certainly also riskier: maybe Resolute will be happy with just a 50%+ controlling position.

I’m going to take the easy to understand, low-risk option, and hope that it’s not going to take too long before I get the cash after tendering the shares.

Disclosure

Author is long FBK.TO