Mercer International (NASDAQ:MERC) agreed on Friday to acquire Montreal-based rival pulp producer Fibrek (TSE:FBK) in a deal valued at $170 million, beating out a hostile bid from AbitibiBowater (NYSE:ABH)(TSE:ABH).
Mercer, founded in 1968 and with roughly 1,491 employees, makes and sells pulp made from wood chips and pulp logs. It sells its products mainly in Europe, Asia and North America.
The offer price is for $1.30 per Fibrek common share and represents a 15 percent premium to Fibrek’s Thursday closing price of $1.13 each, and is 81 percent higher than the closing price of Fibrek the day before the unsolicited bid of AbitibiBowater was made.
The Mercer offer is also 30 percent more than AbitibiBowater's proposal, Mercer said.
Under the terms of the Mercer offer, Fibrek shareholders can choose to receive $1.30 in cash, 0.1540 of a Mercer common share, or $0.54 in cash plus 0.0903 of a Mercer share, subject to proration on the basis of a $70 million maximum in cash, and roughly 11.7 million Mercer shares.
Mercer’s bid tops the unsolicited offer made by insider AbitibiBowater - which does business under the Resolute Forest Products name. First announced in November 2011, Resolute offered either $0.55 cash plus 0.0284 of a Resolute share, $1 cash only or 0.0632 of a Resolute share only. Fibrek considered Resolute’s bid opportunistic.
"This has been a challenging time for Fibrek as we have sought to maximize value for our shareholders and advance the interests of our other stakeholders," Fibrek’s chairman Hubert Lacroix said in a press release.
"We are pleased to support Mercer's offer and recommend it to our shareholders as we believe this offer meets our goal and provides a significant premium relative to Abitibi's unsolicited offer."
Fibrek also said that the deal, which its board has unanimously approved, is in the best interests of the company and its shareholders.
Fibrek’s chief executive, Pierre Gabriel Cote, said: "We had a responsibility to our shareholders to pursue alternative options in their best interests and that is exactly what we have done in supporting this offer from Mercer."
"There are significant similarities between Fibrek and Mercer given that we are both pulp producers with a culture of operational excellence."
In addition, Mercer has also agreed to purchase 32.32 million special warrants of Fibrek on a private placement basis, for $1 each.
Proceeds from the financing will be used by Fibrek to reduce its net debt due to recent costs incurred from its “strategic alternatives” review tied to Resolute’s unsolicited offer, and high inventory levels of pulp and lower sales, which have resulted in a five-week market shutdown of the Fairmont Mill, starting February 20, Fibrek said.
The shutdown will remove about 25,000 tonnes of recycled bleached kraft pulp from production (RBK). The Fairmont Mill has a capacity of 215,000 tonnes of RBK annually.
Quebec-based Fibrek produces virgin and recycled kraft pulp at three mills in Quebec, West Virginia and Michigan. 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.
Fibrek has a combined annual production capacity of 760,000 tonnes and approximately 500 employees.