The recent saga of Fibrek Inc. has been of great interest to those in the M&A community. Many hoped that it would lead to the Supreme Court of Canada giving its view of defensive tactics and strengthen the hand of boards of directors seeking ways to maximize shareholder value in the face of an unsolicited offer. This would have been very timely as regulators have recently been considering the future of certain defensive tactics (for more on this, please see one of our earlier posts: here). Despite the SCC dismissing Fibrek’s application for leave to appeal, the regulatory and court decisions may still very well have implications for M&A inCanada.
In the spirit of full disclosure, I feel inclined to tell you that I’ve just returned to McCarthy Tétrault after a very exciting six month secondment to the Corporate Finance Branch and M&A Team of the Ontario Securities Commission. While at the OSC, I worked on aspects of the Fibrek matter. I’m going to post about the saga and its implications over the coming weeks. I note that my posts are limited to publicly available information.
For those not as familiar with the matter, I thought I’d start out with a short history of the offers for Fibrek and the related proceedings.
On December 15, 2011, AbitibiBowater Inc. (d.b.a. Resolute Forest Products) made a take-over bid to acquire all of the shares of Fibrek for $1.00 per share (shareholders were also permitted to select consideration in the form of shares or a combination of shares and cash). Abitibi also entered into irrevocable lock-up agreements with three of Fibrek’s largest shareholders, representing approximately 46% of the outstanding Fibrek shares. About a week later, Fibrek’s board recommended that the shareholders reject Abitibi’s offer and adopted a shareholders rights plan. On February 9, 2012, the Québec Bureau de décision et de révision (the Bureau) issued a cease trade order with respect to Fibrek’s shareholders rights plan.
On February 10, the public learned that Fibrek and Mercer International Inc. had entered into a support agreement pursuant to which Mercer would make an offer at $1.30 per share (again, shareholders were also permitted to select consideration in the form of shares or a combination of cash and shares). At the same time, it was announced that Mercer had agreed to subscribe for special warrants pursuant to a private placement at a price of $1.00 per special warrant for an aggregate subscription price of $32.32 million. Because each special warrant entitled Mercer to acquire one Fibrek share without further payment, if issued, the special warrants would result in the holdings of the locked-up shareholders being reduced to 40%. Shortly thereafter, Mercer’s take-over bid was launched.
A couple of days later, Abitibi applied to the Bureau for a cease trade of the Mercer offer and the special warrants, after which the Bureau issued an order that prohibited Fibrek from issuing the special warrants, reasoning that the special warrants and break-up fee contained in the support agreement with Mercer were inappropriate defensive tactics; however, the Bureau also found there was no reason to prevent Mercer from proceeding with its offer.
On March 13, the Bureau’s decision was reversed by the Court of Québec, a decision which was in turn appealed and, on March 27, the Québec Court of Appeal reinstated the Bureau’s decision.
During this time, Fairfax Financial Holdings Limited, the largest shareholder of both Abitibi and Fibrek, filed an application for hearing and review to the OSC seeking to set aside the decision of the Toronto Stock Exchange to approve issuance of the special warrants and suspend the decision of the TSX until the application is heard by the OSC (the hearing had been adjourned until May 3).
On March 28, Fibrek announced its intention to apply for leave to appeal to the SCC. Shortly after, the SCC granted Fibrek’s motion seeking permission for an expedited process to hear an application for leave to appeal and, if leave was granted, the appeal itself of the Québec Court of Appeal’s decision to maintain the cease trade order of Fibrek’s proposed private placement of special warrants to Mercer.
On March 28, Mercer filed an application with the OSC requesting a simultaneous hearing with the Bureau to consider whether Abitibi’s offer should be cease traded and other relief granted. After a preliminary hearing, the OSC dismissed the application. The Bureau did hear the matter in early April. Shortly after the application was filed Fibrek’s second largest shareholder, Steelhead Partners LLC, announced it would not tender its approximately 5% holdings of Fibrek shares until Abitibi’s minimum tender condition was met.
On April 11, Mercer announced that it had increased its bid to $1.40 per Fibrek share. On the same day, Fibrek announced it had adopted a second shareholder rights plan that would automatically terminate on May 11. The timing of these actions was critical because the locked-up shareholders of Abitibi were entitled to terminate the lock-up agreements on or after April 13, and the Abitibi offer was to expire at 11:59 p.m. on April 11. Later that same day, the Bureau cease traded Fibrek’s shareholders rights plan. The following day it was announced that Abitibi had taken up 46.8% of Fibrek’s shares and extended its offer to April 23.
On April 18, the SCC dismissed Fibrek`s application for leave to appeal. As a result, the private placement to Mercer cannot be completed. Shortly thereafter, it was announced that Mercer withdrew its application from the Bureau.
As of today, both the Mercer and Abitibi offers remain outstanding and 53.2% of Fibrek’s shares remain in play. Currently, Abitibi has taken up 46.8% of Fibrek’s shares and is now its largest shareholder. Many expect that Abitibi will win the battle for Fibrek at the end of the day. But if this battle has taught us anything, it is to expect the unexpected.
So how will the saga end? And what does it mean for boards of directors? Stay tuned…