Fibrek takeover battle heads back to court

Fibrek Inc. is heading back to court to defend its decision to issue takeover suitor Mercer International Inc. special warrants.

Under threat of a hostile takeover by AbitibiBowater Inc., Fibrek sought to issue Mercer International 32 million special warrants, which, if approved, would make it harder for Abitibi to attain the approval of two-thirds of Fibrek shareholders. However, the proposed private placement was very contentious because Mercer has also bid for Fibrek, and the target's board of directors have backed Mercer's bid.

Initially Fibrek was told it couldn't issue the warrants, then two weeks ago the Court of Quebec ruled that the private placement wasn't a problem. That decision has since been appealed, and Fibrek announced on Sunday that it now has to "vigorously" defend its position at Quebec's Court of Appeal.

The appeal only extends an already drawn out takeover battle that has raised a lot of eyebrows. Abitibi initially bid $1 per Fibrek share, but that offer was trumped by Mercer's bid worth $1.30 per share. No brainer, right? Not exactly.

The problem is that Fairfax Financial, Pabrai Investment Funds and Oakmont Capital, which combined own 46 per cent of Fibrek, all back Abitbi's offer. Making things even more murky, Fairfax owns a chunk of Abitibi, so some people argue that it is biased because it obviously wants Abitibi to pay the lowest price.

At this point, no one knows how this one will play out. But it's being closely watched.