The board of directors at Fibrek Inc. is recommending that shareholders reject a $130-million hostile takeover offer by AbitibiBowater , which is rebranding under the name Resolute Forest Products.
The Montreal-based pulp producer said Tuesday the unsolicited bid from its largest chip supplier is timed to take advantage of turmoil on the equity markets and low pulp prices.
"The price of our common shares as well as pricing in the pulp and paper markets were near their lowest level of the year at the time the intention to make the insider bid was announced by Abitibi," Pierre Gabriel Côté, Fibrek's president and chief executive officer, said in a statement.
Resolute has said the offer represents a 39-per-cent premium to Fibrek's share price, but Mr. Côté said there is actually no premium based on the six-month average trading price of Fibrek stock.
"Abitibi's insider bid conveniently ignores probable and material new streams of operating income," Mr. Côté added. "It deprives shareholders of significant intrinsic long-term value associated with our growth prospects."
The company is in the process of securing a power purchase agreement in Quebec which, if successful, would generate earnings before income tax, depreciation and amortization of $16-million, he said.
In a circular to shareholders filed Dec. 30, the company also asks any shareholders who have already tendered their shares to the AbitibiBowater offer to withdraw them immediately.
Fibrek calls the bid an "insider" offer since it has extensive operational knowledge of the company's Saint-Félicien mill in Quebec, which it built and formerly owned.
Fibrek's board said its financial adviser, TD Securities, has also concluded that the offer is inadequate.
The board has hired Canaccord Genuity Corp. to prepare a formal valuation of its shares, which the company believes will demonstrate that the offer is too low.
Under its unsolicited bid, AbitibiBowater has entered into lockup agreements with three big Fibrek shareholders, including Fairfax Financial Holdings Ltd. and Pabrai Investment Funds, which together hold about 46 per cent of Fibrek's shares.
Fibrek produces high-quality virgin and recycled kraft pulp at three mills in Quebec, West Virginia and Michigan. It has a combined annual production capacity of 760,000 tonnes and approximately 500 employees.
If the acquisition goes ahead, the St-Félicien mill, in the Lac-St-Jean region north of Quebec City, will increase AbitibiBowater's bleached kraft pulp by about 35 per cent.
Pulp from the Quebec mill is used in printing, writing and specialty papers, as well as packaging and tissue in markets in North America and Europe.
AbitibiBowater emerged from a bankruptcy restructuring nine months ago with wage and benefit reductions that range from 8 per cent for forestry workers to 17 per cent for pulp and paper 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.