A key figure behind Pacifica Paper Inc. expects company chairman Trevor Johnstone to emerge as the victor today in a nasty boardroom battle sparked by a $390-million takeover offer from Norske Skog Canada Ltd.
Based on discussions with some of Pacifica's major shareholders, the company's former chairman, Ken Shields, predicts the vast majority of them will back Mr. Johnstone by voting in favour of the deal at a meeting in Vancouver today.
That would be good news for Mr. Johnstone, who has been waging a proxy war against dissident investors in a bid to complete the deal.
Vancouver-based Norske Skog's bid to take over Pacifica's two British Columbia pulp and paper mills and about $600-million of company debt is contingent on the support of at least two thirds of the votes cast at this morning's meeting.
Completion of the deal is also subject to what is expected to be a lengthy fairness hearing in the B.C. Supreme Court.
The fairness hearing, which begins tomorrow, will give dissident shareholders, including Pacifica chief executive officer Wayne Nystrom and New York investment pool Cerberus Capital Management, the chance to voice their objections to the deal.
Cerberus, which has a 19-per-cent stake in Pacifica, is expected to raise some of its objections in a shareholder lawsuit aimed at blocking the deal. According to a press release from Mr. Nystrom, who is already the target of a defamation suit launched by Mr. Johnstone, he will use the hearing to raise questions about how proxy support was obtained.
Mr. Nystrom has urged the company to reject the Norske offer in favour of an alternative bid from Sault Ste. Marie, Ont.-based St. Mary's Paper Ltd., which Pacifica officials said has never been taken seriously.
St. Mary's is a private company controlled by Mr. Nystrom and his business partner, Ron Stern.
But in spite of all the legal wrangling, Mr. Shields still expects the Norske bid to succeed, eventually. "You have to respond to the will of the strong majority of shareholders and ultimately that will win out."
That view is based on the fact that he also is CEO of Raymond James Canada Ltd., the investment firm hired by Pacifica to contact large shareholders and secure their support for the transactions.
Based on those discussions, Mr. Shields is confident that more than two thirds of the shareholders will accept the offer.
"I think the high degree of internal bickering will cause people to accept Norske because it looks like board and management can't get along."
Mr. Shields is taking a keen interest in the deal because he played a key role in the establishment of Vancouver-based Pacifica Papers by raising about $250-million needed to acquire the company's assets after they were put up for sale by MacMillan Bloedel Ltd. in 1998.
Mr. Shields funded the acquisition with help from Mr. Nystrom and Cerberus Capital. Three years later, Raymond James is advising Pacifica to accept the deal because in its view, it stands to benefit from operating synergies with two Norske Skog mills located close to Pacific's own pulp operations.
The operating synergies, which Pacifica has said will lead to annual savings of about $60-million, include centralized purchasing for all of the mills.
"The operational benefits of the transaction are very, very clear," said Pacifica chief financial officer David Gandossi in a separate interview.
However, while Mr. Shields expects the majority of Pacifica shareholders to benefit from the merger with Norske Skog, he says the deal is a potential blow to Mr. Nystrom.
According to a Pacifica information circular, one of Mr. Nystrom's private companies -- NLK Consultants Inc. -- was paid $23.4-million in 1999 and 2000 for engineering and consulting services rendered to Pacifica.
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