Fibrek Inc FBKZF

The Violation of the Public Interest Clause

[p.yu]

A shareholder who has enough stock (Fairfax and friends) to influence orcontrol a corporation is considered to have a fiduciary duty to the minorityshareholders and to the corporation to use their power to control thecorporation in a fair, just and equitable manner. This same rule applies toshareholders who combine their shares to control the corporation. 


This rulemeans, in general, that controllingshareholders cannot use their power to control the corporation to benefitthemselves alone to the detriment of minority shareholders.  


One could easily connect the dots and uncover the factssurrounding this takeover bids


1) FBK is significantly undervalued by all measures - BookValue, NAV, debt/equity ratios, etc 
2) Fairfax holds a controlling position in struggling Pulpand Paper Company Abitibi/Resolute - hence, the takeover did for Fibrek
3) Fairfax is looking to enrich their Abitibi holding atthe expense of their much smaller stake/control of FBK at the expense/abuse ofFBK shareholders
4) Fairfax has entered into a lock-up agreement withthemselves by virtue of their control in Abitibi/ Resolute. 
5) two other large shareholders Pabrai and Oakmont areacting in concert and have also agreed to tender
6) the locked up shareholder have agreed to have no haveNO ABILITY to withdraw their shares to facilitate any competing transaction 


So lets focus on item 6. In the event a competing offerwere to be made at higher price, the controlling shareholders that are lockedup have given up their rights and thereby thwarted any competing offers. This is clearly abusive to minority rights, speaks volumesas to the motives/ethics of Fairfax, Pabrai and Oakmont - why would anyoneentrust their funds or capital to firm/s that would agree to such a deal. Theyhave an obligation and fiduciary duty to attain the highest price possible fortheir own clients, do they not? 


Takeoversshould not involve secret "joint actors" who are locked up ahead oftime to the detriment of minority shareholders. Particularly when they havealso agreed that they cannot withdraw their shares. It is very likely thatFairfax has not violated any specific securities law but the OSC does have thepower to act if it is clear the pre-arranged deal and lock ups are not in the"publics interest" which is clearly the case.  The OSC hasused this defense on many occasions and they will be able to use it once again.