THE FIBREK STORY It all started when Prem Watsa, Chairman and CEO of Fairfax Financial Holdings Limited and his right-hand man, Paul Rivett, had a private meeting with Fibrek’s chief executive and chief financial officer in Montreal on May 5, 2011 at which they were apprised of proposed expansion plans involving a strategy-altering acquisition in the United States.
That meeting, at which Mr. Watsa expressed concerns with the plan, was the last Fibrek’s executives heard from Mr. Watsa before a surprise hostile takeover was launched by Abibiti six months later — with the backing of Mr. Watsa’s firm. Fairfax has signed a lockup agreement to tender the firm’s Fibrek shares to the Abitibi offer valued at about $1 a share.
An affidavit sworn by Hubert Lacroix, the chairman of Fibrek’s board and also president of the Canadian Broadcasting Corp., alleges that Fairfax was in possession of some important and even confidential information about Fibrek when it agreed to back the takeover bid.
In the document, Mr. Lacroix points out that Fairfax's vice-president and chief legal officer, Paul Rivett, is on Abitibi's board of directors in addition to being one of Fibrek's main contacts at Fairfax. Mr. Rivett attended the May meeting with Mr. Watsa and the senior Fibrek executives, according to other affidavits sworn by Fibrek CEO Pierre Gabriel Côté and CFO Patsie Ducharme.
The connections between Fibrek, Abitibi and Fairfax are so great that they led Fibrek’s board to believe it was necessary and in the best interest of shareholders to hire an investment-banking firm to do an independent valuation of Fibrek, Mr. Lacroix said.
For its part, Abitibi has maintained that a formal valuation, while required by an “insider bid,” isn’t needed in this case because the bidder and “joint actors” did not have material information concerning Fibrek’s business.
Pierre Gabriel Côté, Fibrek’s CEO, signed an affidavit in which he says details of negotiations with the U.S. paper firm targeted by Fibrek were divulged to the Fairfax executives at the May meeting. Mr. Côté says Mr. Watsa expressed concerns with the proposed transaction, including the price to be paid and the state of the U.S. economy. Nonetheless, they discussed reconvening at a later date to talk about it further. Mr. Côté says Mr. Watsa told him and Fibrek CFO Patsie Ducharme: “Let us know how you proceed and we will think about it.”
In an accompanying affidavit, Ms. Ducharme describes following up with Fairfax’s Mr. Rivett. She says she spoke to him on Nov. 23, 2011 and told him Fibrek was nearing completion of the acquisition discussed. She then requested a follow-up meeting with Mr. Watsa and Mr. Rivett.
Emails and telephone messages were exchanged for the remainder of that week in an attempt to set up that meeting, Ms. Ducharme says. But on the Friday, Nov. 25, 2011, Mr. Rivett asked her to put things on hold until the following Monday. Ms. Durcharme said this surprised her because the Fairfax executive was usually willing to speak with her in the evenings and on weekends.
She says she did not hear from Mr. Rivett or Mr. Watsa again. That Monday, Abitibi made its bid.
In December 2011, Mr. Watsa told the Financial Post that Fibrek and its stock have “not performed well for a long time.” He praised the management for working hard to reverse “problems from the past” but called the company’s assets “orphaned.” He added that the Abitibi/Resolute offer includes a share component that will maximize value for all shareholders “over the long-term.”
As for the lock-up agreement involving Fairfax Financial Holdings Limited, Pabrai Investment Funds and Oakmont Capital it is not clear whether Mr. Watsa intervened upon these parties by way of kickbacks, perks or other form of monetary benefits. The role played by fourth party Steelhead Partners, LLC is still not determined. There has definitely been some backroom dealings in this whole flawed process.
RFP committed itself on November 28, 2011 to take up at least 66 2/3 % of Fibrek shares in order to successfully achieved its hostile takeover bid of Fibrek. It arbitrarily reduced this percentage to 50.1% on April 2, 2012. On that ground itself, RFP's bid to acquire Fibrek should be invalid as RFP did not fulfilled and respected its initial committment to acquire Fibrek on the basis of 66 2/3 % of Fibrek shares.
RFP has never had the minimal decency of increasing, even slightly, over the months, its bidding price for Fibrek which indicates how some evil bargaining were undertaken by Fairfax and others at the expenses of Fibrek minority shareholders.