The ABH unsolicited bid at $1.00 significantly undervalues FBK in my opinion. Here's why:
In 2002, FBK IPO'd as a spin-off from ABH. This spin-off included only one asset, the Saint-Felicien mill, which FBK bought from ABH for $654mm (post working capital adjustments).
Now ABH is trying to buy-back FBK for $254mm, which is $400mm less than what they spun it out for 9 years ago! In addition to the $400mm hole, this bid ascribes zero value to the Fairmont and Menominee mills, which FBK acquired for C$178mm in 2006 (these were originally built for C$560mm in the mid 90's).
What has changed at FBK's operations to justify this substantial decrease in value? Let's look at the numbers:
| | Value | Sales (Est) | EBITDA (Est) | Volume (tonnes) | NBSK Price (US$) | NBSK Price (C$) | EBITDA Margin | EV / EBITDA | EV / Sales |
| 2002 | $654.3 | $234.4 | $49.0 | 335,200 | $450.00 | $708.44 | 21% | 13.4x | 2.8x |
| Current | $254.1 | $519.6 | $52.4 | 713,339 | $993.00 | $973.34 | 10% | 4.9x | 0.5x |
| Change | -61% | 122% | 7% | 113% | 121% | 37% | | | |
So to justify a 61% decrease in value:
- sales rose 122%
- EBITDA stayed roughly flat
- Volume increased 113%
- NBSK price increased 121% in USD and 37% in CAD
In 2002, spinning off the asset at 13.4x EBITDA and 2.8x sales was fair. Now, fair value is only 4.9x EBITDA and 0.5x sales?! What self-respecting investment banker could sign off on that valuation / fairness opinion?
What really makes this deal sleazy is that one of the reasons that FBK's margins have declined is that ABH cancelled their fibre supply agreement when they were in bankruptcy protection (a contract that was favourable to FBK), only to come back and renegogiate a new agreement at higher prices post re-org! What BS!
I'm glas to see that FBK has initiated a sale process and hopefully can negotiate a higher bid out of ABH. Cheers,