Resolute optimistic about Fibrek bid
The corporate logo of Resolute Forest Products (TSX:ABH), formerly AbitibiBowater is shown. THE CANADIAN PRESS/HO
MONTREAL - The head of Resolute Forest Products says he can't understand the nervousness in Quebec's Lac St. Jean region to its hostile takeover bid for Fibrek, which appears to be nearing success.
"It's overblown in terms of concerns and issues because nothing will change on wood supply, nothing will change on sawmills and we need independents to supply the mill," CEO Richard Garneau said Tuesday after Resolute reported weaker first-quarter results.
The Quebec-based company, formerly called AbitibiBowater (TSX:ABH), said its profits dropped 23 per cent on challenges to its pulp and coated paper operating segments.
It earned US$23 million or 23 cents per share in the three months ended March 31. That compared with net income of US$30 million or 31 cents per share in the same 2011 period.
Reporting in U.S. dollars, Resolute said sales revenue declined 11 per cent to $1.05 billion from $1.19 billion in the first quarter of 2011.
Excluding $16 million of special items, net income for the quarter was $7 million or seven cents per share, compared with $10 million or 10 cents per share in the 2011 quarter.
Analysts had expected Resolute to earn eight cents per share.
With rival Mercer International (TSX:MRU.A) having withdrawn its bid, Garneau said he expects Fibrek shareholders will tender their shares after Resolute secures at least half of the pulp producer's shares, possibly by Friday.
"The only offer on the table is our offer so I expect them to tender and expect we're going to integrate their operations in Resolute," he said in an interview.
Resolute already supplies Fibrek (TSX:FBK) with 460,000 tonnes of wood chips annually, representing about 60 per cent of its needs. Garneau said the company will continue to require material from independent sawmills, especially when the provincial harvest is reduced in 2013 by 10.5 per cent.
He said Fibrek's facility sits in the middle of its six sawmills and would enable Resolute to gain operating efficiencies by returning it to its fold.
Resolute can take over Fibrek after acquiring two-thirds of its shares or winning a proxy vote on amalgamation supported by two-thirds of shareholders casting ballots.
Garneau said he hopes to meet with Fibrek officials on how to proceed after Resolute obtains more than 50 per cent of Fibrek's shares.
He declined to say if he's surprised by how far Fibrek went in trying to block a hostile takeover.
"They certainly have a responsibility as directors and they have done what we thought they would do."
Faced with a weak market for its product lines, Resolute took 197,000 tonnes of downtime in the seasonally slow first quarter to balance lower demand.
"Considering all the downtime that we took I think it was a reasonable quarter," Garneau added.
The newsprint segment was stable from a year ago as demand in North America declined by 2.6 per cent, its lowest reduction since 2004. However shipments were down by nine per cent from the fourth quarter, largely due to seasonal factors and the strong Canadian dollar.
Shipments overseas were down 20 per cent from a year ago as it chose not to compete in some markets because of low prices pushed by European producers who benefited from a low euro.
The pulp division was affected by an 8.5 per cent drop in demand from Western Europe, which is expected to continue through the rest of the year.
Coated and uncoated paper was affected by weak consumer confidence in the U.S. which prompted retailers to reduce advertising spending and magazine publishers to print fewer pages.
Garneau said he expects some improvement in the rest of the year, as the U.S. election provides some momentum.
Overall, he's cautiously optimistic about the year.
"I think that you have to wait to see what's going to happen in Europe and also Asia... but we're certainly a bit more optimistic that we're going to see improvement in the balance of the year."
Paul Quinn of RBC Capital Markets said the results were largely in line with expectations as adjusted EBITDA was $71 million, $8 million below the market consensus.
AbitibiBowater changed its operating name to Resolute Forest Products but won't change its legal name until it gets shareholder approval at the company's annual meeting May 23.
It produces newsprint, commercial printing papers, market pulp and wood products at 18 company owned or operated pulp and paper mills and 24 wood products mills in Canada, the United States and South Korea.
On the Toronto Stock Exchange, Resolute's shares closed down five per cent, or 66 cents, to C$12.44 in Tuesday trading.
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