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Gold/Mining/Energy : Avenor (avr-tse) - Repap buyout (rpp-tse)
AVR 4.210-2.3%Nov 5 3:59 PM EST
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To: Randyfb who wrote (117)3/19/1997 11:37:00 AM
From: dave b   of 290
 
I think there is no doubt that repap shareholders will vote to accept the deal. Repap is one financially sick puppy. The fact that there is a price discount on repap shares indicates that the market does not anticipate the deal going through. If the deal was a sure thing, would all the investment professionals ignore a quick 30% gain? The deal was increased to 8:1 only because there was no chance of Avenor shareholders voting yes. The current deal is designed to entice Avenor shareholders into accepting the deal, but based on the 30% discount, this looks shaky. If no deal goes through, Repap will eventually end up insolvent.
Consider this comparison: In Dec 95 Donohue took ver Quno for 1.1billion. As you may or may not know, Donohue is financially very conservative and as a result enjoys the highest operating margins in the forest products industry. In spite of this, Donohue has only managed to pay off 200Million of debt in 1 year. Things are not proceding as quickly as Donohue anticipated. This raises the question of how will Avenor manage all the debt if the deal goes through? Probably not very well without a significant sale of assets. Hence, the low repap price.
Even if there is one or two more paper price increases, Avenor will be burdended with debt for many years to come.
Repap is an extreme risk and my own opinion is to stay away from it. If the deal does not go through, I suspect that Repap will be lucky to survive the next two years.
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