A positive article (despite the negative title) in today's Financial Post. Original is at ...
canoe.com
Market may push Avenor to revise Repap share swap
By KATHRYN LEGER
Montreal Bureau Chief The Financial Post
Repap Enterprises Inc. said Friday it is not yet considering a new share-swap ratio to
help push through its $3.3-billion merger deal with Avenor Inc., maintaining it has other
"alternatives" should the current transaction flounder.
However, numerous analysts and institutional investors believe unless Avenor
restructures the deal by revising its proposal to exchange one common share for every
4.25 Repap shares, Avenor shareholders will reject the takeover offer when it is put to a
vote on March 12.
The market has also reacted negatively, pushing Repap's shares (RPP/TSE, ME) down
to $2.01 in Toronto on Friday, from $4.20 when Avenor announced its plans Dec. 18,
and far below the $5 they were valued at in the current share-swap proposal.
Avenor shares (AVR/TSE, ME) closed Friday at $23.40, down 45›.
Some investment firms are suggesting a ratio of eight (one Avenor for eight Repap
shares), which would mean less dilution for Avenor since it would issue fewer shares to
carry out the transaction. Another solution could be a mix of preferred Avenor shares
instead of common shares.
On Friday, Daniel Veniez, Repap's vice-president of corporate affairs, said a new kind of share swap "is not on the
table.
"We're not looking at that and Avenor hasn't come to see us either. We're staying the course and we are committed to
the pre-merger agreement with Avenor."
That being said, Veniez insisted Repap has other alternatives that are in the interest of shareholders.
"It would be the height of irresponsibility of the [Repap's] board and management not to have alternatives," Veniez said,
pointing out that managment, which holds about 25% of Repap shares, has a vested interest in getting the best deal.
The company can not reveal its alternatives "on the advice of legal counsel" until after the March 12 vote by Repap and
Avenor shareholders, he said.
But he added the company is "clearly concerned by the downward pressure on our stock" even though it can't provide
more information to the market.
"There is a widespread impression that the deal is not going to go through and this has created upward pressure on
Avenor [stock] and downward pressure on Repap," Veniez said.
As well, "a crucial but realistic issue is that a lot of people are making money on speculation. They're short selling and
there are people who have to cover margin calls."
Veniez said that while investors are nervous about Repap's liquidity given its $2.4-billion debt, the company "has secured
additional bank support that will see us through to the end of 1997."
He would not provide specifics saying only the company has access to financing if needed and more details will be
available when Repap releases its 1996 financial statements in the next few weeks.
Meanwhile, Avenor is continuing to pitch the deal in road show presentations with institutions and analysts.
On Wednesday, at least one analyst was rating Repap "a very strong speculative buy based on our belief the Avenor
merger should go through."
Analyst Otis Bradley of New York-based Gilford Securities Inc. said despite Repap's "horrible stock action," the
recommendation is based on "remarkably strong" orders for coated paper as manufacturers narrow their discounts and
plan price increases.
"Plus," Bradley wrote, "who does not believe there will not be far greater cuts in labor and management at Repap (and
maybe even Avenor) than it is polite to discuss before the deal is consummated."
"The same is true for asset divestitures," he added. "We believe there will be much more than it is prudent to promise
right now, which will help reduce debt even faster than announced."
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