Here's an article from Saturday's Vancouver Sun discussing 1:8. As a RPP shareholder who has read the shareholder package and voted for 1:4.25, I'd oppose a 1:8. ... let the institutions keep AVR, spend a billion or two upgrading to compete and still be a small fish vs Abitibi-Consolidated.
Saturday 15 February 1997
Avenor shareholders hold out
GORDON HAMILTON
Southam Newspapers
VANCOUVER - Avenor Inc.'s institutional shareholders say they want the company to rewrite its
takeover bid for Repap Enterprises or they won't support the deal.
The deal they are proposing would cut Avenor's share contribution in half, leaving Repap
shareholders on the hook for the difference.
At a meeting of disgruntled shareholders in Toronto last week some said they would vote against the
Repap takeover, being financed by a share swap. Gordon Capital Corp., organizers of the meeting,
would not comment on the event and the Avenor shareholders spoke to The Vancouver Sun on
condition they not be identified.
The shareholders said their confidence in Avenor's management team has been shaken over the
Repap takeover.
They also said they expect a revised proposal by the end of this month, when the deal between the
two companies is expected to be completed.
"We will know by then," said a representative for a major institutional shareholder. "Everybody is
going to reconsider their position."
Montreal-based Avenor is the second Canadian forest products company to come under
shareholder attack within the last year. MacMillan Bloedel, Canada's largest forest company, is
currently under siege by shareholders who are angry that MBstock has languished in the $20 range
for 10 years. MBshareholders have forced changes to the board of directors and promises from
management for greater focus on shareholder value.
Avenor has yet to respond to the shareholder demands, "but you know they will," said the
representative. "They know what is going on in the marketplace. They know the sentiment if they
want a deal to go through."
Hardest hit if a new deal is approved would be Repap shareholders and the banks holding Repap's
$2.4 billion debt. Under the original deal Avenor agreed take on the Repap debt and offer one
Avenor share for every 4.25 Repap shares, adding another $617 million to the price for a total cost
of $3 billion.
The new proposal would swap eight Repap shares for each Avenor share.
That would mean Avenor would assume less Repap debt, issuing only 15 million new shares rather
than 30 million in exchange for Repap's 123 million shares, reducing the over-all transaction price to
$2.7 billion from $3 billion.
Repap's creditors would also be asked to take $300 million worth of stock under the shareholder
proposal.
"It would reduce the over-all transaction price and reduce the debt by an equivalent amount with all
the hit being on the Repap shareholders," said the Avenor shareholder representative.
A second shareholder said his group has made no decision on the Avenor-Repap deal and is
awaiting Avenor's full, written disclosure.
"I would expect to see some negotiation."
Repap has virtually no book value because of the company's $2.4 million debt. Its value lies in its
investment tax credits and tax-loss carryforwards, which are worth $360 million. But if there is no
bid for the company, the tax credits and carryforwards are worthless.
Avenor's shareholders must approve the deal by a two-thirds majority. Should the deal die,
money-losing Repap would be left to the mercy of its bankers.
Under the deal as currently proposed, Avenor would become Canada's largest pulp and paper
producer, but it would substantially dilute its shareholder base. Avenor would also increase its debt
to 60 per cent of its capitalization - highest in the Canadian forest industry.
If Avenor management cannot pull off the Repap takeover, it will be the second such deal to fail
within a year, severely undermining confidence in president and chief executive officer Paul Gagne
and his management team. In early 1996 Avenor failed in a takeover bid for subsidiary Pacific Forest
Products.
"It's a slap in the face for them. There will be some tough times to come," said one shareholder.
"This team of guys have not produced a lot of value for shareholders," said another.
Montreal-based Repap, burdened by hefty debt charges and chronic losses, was placed on the
auction block in July by company chair and chief executive officer George Petty. But Petty was
unable to attract any lucrative offers until the Avenor deal was tendered Dec. 18.
As part of its offer, Avenor has said it would sell Repap's Manitoba and British Columbia assets,
allowing the company to focus on higher-valued printing papers and newsprint. The Avenor-Repap
deal has been described by Toronto analyst John Duncanson as a perfect fit, which should result in
considerable cost-savings.
c Copyright The Vancouver Sun
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