Article from todays Financial Post ...
Avenor scrambles to rework its Repap offer
By KATHRYN LEGER
Montreal Bureau Chief The Financial Post
Avenor Inc. is trying to rejig its controversial $3.3-billion proposal to take over Repap Enterprises Inc. but has not yet
been able to work out a new deal with Repap founder and chairman George Petty, sources confirmed yesterday.
Petty, who holds 23% of Repap stock, has refused to consider a proposal by Avenor to alter the original offer's
share-exchange ratio.
That deal would see one Avenor common share exchanged for 4.25 Repap common shares. The new proposal,
roughly, is to exchange one Avenor share for eight to 10 Repap shares, the sources said.
Changing the ratio and working out new financing agreements with the bankers who wield control over heavily leveraged
Repap assets, are seen as key to winning support from Avenor shareholders.
The company is preparing for a vote on merging the two firms on March 12.
"They are trying to redo the deal, and do something to change the debt by doing something on the financing side with
assets that are not secured," said one source, who insisted on anonymity. "The B.C. assets are key to the equation."
Repap shareholders, whose stock has an assigned value of $5 a share in the offer now on the table, have not voiced
opposition to the transaction.
But institutional shareholders of Avenor -- some of whom met informally last week in Toronto -- have said they oppose
the deal because Repap's massive $2.2-billion debt load would leave the combined company with $3.2 billion in debt.
They also fear an equity dilution from the issue of new Avenor shares.
Neither Avenor nor Repap would acknowledge yesterday that talks to renegotiate the deal have taken place.
"We can't comment on any speculation about renegotiation," Avenor spokeswoman Dominique Dionne said. "We
remain committed to the deal as it stands now."
She said Avenor continues to meet with shareholders and provide them with "the big picture following synergies and
divestments."
Avenor plans to lessen the debt of the combined company, but would not say how much support it has rallied.
Daniel Veniez, Repap's vice-president of corporate affairs, said he would not comment on either the new offer to Petty
or reports of approaches by other parties interested in buying distinct assets in Manitoba, British Columbia and
Wisconsin.
"I can state categorically and with confidence that our shareholders and our board would not find [a new share ratio]
acceptable," Veniez said. He noted that coated paper markets, Repap's strength, are heading up and price increases are
expected.
Veniez said the boards of both companies supported the original deal, and Avenor financial adviser Salomon Brothers
Inc. determined that the 4.25 share exchange ratio "is fair."
"Some of our assets are among the most coveted in the industry and our board and management are extremely
comfortable with the operating and financial contingency strategy we have put together," he said.
At least four buyers are said to be interested in Repap's Wisconsin coated paper operations, with bids reportedly
ranging from US$800 million to US$900 million.
There is also said to be an offer for the Manitoba unit, which was looked at by West Fraser Timber Co. Ltd., Domtar
Inc. and Cascades Inc. before Avenor's bid came along.
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