Mercer raises offer to stay ahead in Fibrek race

Wed Apr 11, 2012 12:53pm EDT

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(Reuters) - Canada's Mercer International Inc (MRIu.TO) raised its offer for specialty pulp maker Fibrek Inc FBK.TO by 8 percent to further strengthen its position against rival bidder AbitibiBowater Inc ABH.TO.

Fibrek, which counts investment guru Prem Watsa's Fairfax Financial (FFH.TO) as its largest shareholder, is the target of a two-way battle for control as pulp producers look to cash in on surging Chinese demand for tissues.

On Wednesday, Mercer raised its offer to C$1.40 per share from C$1.30 per share, valuing Fibrek at about C$182 million. Mercer raised the cash portion to about C$83.0 million from about C$70 million.

Mercer's revised offer is 40 percent higher than the C$1 per share bid from Abitibi, which operates under the name Resolute Forest Products.

Mercer's earlier offer had been the higher of the two bids, but some Fibrek shareholders had been backing Abitibi.

Abitibi declined to comment on the raised Mercer bid.

Fibrek's board, which supports the Mercer bid, has also adopted a poison pill that would enable shareholders to benefit from the increased offer.

"We are taking measures to promote shareholder democracy in the face of a highly coercive unsolicited bid by Abitibi," said Fibrek Chairman Hubert Lacroix.

The rights plan, which will expire on May 11, will give shareholders sufficient time to weigh the two bids, Fibrek said.

Abitibi and Mercer have been engaged in a battle for Fibrek since February as the companies look to gain access to its three mills with a combined annual production capacity of 760,000 metric tonnes (837,757 tons).

Both the companies are currently locked in a legal battle, with Abitibi trying to block the Mercer bid.

Earlier on Wednesday, Fibrek said Canada's Supreme Court granted its motion to hasten an appeal against a Quebec court decision in Abitibi's favor.

"I do not think 10 cents changes the court's opinion, but I do think that the court is moving towards being a little bit more favorable to Fibrek," analyst Amer Tiwana of CRT Capital Group said.

FAIRFAX BACKS ABITIBI

Despite a higher offer from Mercer, Abitibi has persuaded Watsa's Fairfax to support its bid.

"We continue to support our contractual agreement with Resolute," Paul Rivett, Farifax Financial spokesman told Reuters.

Fibrek said Abitibi owns 45.74 percent of its shares.

Following an amended agreement, Fibrek has now agreed to increase the expense reimbursement fee payable to Mercer to C$2.4 million.

Fibrek shares, which rose as much as 16 percent earlier on Wednesday, were up 11 Canadian cents at C$1.16 on the Toronto Stock Exchange. The stock has gained nearly half of its value since end-November when Abitibi made the first bid.

(Reporting by Bhaswati Mukhopadhyay and Aftab Ahmed in Bangalore; Editing by Sriraj Kalluvila)

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