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Avenor rejects Abitibi bid
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February 25, 1998: 2:54 p.m. ET
Canadian pulp company calls rival's unsolicited C$3B bid 'underwhelming'
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NEW YORK (CNNfn) - Abitibi-Consolidated Inc. of Montreal has launched an unsolicited C$3 billion ($2.1 billion) bid for Avenor Inc., its neighboring rival in the newsprint and paper products industry.
"To the best of our knowledge, we believe this was the right approach to take. Even though this is an unsolicited bid, it would be our preference for this to start and end friendly," said Abitibi-Consolidated spokeswoman Susan Rogers.
But officials of Avenor, which also is based in Montreal, across the street from Abitibi-Consolidated, signaled their intention to rejecting the offer.
"I regard the Abitibi-Consolidated offer as opportunitistic, underwhelming and grossly inadequate. Management of Avenor intends to assess all its alternatives," interim President and Chief Executive Arthur Sawchuck said in a statement.
Yet, Avenor's shareholders have shown a great deal of independence over the past 16 months, having successfully taken on previous management at the company.
In December 1996, Avenor tried to acquire another Canadian paper products concern, Repap Enterprises Inc. But shareholders blocked the deal at a meeting last March. A month later, Michel Belanger stepped down as Avenor's chairman. Paul Gagne left the president and chief executive posts in November 1997.
"In the past, the shareholders of Avenor have gone against management. It's a shareholder base that thinks for itself," said Chip Dillon, an analyst at Salomon Smith Barney.
Abitibi-Consolidated -- which itself was created from the recent merger of Abitibi-Price and Stone-Consolidated -- said it will offer to buy each outstanding common share of Avenor for C$28 cash or 1.425 Abitibi-Consolidated shares.
Including the assumption of about C$1 billion in debt, the offer totals approximately C$3 billion.
Shares of Abitibi-Consolidated (ABY) were down 7/16 at 13-7/16 in afternoon trading on the New York Stock Exchange. Avenor's stock (ANR), which was halted in the morning as word of the deal spread through Wall Street, surged 5-1/8 to 21-1/2.
Meanwhile, Stone Container Corp., which is Abitibi-Consolidated's largest investor with a 25 percent stake, came out in support of the deal.
Abitibi-Consolidated estimates the deal would result in annual cost savings of about C$430 million. If completed, the purchase would contribute to earnings in the first 12 months.
Among its proposed initiatives, Abitibi-Consolidated said it would sell Avenor's uncoated freesheet and pulp mill in Dryden, Ontario. The company also said it eventually would divest its non-core pulp assets and use the proceeds to reduce debt.
"The combination of these two great Canadian businesses will create significant value for shareholders of both companies," said Abitibi-Consolidated Operating Chairman Ron Oberlander.
If the acquisition is successful and the Dryden plant is sold, Abitibi-Consolidated would have 22 paper mills -- 17 in Canada, 4 in the U.S. and 1 in the UK).
This is the right strategic initiative, at the right time for the right reasons," said James Doughan, president and chief executive of Abitibi-Consolidated.
Abitibi-Consolidated has requested that Avenor take the necessary steps to allow shareholders to decide on the merits of the offer, including providing Abitibi-Consolidated with a shareholders list. Investors will have 21 days from the date of mailing to respond to the offer.
The offer is subject to the usual conditions, including the tendering of two-thirds of the common shares subject to the offer, the waiver of Avenor's shareholder rights plan, and normal regulatory approvals.
-- by staff writer Robert Liu
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