MONTREAL - Pulp producer Fibrek suffered a setback in its bid to thwart a hostile takeover after Canada's top court refused Wednesday to hear an appeal of a ruling disallowing a key defensive move.
The Montreal-based company had asked the Supreme Court of Canada to rule on the efforts it has used to fend off a hostile takeover bid by a company formerly known as AbitibiBowater.
At issue is Fibrek's decision to issue special warrants to its ally, Mercer International Inc. (TSX:MRI.U), in order to thwart Resolute Forest Products (TSX:ABH).
The court agreed to expedite its decision, but in the end declined to hear the case. As is customary, the Supreme Court didn't provide any reasons for its decision to dismiss the appeal with costs.
The ruling lets stand a Quebec Court of Appeal decision that maintains a cease trade order of 32.3 million special warrants to purchase Fibrek (TSX:FBK) shares by Mercer.
Mercer couldn't be reached for comment and Fibrek vice-president, Dany Paradis, declined to provide immediate comment or indicate the company's next move.
Resolute spokesman Seth Kursman said Resolute is pleased that the Quebec regulator's ruling stands.
"Certainly the announcement today from the Supreme Court of Canada is a very important ruling on the matter and we are obviously very pleased," he said in an interview.
Kursman couldn't say if the ruling effectively marks the end of the protracted battle.
Resolute's extended tender offer deadline of April 23 still stands, he said.
Resolute has acquired nearly 61 million Fibrek shares, representing 46.8 per cent ownership of the pulp and fibre producer as of last week.
Resolute will pay $33.5 million in cash and 1.7 million of its own shares to acquire the Fibrek shares tendered by the April 11 deadline.
Benoit Laprade of Scotia Capital said last week that Resolute was positioned to gain control if the Supreme Court ruled against Fibrek.
Laprade wrote in a report that investment firm Steelhead Partners LLC would likely tender its approximately five per cent stake, while Resolute has indicated it intends to squeeze out the minority shareholders if it gets two-thirds of Fibrek shares.
"Remaining shareholders risk owning a minority position in an illiquid stock in the event the Supreme Court rules against Fibrek and Mercer, and Mercer walks away," he said.
Laprade said Resolute's offer "appears low" given the share appreciation of forestry rivals such as Tembec (TSX:TMB) and $16 million in annual earnings for Fibrek from a green energy contract with Hydro-Quebec.
The warrants would have increased the total number of Fibrek shares outstanding and make it more expensive for Resolute to win a two-thirds majority stake in Fibrek.
Mercer came forward in February to acquire Fibrek after Resolute announced its hostile takeover bid.
Resolute had attempted to acquire at least two-thirds of Fibrek's shares through a hostile takeover bid but has been thwarted by the smaller pulp and fibre producer and by Mercer.
Last week, Mercer raised its friendly bid by nearly eight per cent to $1.40 per share cash. That represents a 40 per cent premium over Resolute's $1 per share offer, but some of Fibrek's largest shareholders have been backing Resolute.
Fibrek produces kraft pulp, which is used to make high-quality paper. Montreal-based Resolute is a larger producer of paper, pulp and lumber.
In another regulatory decision in the takeover battle, Quebec's bureau de decision et de revision issued a cease trade order against Fibrek's shareholder rights plan, soon after the move was announced last week.
The defensive manoeuvre — designed to give investors more time to consider their options and to wait for the Supreme Court of Canada decision on the special warrants — had been adopted to at least slow down Resolute's acquisition of a large chunk of Fibrek's shares.
On the Toronto Stock Exchange, Fibrek shares closed up one cent to $1.08 in Wednesday trading, before the court ruling was announced.