Fairfax Financial Announces Plans to Invest in AbitibiBowater

AbitibiBowater Inc. (ABH) shares jumped as high as 48%, to C$14.40, in trading Monday, following an announcement that Fairfax Financial Holdings Ltd. (FFH), the insurance company run by Prem Watsa, will invest $350-million in the ailing newsprint giant. By mid-afternoon yesterday, shares were trading lower, at C$13.50, although they were still up by more than 38%.

Under the terms of the agreement unveiled Monday, which would see Fairfax inject the money in the form of unregistered convertible debentures with an 8% interest rate (which can also be paid in the form of additional debentures at a 10% rate) Fairfax will also have the right to appoint two directors to AbitibiBowater's board. The debt is convertible into AbitibiBowater common shares at C$10 a share. If fully converted, Fairfax would hold 35 million new shares in AbitibiBowater. The company currently has 51.9 million shares outstanding.

Montreal-based Abitibi’s stock has been beaten down more than 70% from its high, hit last October, of C$35.85. That’s when Abitibi-Consolidated merged with U.S.-based Bowater Inc. shares traded as low as C$4.57 earlier this month, amid fears the company would not be able to refinance its debt this spring.

The Fairfax transaction is expected to close March 31, though it depends on the completion of a C$1.4-billion debt refinancing plan.