Buckeye Cellulose Corporation Tries Hostile Takeover Of Merfin International.(Originated from The Commercial Appeal, Memphis, Tenn.)

MEMPHIS, Tenn.--Apr. 6--The Canadian firm that Buckeye Cellulose Corp. wants to take over fought back Friday when it announced its board of directors voted unanimously to reject Buckeye's offer of $6 a share, expressed in Canadian dollars.

The firm, Merfin International Inc., said it mailed the recommendation Friday in a directors circular to Merfin shareholders.

Buckeye needs three-fourths of the stock at the $6 price for the hostile takeover to be successful, but Merfin has loudly opposed the Memphis-based company's offer since it was made on March 25.

Merfin's stock closed Friday at $6.25 a share in Canadian dollars, down 15 cents, on the Toronto stock exchange.

Buckeye wants the Vancouver-based maker of air-laid absorbent fabrics for its technology and the possible synergies between the companies for developing new absorbent materials.

However, on Friday, the Memphis manufacturer of cellulose pulp had few comments on Merfin's announcement.

"We are disappointed. We think the offer is a fair offer," Buckeye spokesman Neil O'Brien said. "We can't say anything until we get a copy of the circular."

O'Brien said the companies are not in contact.

Two analysts reached Friday were unsure if shareholders eventually will sell to Buckeye, for the given price or a bid-up price.

"I give it a 50-50 chance of happening," said Morgan Keegan & Co. analyst Peter Tuz in Memphis.

Buckeye priced the Merfin stock at a good premium, but also at a price it could manage, he said. "You don't want to see a company stretch really hard for a company."

Buckeye shares closed Friday at $30.50, down 37{ cents, in New York Stock Exchange composite trading.

But Scott Kimelman, a Kimelman & Baird LLC analyst who follows Merfin said, "At $6, it would be basically stealing the company.... I can't believe anyone would sell their stock at $6, but maybe they would."

Buckeye has argued the price is a 45 percent premium on the stock's price for March, and that its price rose to $6 only after Merfin announced it was possibly an acquisition target.

On Friday, the Merfin board called Buckeye opportunistic and said the price was not representative of Merfin's long-term value.

It is opening a new plant in Ireland, it has a great new product and its stock is artificially low, Kimelman said.

Merfin has developed a new absorbent paper called Vizorb that has great potential for use in feminine hygiene napkins.

"In the fall this year, they'll have three mills. The thing was trading at $6 when they had one mill," Kimelman said. "You have a company, Merfin, which stumbled all four quarters last year. Then you had this artificial drop in stock ..." Merfin was pulled from Canada's version of the Standard & Poor's 500 index last fall, and the indexers all sold their Merfin stock.

At the same time, a European manufacturer with millions of Merfin shares got a new management team that wanted cash. It sold 1.5 million shares of Merfin. The result was a further depressed stock price and Buckeye's attention, Kimelman said.

To reach reporter Jaan VanValkenburgh, call (901) 529-2823 or E-mail vanvalken!gomemphis .com

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(c) 1997, The Commercial Appeal, Memphis, Tenn. Distributed by Knight-Ridder/Tribune Business News.