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Greenlight/Mercer Fight Heats Up

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NEW YORK (–Hedge fund manager Greenlight Capital Inc. and Mercer International Inc., a European pulp and paper manufacturing company, continue to vie for the votes of Mercer shareholders in the election of new members to the company’s board next month.

As a long-term investor in Mercer and the company’s largest shareholder, Greenlight claims Mercer’s bad corporate governance is harming the stock. It filed a proxy statement with the Securities and Exchange Commission nominating Guy Adams and Saul Diamond to the board, in a bid to counter the current trustees .

Mercer Chief Executive Jimmy Lee wants shareholders to reject these nominees and elect his own candidates, Per Gundersby and Michel Arnulphy. “Greenlight’s actions are not in the best interests of shareholders,” Mr. Lee asserted in a statement. “Greenlight does not

want independent, qualified trustees but, in fact, wants hand-picked agents who are extremely well compensated by Greenlight to pursue its own agenda.”

He avers that Greenlight rejected a proposal to have an independent search firm look for two trustees to be added to the board. In a letter to shareholders, he also took issue with the hedge fund manager’s complaint that management actions caused Mercer’s stock to lose more than 50% in the past five years.

“Such rhetoric is unjustified in that the company’s primary product is pulp, which is largely a commodity product, subject to wide price fluctuations,” he wrote, arguing that Mercer’s share tracks this commodity.

Convertibles on Hold

One major bone of contention is Mercer’s refinancing plan. The company intended to issue US$65 million in convertible debt, but it postponed the offering. According to Greenlight, Mr. Lee informed the hedge fund that this happened after Mercer’s chief financial officer resigned due to a criminal investigation unrelated to the company. At the time, board members had not been nominated, Greenlight insists.

But according to Mr. Lee, the refinancing was put on hold because of the hedge fund’s challenge. “Greenlight’s actions have resulted in our plan to refinance two bridge loans incurred with the Stendal project, which is currently the most important issue facing the company, to be put on hold without disclosing an alternative for such refinancing or its strategy for the company,” he told shareholders.

Not true, Greenlight alleges. Even before the resignation of the chief financial officer, Mercer was having trouble placing the notes, it implies. “Blaming Greenlight for Mercer’s financial problems illustrates that the company does not value transparency and truth in reporting accurate facts to its shareholders,” it states in a letter to shareholders.

Greenlight argues that adding two shareholder-friendly trustees will improve corporate governance and increase the likelihood of successful refinancing. Mr. Lee counters: “Rhetoric, innuendo and mudslinging will provide no value creation.” It seems the battle will go on, at least till the Aug. 22 annual shareholders meeting, postponed from July 15.

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