Aug. 22 (Bloomberg) -- Cleveland-Cliffs Inc., North America's largest iron-ore producer, asked shareholders to block Harbinger Capital Partners' plan to buy as much as one-third of the company after meeting with fund director Philip Falcone.

Cleveland-Cliffs ``unanimously recommends'' shareholders vote against allowing the hedge fund to increase its stake from 16 percent, the company said today in a regulatory filing. The company will ask shareholders to vote on the proposal on Oct. 3 at a meeting in South Euclid, Ohio.

Harbinger opposes Cleveland-Cliffs' plan to buy coal miner Alpha Natural Resources Inc., saying it isn't in shareholders' interests. Letting the fund boost its stake would give Harbinger ``disproportional influence and control over corporate policy and Cleveland-Cliffs' strategic plan,'' the iron-ore company said.

Harbinger, represented by senior managing director Falcone and managing director Lawrence Clark, met with Cleveland-Cliffs executives on Aug. 20, where the two talked about iron ore and coal, Cliffs said in the filing. It said Harbinger gave no ``demands or proposals.''

Harbinger Chief Financial Officer Charles Miller didn't immediately return a phone message seeking comment.

Harbinger said in an Aug. 14 filing that it would seek shareholder permission to increase its holding in Cleveland- Cliffs. The hedge fund, run by former Barclays Capital trader Falcone, is the iron-ore company's largest shareholder.

Breakup Fee

Under Ohio law, Cleveland-Cliffs needs to secure support from two-thirds of its shareholders to complete the acquisition of Alpha Natural Resources, which would more than double its output of metallurgical coal. Failure to win approval would require the Cleveland-based miner to pay Alpha a breakup fee of $100 million.

Falcone, 46, invests in companies going through corporate events such as mergers and spinoffs. Last year, Harbinger's main fund more than doubled on bets that subprime mortgages would tumble. In 2008, it has benefited from trades designed to profit as the U.S. economy slows.

Cleveland-Cliffs, which mines for iron ore in North America and Australia, agreed July 16 to buy the Abingdon, Virginia-based coal-mining company for stock and cash as steelmakers' demand for metallurgical coal increases. The offer was 35 percent higher than Alpha's closing share price the day before the transaction was announced.

July 15 Discussion

Cleveland-Cliffs Chief Executive Joseph Carrabba spoke with Clark on July 15 to inform him that the company was about to announce the proposed acquisition of Alpha, the miner said in the filing. Clark said he would be looking for more information about the transaction and gave ``no indication'' that Harbinger would oppose the transaction, Cleveland-Cliffs said.

Falcone wants Cliffs to consider putting itself up for sale and says the company could be worth more than $130 a share, the Wall Street Journal reported July 27.

Cleveland-Cliffs fell 48 cents to $99.37 at 4:15 p.m. in New York Stock Exchange composite trading. Alpha Natural Resources rose $1.33 to $98.67.

Harbinger may try to influence Cleveland-Cliffs' strategy and board structure ``as a means of enhancing shareholder value,'' the fund said in a July 17 filing. Harbinger has made similar moves to oust directors at companies such as New York Times Co.

Harbinger and Firebrand Partners succeeded in April in adding two outside directors to the New York Times board after pressuring the company to sell assets and expand online. Firebrand and Harbinger had called on New York Times to sell the Boston Globe newspaper and its 17 percent stake in the company that owns the Boston Red Sox baseball team.

Still, the fund doesn't always succeed in its proxy fights. In August 2007, shareholders of Ryerson Inc., a Chicago-based metals distributor, rejected a rival slate of seven directors proposed by Harbinger at the company's annual meeting.

To contact the reporter on this story: Dale Crofts in Chicago at dcrofts@bloomberg.net.

Last Updated: August 22, 2008 16:47 EDT