(Corrects to remove description of proxy fight as failed in third-last paragraph of story published Feb. 12.)
Casablanca Capital LP, the activist hedge fund pressing Cliffs Natural Resources Inc. (CLF) to spin off its foreign assets, said it’s backing Lourenco Goncalves as chief executive officer of the largest U.S. iron-ore producer.
Goncalves was formerly the CEO of Metals USA Holdings Corp., the steel distributor acquired last year by Reliance Steel & Aluminum Co. He has made a recent investment of about $1 million in Cliffs shares and has agreed to be a director nominee, Casablanca said in a statement today.
Casablanca is pitching its candidate over Gary Halverson, the former Barrick Gold Corp. executive tapped by Cliffs in October as its next CEO. Halverson is currently president and chief operating officer of Cliffs, which hasn’t said when he will take over the top job.
Halverson’s appointment capped a difficult year for Cliffs, after it delayed a Quebec mine expansion and cut its dividend and its previous CEO, Joseph Carrabba, resigned.
Casablanca, Cliffs’ fourth-largest shareholder, said in a Jan. 28 letter that the Cleveland-based miner should double its dividend, convert its U.S. assets to a master-limited partnership and cut costs.
Cliffs said today it’s reviewing its assets and has hired Bank of America Merrill Lynch as an adviser. It disclosed last month that JPMorgan Chase & Co. is an adviser and Wachtell, Lipton, Rosen & Katz is its legal counsel.
“Casablanca’s overall proposal fails to provide a sustainable, long-term value enhancing alternative,” Cliffs said in a statement. Cliffs “is disappointed that Casablanca seems intent on waging a public campaign rather than continuing its private engagement with our chairman and management.”
Shares of Cliffs rose 2.3 percent to $21.99 in New York. They have fallen 40 percent in the last 12 months while the price of iron ore in China has dropped 22 percent, data from The Steel Index show.
Cliffs said yesterday it would stop operations at its Wabush mine in Newfoundland and Labrador by the end of the first quarter because of “unsustainably high” costs. It also disclosed plans to cut capital expenditure by more than half. That announcement was a “knee-jerk response” to Casablanca’s demands, said Donald Drapkin, the investment firm’s chairman.
“Cliffs hasn’t engaged us in any meaningful dialogue on the issues we’ve raised or provided a timetable for doing so,” he said in today’s statement.
Drapkin and Douglas Taylor formed Casablanca in 2010. the following year their firm supported Carl Icahn’s nominees for the board of Mentor Graphics Corp. in a proxy fight. Casablanca owns 5.2 percent of Cliffs’ shares, data compiled by Bloomberg show.
Goncalves said today that Cliffs should be able to profitable even when iron ore price have fallen.
“That would be the core of my work at Cliffs, to fix the cost structure, to fix the way we make money in the marketplace, to deploy capital in the right way and return capital to the shareholders,” he said in a telephone interview today.
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