Cliffs Activist Investor Casablanca Wins Proxy Fight

Activist investor Casablanca Capital LP said it won control of the board of Cliffs Natural Resources Inc. following a six-month proxy fight, clearing the way for the breakup of the iron-ore producer.

Casablanca said in a statement that all six of its nominees were elected to Cliffs’ 11-member board. Cliffs shareholders voted today at its annual meeting in Cleveland, where the company is based. The shares jumped.

Casablanca, founded by Donald Drapkin and Douglas Taylor in 2010, has urged Cliffs to take measures including raising its dividend and spinning off foreign assets. It has also proposed Lourenco Goncalves as a new chief executive officer. Goncalves, the former CEO of Metals USA Holdings Corp., and Taylor were among those elected as directors today.

“The reason that we kept pushing for majority of the board was to make sure that Lourenco could be installed as CEO,” Taylor said today in a phone interview. “In the environment that we find ourselves in, there was a need for urgent change. There’s a lot on Lourenco’s plate that he has to address immediately.”

Cliffs has posted two straight quarterly losses following a slump in the price of iron ore. Gary Halverson, the former Barrick Gold Corp. executive who took over as CEO of Cliffs in February, has cut capital expenditures, halted the Wabush iron mine in Newfoundland and Labrador, and delayed an expansion at Bloom Lake in Quebec. Last month, he idled Cliffs’ Pinnacle coal mine in West Virginia.

Earlier Concession

Having resisted Casablanca’s demands since January, Cliffs made a concession earlier this month when it agreed to support the election of a minority of four of the activists’ nominees.

Cliffs said today it will await the preliminary report of the election inspector before commenting on the vote.

In its statement, Casablanca cited preliminary estimates by its proxy solicitor.

A change of control that includes the replacement of a majority of the company’s directors followed by a reduction in the company’s credit below investment grade would have compelled Cliffs to repurchase its $2.9 billion of senior notes, according to a June 10 regulatory filing. Halverson had used that argument to warn investors not to vote for the Casablanca nominees.

On June 19, Cliffs’ board approved the Casablanca nominees purely to avoid triggering the change of control leading to the repurchase of the notes.

Price Slump

While Casablanca’s victory now means Cliffs is likely to proceed with asset sales, doing so will be difficult in the current market for iron ore, Aldo Mazzaferro, a New York-based analyst at Macquarie Group Ltd., said in an interview before Casablanca issued its statement.

The price of the commodity is about half of what it was back in 2011, when Cliffs bought Canadian iron-ore producer Consolidated Thompson Iron Mines Ltd. for C$4.24 billion ($3.91 billion), its largest acquisition. The deal was among those completed by Halverson’s predecessor, Joe Carrabba, as Cliffs expanded beyond its U.S. operations.

Cliffs climbed 6.2 percent to $17.62 at the close in New York. Casablanca owns 5.2 percent of Cliffs, according to data compiled by Bloomberg.

(Corrects ninth and 10th paragraphs to reflect that Cliffs approved the Casablanca nominees purely to avoid triggering the buyback of senior notes.)
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