Hedge Fund Casablanca Pushes for Breakup of Iron-Ore Miner – by David Benoit (Wall Street Journal – January 28, 2014)


Investor Wants Cliffs Natural Resources to Split International and Domestic Operations

A hedge fund is pressing for a breakup at Cliffs Natural Resources Inc., CLF +7.83% the company with the worst-performing stock in the S&P 500 index over the past year.

New York hedge fund Casablanca Capital LP wants to see the iron-ore miner divide its international and domestic operations, according to a letter sent Monday to the Cleveland-based company’s management that is expected to be disclosed in a securities filing Tuesday morning.

The letter, reviewed by The Wall Street Journal, says Casablanca has been building a position in Cliffs and now owns about 5.2% of the shares outstanding. The two sides have engaged in discussions for more than a month, the letter said.

In a statement, Cliffs called the conversations with Casablanca productive and said it is open to more talks. It added that it has made “significant changes to strengthen its board” and taken steps to improve its financial and operating performance.

“Cliffs will continue to evaluate the strategic fit and value creation potential of all the Company’s assets as part of that process,” the company said. Cliffs shares are down about 46% over the past 12 months, versus a 19% rise in the S&P 500. They closed up 0.4% at $19.40 Monday.

With a market capitalization of about $3 billion, Cliffs is also the index’s most shorted stock, according to data provider Markit. Casablanca was started in 2010 by former mergers-and-acquisitions banker Donald Drapkin, along with Douglas Taylor, also a former M&A adviser.

Activists regularly push for corporate breakups. Casablanca executives contend that splitting up Cliffs’ international and U.S. operations could help it reverse its fortunes, the letter said.

Concerns about falling demand for iron-ore in China and elsewhere have hurt many international miners. Many analysts have proclaimed the end of the so-called commodity supercycle, in which mining companies aggressively expanded in recent decades in response to rising prices but lately have retrenched amid slowing demand.

Benchmark iron ore prices are currently around $135 a ton, down 10% since a year ago, just as more production is coming online. That has pressured many mining stocks, and the biggest miners, including Rio Tinto PLC and BHP Billiton Ltd. BHP.AU -1.97% , have changed executives and written down billions in acquisitions.

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