Cliffs Natural Resources Postponement of Shareholder Meeting Is No Surprise

CLF yesterday announced that it will postpone its shareholder meeting for this transaction from November 21 to December 19, 2008, stating the following:

Cliffs said it rescheduled the meeting to allow shareholders adequate time to consider new information on the financial benefits of the pending transaction. In conjunction with this, Cliffs has also rescheduled the record date for the special meeting as of the close of business on Nov. 19, 2008.

This development occurred just hours after ANR filed with the Delaware Chancery Court in an effort to force CLF to hold its shareholder meeting on the original November 21 date.

With respect to the CLF shareholder meeting delay and transaction in general, the decision by CLF is not terribly surprising given the current market conditions and, perhaps more of an impact, the CLF shareholder concern that has been present from the outset of this deal. As recently as October 6 opposition from Harbinger Capital has been perceived as a possible threat to this deal's completion even with Harbinger's share control attempt failing.

It must be assumed at this stage that Harbinger's efforts succeeded in at least convincing enough CLF shareholders to directly express their concerns with the company to force this delay. As was the case during the summer, CLF remains in a position where it will need to put forth extraordinary efforts to convince its shareholders to approved this deal.

With respect to the Delaware Chancery action, it is currently perceived that ANR's complaint will fail to force a CLF shareholder meeting on November 21 precisely for the reasons mentioned above. CLF is likely to argue in Delaware that a November 21 meeting will not allow sufficient time to obtain the necessary shareholder consent, thereby resulting in a failed transaction. Although this may not actually be the case for CLF, under the current conditions it seems unlikely that the Chancery Court will force the company to hold its shareholder meetings at the earlier date.

In sum, this has (again) evolved into another situation where broader market conditions (and in this case, shareholder resistance) pose a very real problem for the deal's successful outcome. It is difficult to believe that CLF possesses any intention of abandoning this merger after the effort is has expended to this point and due to the very clear rationale for the combination. However, the company must now accomplish in a relatively short time what it has evidently failed to do over the least several months: persuade its shareholders to approved the deal. The chances of this occurring are perceived as fairly high (+/- 75%), but this certainly leaves an unusually high chance of shareholder rejection, whether the shareholder meeting is ultimately held on November 21 or December 19.