High Drama at the Cleveland-Cliffs Corral

Oh boy oh boy...

Charts don't lie. People do.

I was completely flabbergasted to see Alpha Natural Resources (ANR) trading BELOW the stock price of Cleveland Cliffs (CLF) today. And yesterday after the initial spike in ANR which represented the underlying spread (or most of it) in the agreement, the stock began tailing off. Which was a head scratcher. For those not in the know.

My guess is by that time yesterday AM.... Harbinger Capital - a hedge fund which owns 18%+ of Cleveland Cliffs - informed the co. they were going to be fighting it. Just my speculation but as always, the big boys find things out before us and can act on it. Then all their hedge fund buddies could short ANR yesterday and today in glee and make some dinero, while we scratch our heads and why the heck the stocks were not acting correctly in relation to each other.

Harbinger, turned from a passive to active investor...

• In a 13D filing on Cleveland-Cliffs Inc., 18.4% holder Harbinger Capital changed their filing status from 13G 'passive' to 13D 'active', saying the proposed acquisition of Alpha Natural Resources Inc. by Cleveland-Cliffs is not in the best interest of shareholders.
• Harbinger said it may take a position with respect to potential changes in the operations, management, Board composition, ownership, capital structure, strategy and future plans of the company.

According to this SEC document, if this merger does not happen and it is due to Cleveland Cliffs, Alpha Natural Resources will get a $350M break up fee.

• If Alpha terminates the Merger Agreement because Cleveland-Cliffs's Board of Directors withdraws its recommendation of the deal, or if the Merger Agreement is terminated in certain circumstances and Cleveland-Cliffs enters into or consummates another transaction within one year of such termination, then Cleveland-Cliffs will owe Alpha a $350 million termination fee.

Or maybe only $100M? (lawyers know best) 

• If Cleveland-Cliffs's shareholders do not approve the Merger, the Company will owe Alpha a $100 million termination fee.

On the positive side I would not mind if this merger did not go through because I believe ANR will be far higher independently in a year. So I disagree with Harbinger that this is a bad deal but I own a "few" less shares than they do (ahem).

On the negative side this will bog down both stocks most likely until this is resolved. Which could be a while. If this is going to be a long drawn out affair we have to reconsider our large weightings since making zilch while this is fought over is a waste of time and money. We'll see what the next few days bring as obviously the board of both companies agreed to it; this is a (now) activist outsider throwing their weight around. But they have a ton of weight at almost 20% of shares.

On the positive side we got some high drama coming to the CLF Corral. I'd rather make money than deal with drama, but this is the situation as it stands.

Disclosure: Long both names in fund and personal account

Comments

[Tired Of Re...:]

Thabks for the heads up. I have an interest in ANR and for the life of me could not understand why it was going the wrong way after the announcement.

2008 Jul 19 06:35 PM