Photo: Bloomberg

Two proxy advisory firms give thumbs up for activist’s slate

By: Henry Lazenby
17th July 2014

TORONTO (miningweekly.com) – Two independent proxy advisory firms had given New York-based Casablanca Capital their backing, recommending that Cliffs Natural Resources shareholders vote in favour of the activist shareholder’s slate of director nominees.

Institutional Shareholder Services (ISS) and Glass Lewis & Co issued strong recommendations in support of Casablanca’s campaign, saying the dissident had made a compelling case for change to the board.

“Ultimately, Cliffs will need a sober, expansive evaluation of its strategic alternatives, and the dissident has demonstrated the board would benefit from a greater shareholder perspective as it does so,” Casablanca cited ISS wrote in its findings.

According to Casblanca, Glass Lewis recommended shareholders vote against the incumbent long-tenured directors to send a strong message that they should be held accountable for overpaying for several acquisitions at the expense of shareholders.

Cliffs on Thursday also advised that Egan-Jones Proxy Services, another independent advisory firm, recommended that Cliffs shareholders vote for its slate, saying that Cliffs’ reconstituted board were making strides in addressing the firm’s financial difficulties.

Cliffs also pointed out that ISS and Glass Lewis had only recommended support for four of Casablanca’s six nominees. However, owing to cumulative voting, it believed that Casablanca would be able to elect a majority board.

DRAWN-OUT BATTLE

Early this month, US iron-ore and coal producer Cliffs offered to resolve the ongoing proxy contest, offering to concede three seats on a smaller nine-seat board to Casablanca and its slate of nominees, and to elect a new chairperson.

Casablanca, which owns 5.2% of Cliffs, in January launched the proxy contest, advocating for the company to install its own CEO and directors, and suggested the spin-out of certain of Cliffs’ international operations.

The New York-based fund manager highlighted what it termed “Cliffs’ failed expansion strategy” and the resultant loss of more than 80% of the company’s market value, which it alleged was being overseen by a majority of the current 11-member board.

Casablanca also outlined its proposal for a new strategy focused on Cliffs’ core US assets, which it believed would restore value for shareholders, and reiterated its support for 30-year metals and mining veteran Lourenco Goncalves as its chosen leader to assume the position of Cliffs CEO.

The activist is advocating Cliffs spin off its Bloom Lake iron-ore project, in Quebec, together with its Asia Pacific assets, to create ‘Cliffs International’.

Cliffs operates two distinct iron-ore businesses with very different risk/reward profiles. The Cliffs International assets are directly exposed to the competitive ‘seaborne’ iron-ore market and the large Bloom Lake project is still in the development stage.

In contrast, the ‘Cliffs USA’ iron-ore assets benefit from unique supply and demand characteristics, and barriers to entry in the Great Lakes generate strong cash flow and ensure long-term contracts, which provide volume and price visibility.

In a May proxy filing, Casablanca revealed details of nearly two months of negotiations between the two parties that would also have given it three seats on a reduced nine-person board; however, Casablanca’s insistence on Goncalves as executive chairperson, with Cliffs' CEO reporting directly to him, proved to be the deal breaker.

Two proxy advisory firms give thumbs up for activist’s slate

By: Henry Lazenby
17th July 2014