Cliffs says activist's proposals would risk credit rating

Fri Feb 14, 2014 9:20am EST
 
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By Allison Martell
    Feb 14 (Reuters) - Miner Cliffs Natural Resources Inc
 on Friday sharply criticized activist investor
Casablanca Capital and said the hedge fund's proposals would put
Cliffs credit rating at risk.
    Last month Casablanca, which owns about 5.2 percent of
Cliffs, urged the iron ore and coal miner to spin off its
international operations, form a master limited partnership from
its U.S. assets and double its dividend.
    On Wednesday, Casablanca said it was launching a proxy
campaign and backing Lourenco Goncalves, former chief executive
of Metals USA, to take over as chief executive. 
    Asked on Wednesday whether he would carry out Casablanca's
detailed proposals as chief executive, Goncalves told Reuters
the fund's plan offered "good alternatives, but they are
alternatives, they are possibilities." 
    Goncalves argued Cliffs should focus on supplying U.S.
steelmakers instead of selling into the competitive global iron
ore market, but said it was too early to discuss in detail what
he would do with Cliffs' international assets.
    Even so, Cliffs' open letter to shareholders focused on
Casablanca's January comments. If Cliffs was split up, it said,
both companies would be at risk of "negative rating actions."
    The Cleveland-based company said it has been studying the
possibility of forming a master limited partnership for several
months, but the structure is not usually used in volatile
industries.
    Master limited partnerships are investment vehicles that can
pass profit to investors in regular payouts before it is taxed,
popular in some industries with steady earnings such as the oil
pipeline sector.
    Cliffs also said Casablanca has failed to show that doubling
its dividend would not put operations at risk.
    Casablanca did not respond to an e-mail requesting comment
on the Cliffs letter. 
    The miner's shares were higher in the premarket on Friday,
following Thursday's better than expected financial results, up
6.6 percent at $23.35. 

 (Reporting by Allison Martell; editing by Sofina Mirza-Reid)