UPDATE 3-Hedge fund urges breakup of iron ore producer Cliffs

Tue Jan 28, 2014 2:43pm EST
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By Nicole Mordant and Sayantani Ghosh

Jan 28 (Reuters) - A New York-based hedge fund is pushing Cliffs Natural Resources Inc to spin off its "riskier" international operations after the U.S.-based producer of iron ore was the second-worst performing stock in the S&P 500 Index last year.

In a letter to Cliffs' executive chairman, James Kirsch, Casablanca Capital LP said it had amassed a 5.2 percent stake in the Cleveland-based company, making it one of its biggest shareholders.

The letter, dated Oct. 27, was released in a filing with the Securities and Exchange Commission on Tuesday.

Cliffs' shares rose as much as 13 percent after the news. They were last trading at $19.88, up 2.5 percent.

Casablanca, which has met with the company twice over the past six weeks, also said that Cliffs should significantly cut costs, double its dividend and convert its U.S. assets to a master limited partnership (MLP).

An MLP is an investment vehicle that can pass profit to investors in regular payouts before it is taxed. It is popular in industries with steady earnings such as the oil pipeline sector.

Casablanca, which was started in 2010 by former M&A bankers Donald Drapkin and Douglas Taylor, said that Kirsh had indicated that he would "seriously consider" the hedge fund's proposals and would share them with the company's board.   Continued...