UPDATE 2-Cliffs Natural ends deal to acquire Alpha

Mon Nov 17, 2008 5:25pm EST

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(Adds background, closing stock prices in paragraphs 6-8. 10-11)

NEW YORK Nov 17 (Reuters) - Iron ore pellet maker company Cliffs Natural Resources Inc (CLF.N) said on Monday it ended its plan to acquire coal miner Alpha Natural Resources (ANR.N) and agreed to pay $70 million to settle litigation between the companies.

Alpha and Cliffs said they would work together to find ways "to realize synergies in their respective coal operations," but did not elaborate.

In July, Cliffs agreed to buy Alpha in a cash and stock deal originally valued at about $8.3 billion. The value of the deal, which would have created the largest North American producer of metallurgical coal, has fallen to about $2.9 billion amid global financial market weakness and fluctuating commodity prices.

Metallurgical coal, also called met or coking coal, is used to make coke, the material used to fuel blast furnaces at steel mills.

The deal had been hurt by opposition from Cliffs's largest shareholder, hedge fund Harbinger Capital Partners, which wanted Cliffs to consider a sale, recapitalization or an alternative transaction.

Harbinger could not be immediately reached for comment.

The cancellation of the deal had been widely expected by investors due to the opposition by Harbinger and the legal battles between the companies.

The spread on the deal, which measures the difference between the offered takeover price and the target company's current trading price, was about 54 percent on Monday before the news was announced. Typically, the wider the spread, the greater uncertainty investors have that a deal will close.

The boards of both companies agreed to break the deal and settle the litigation "after considering various issues, including the current macroeconomic environment, uncertainty in the steel industry, shareholder dynamics and risks and costs of potential litigation," the companies said in a statement.

Cliffs, formerly known as Cleveland Cliffs, recently adopted a shareholder rights plan to protect it from unwelcome takeover bids.

Shares of Cliffs closed at $19.65, down 62 cents, or 3.1 percent, while shares of Alpha closed at $24.90, down $1.57, or 5.9 percent. Both stocks trade on the New York Stock Exchange. (Reporting by Jessica Hall, editing by Richard Chang, Bernard Orr) (For more M&A news and our DealZone blog, go to here)

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