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UPDATE 2-Hedge fund triumphs in proxy battle with U.S.-based miner Cliffs
July 29, 2014 / 5:10 PM / 3 years ago

UPDATE 2-Hedge fund triumphs in proxy battle with U.S.-based miner Cliffs

(Rewrites throughout with details from meeting, analyst view, background)

By Kim Palmer

CLEVELAND, July 29 (Reuters) - Casablanca Capital triumphed on Tuesday in its proxy battle with miner Cliffs Natural Resources Inc, preliminary estimates show, putting the hedge fund in a position to replace Cliffs' chief executive and sell off underperforming assets.

Shareholders of Cleveland-based Cliffs voted onto the miner's board all six nominees put forward by Casablanca, the New York-based fund said, citing estimates from its proxy solicitor. That means they will make up a majority of the 11-person board.

Cliffs CEO Gary Halverson said at the company's well-attended annual meeting in Cleveland that because of the contested nature of the elections, the results would be announced in the next three business days.

Shares in Cliffs, a producer of iron ore and metallurgical coal, jumped as much as 10.4 percent to $18.33 on the New York Stock Exchange.

The vote outcome "is a culmination of years of frustration on behalf of shareholders," said Garrett Nelson, a mining research analyst at BB&T Capital Markets.

Casablanca began a proxy fight in March against Cliffs, of which it owns 5.2 percent, accusing the miner of destroying shareholder value through an ill-conceived expansion strategy. Cliffs shares have fallen about 85 percent in the past three years, at a time when iron ore and coal prices have plunged.

The vote by Cliffs shareholders has "sent a resounding message of support for our efforts to drive meaningful change at Cliffs, bring true accountability to the company's leadership, and restore shareholder value," Casablanca Chairman Donald Drapkin said in a statement.

Casablanca has said it wants to replace Cliffs' CEO with its preferred candidate, Lourenco Goncalves, a former CEO of Metals USA.

Other than naming a new CEO immediately, Casablanca will likely pursue the sale of three of Cliffs four operating segments, its Asia-Pacific iron ore business, its Eastern Canadian iron ore operations and its North American coal unit, said Nelson, the mining research analyst.

In recent weeks, Cliffs has made a series of concessions to Casablanca, cutting down its slate of director nominees so that at least four of Casablanca's candidates were likely to win seats, and promising to elect a new chairman after the annual meeting.

Casablanca called these moves "a desperate attempt to resist change".

Cliffs has been critical of Casablanca's CEO candidate, arguing that he does not have enough experience.

To be sure, three proxy advisory firms, Glass Lewis, Institutional Shareholder Services and Egan-Jones had recommended that Cliffs retain a majority of the board, Cliffs said last week.

The six Casablanca nominees put forward for the board were: Goncalves, Robert Fisher, Joseph Rutkowski, James Sawyer, Gabriel Stoliar and Douglas Taylor, Casablanca's CEO. (Reporting by Kim Palmer in Cleveland; Writing and additional reporting by Nicole Mordant in Vancouver; Editing by Franklin Paul and Grant McCool)

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