Cliffs Natural Resources Inc. CLF today
issued a letter to shareholders in connection with its upcoming 2014 Annual
Meeting of Shareholders scheduled to be held on July 29, 2014.
The Company issued the following letter to all shareholders:
Dear Fellow Cliffs Shareholder,
As we move closer toward Cliffs' Annual Meeting of Shareholders scheduled for
July 29, 2014, we wanted to provide an important update on instructions to
vote "FOR ALL" nine nominees recommended by your Board of Directors.
Based on discussions with various shareholders, and the practical effect of
cumulative voting on the election of directors, your Board believes that it is
in the best interest of all Cliffs shareholders for your Board to nominate a
slate of nine directors for its eleven-person Board.
As a result of the cumulative voting provision for the election of Directors
at Cliffs, which allows shareholders to aggregate their votes towards one or
more nominees, Casablanca Capital is able to potentially gain board
representation significantly in excess of its small ownership stake. By using
the WHITE proxy card and voting as recommended by your Board, you can prevent
Casablanca from electing a majority slate, gaining control of your Board and
breaking up your Company despite ownership of just a 5.2% stake in Cliffs.
Although your Board has nominated a slate of nine directors for the available
eleven seats, each shareholder of Cliffs' common stock at the close of
business on June 2, 2014 will still have eleven votes per share. Under the
terms of cumulative voting, each shareholder may cast all votes for a single
nominee or may distribute votes among as many nominees as he or she sees fit.
Those nominees receiving the largest number of votes for the director
positions to be filled will be elected to those positions. As a result, by
using the WHITE proxy card and voting as recommended by the Board, we intend
that at least two of Casablanca's proposed nominees be elected to the Cliffs
Board, assuming that Casablanca continues its proxy contest.
THERE IS NOTHING STRATEGIC ABOUT CASABLANCA'S "STRATEGY": CASABLANCA IS
PUTTING FORTH A PLAN TO LIQUIDATE CLIFFS ASSETS, DESTROYING SHORT- AND
LONG-TERM SHAREHOLDER VALUE AT CLIFFS
In July 2013, when the Cliffs Board began taking decisive action to
fundamentally shift the strategic, operational and financial direction of the
Company in response to a volatile iron ore and met coal price environment,
Casablanca did not own a single share of Cliffs' common stock. Since
purchasing its first shares of Cliffs' common stock in November 2013,
Casablanca has been instigating for changes meant to bring about short-term
gains at the expense of long-term value.
In fact, Casablanca has admitted that its goals are short-term - in multiple
conversations with members of the Cliffs Board, Casablanca has indicated that
it wishes to hold its stake in Cliffs' common stock for no more than 18
months.
Casablanca's purported "strategy" is an ill-advised sale of Cliffs' assets in
a low commodity cycle, which would come at the expense of all other Cliffs
shareholders. This is not surprising, however, given Casablanca's blatant
lack of mining experience. It is clear that Casablanca does not understand
the drivers of iron ore industry and how to manage through a volatile pricing
environment, nor does Casablanca have a plan to handle iron ore pricing below
$100.
Liquidation in today's iron ore pricing environment is not a strategy, and any
attempt by Casablanca to offer additional perspective on strategy has been
scattered and erratic. For example, Casablanca has abandoned its own idea of
spinning off Bloom Lake Mine with the Asia Pacific Iron Ore business unit to
create "Cliffs International," most likely because it was so severely
criticized by financial analysts and commentators. This is not an isolated
occurrence - Casablanca similarly backtracked on its recommended divestiture
of infrastructure assets and on "doubling the dividend."
No wonder Casablanca's public campaign has abandoned discussing "strategy" in
favor of personal attacks and inflammatory rhetoric.
CASABLANCA REJECTED SETTLEMENT PROPOSALS AND INSISTS ON APPOINTING A
HAND-PICKED, UNQUALIFIED CANDIDATE TO LEAD CLIFFS
In order to avoid the distraction and expense of a potential proxy fight,
Cliffs' Board attempted to reach a settlement in good faith with Casablanca
that we believe would be in the best interest of all our shareholders. As
part of this settlement, we proactively offered to appoint two new independent
Directors identified by Casablanca to your Board as well as a third mutually
agreed upon Director to be named at a later date. Casablanca rejected this
settlement offer.
Casablanca then demanded that we reduce the size of the Cliffs Board to nine
members and appoint three new independent Directors identified by Casablanca,
and stipulated that their proposed CEO, Lourenco Goncalves, be appointed
executive chairman of our Board and chairman of a newly-formed Strategic
Committee. Consistent with the Board's view of acting in the best interest of
all shareholders, during March and April of 2014, nine members of your Board
interviewed Mr. Goncalves regarding his strategic vision for Cliffs.
Following these interviews, the Board determined that given Mr. Goncalves'
lack of meaningful experience in managing large-scale, long-lived mining
assets in complex ore bodies or operating global assets in multiple
geographies, it was not in the best interests of Cliffs' shareholders to
appoint him as executive chairman. Casablanca stated that it would not
consider any future settlement offer that did not include Mr. Goncalves
becoming Cliffs' executive chairman.
MR. GONCALVES AND CASABLANCA'S OTHER NOMINEES LACK CRUCIAL INDUSTRY EXPERIENCE
NEEDED TO NAVIGATE TODAY'S VOLATILE PRICING ENVIRONMENT
Casablanca's promotion of Mr. Goncalves as a proposed strategic leader at
Cliffs exemplifies Casablanca's misguided, simplistic and short-sighted
"plan." Mr. Goncalves' metals industry experience has largely been with
processing and distribution businesses with low fixed cost structures, limited
commodity price exposure and low capital intensity. Under Mr. Goncalves'
leadership at Metals USA, during the period from its initial public offering
in April 2010 until its sale to Reliance Steel and Aluminum in April 2013,
total shareholder return (TSR) was negative 1%. By comparison, during the
same period TSR at peers Russel Metals and Reliance Steel and Aluminum were
56% and 32%, respectively.
Casablanca is prioritizing short-term gains over positioning Cliffs for
long-term, profitable growth across various commodity pricing cycles.
Casablanca's recommendation in March that, despite rapidly declining iron ore
prices, Cliffs "should now have financial capacity to return more capital"
exposes an uniformed viewpoint focused on financial engineering and what
appears to be a "shoot first, ask questions later" mentality.
Importantly, investors should be aware that the majority of Casablanca's
director nominees lack the collective experience necessary to lead the
strategy of a mining company in today's operating environment. In stark
contrast, your Board's nominees and management team have what Casablanca and
its nominees are missing: a viable strategy backed by the experience and
expertise necessary to succeed in volatile iron ore and met coal markets.
As an investor, it is up to you to decide whether to support the continued
execution of Cliffs' disciplined strategy to drive long-term value for all
shareholders, or the potentially value-destroying short-term agenda of a
single shareholder looking to establish a reputation as an "activist" investor
and hand deliver one of its executives a seat on a public company board and
appointment as an executive chairman.
We urge you to stop Casablanca from electing a majority of your Board for
self-interested, short-term gains at the cost of sustainable value and
long-term growth.
HAVING FIRMLY ESTABLISHED A NEW STRATEGIC DIRECTION, THE CURRENT BOARD AND
MANAGEMENT IS BEST POSITIONED TO DEAL WITH THE DIFFICULT PRICE ENVIRONMENT
Your current Board and management team are experienced in managing through
volatile commodity pricing environments. To offset these headwinds, we have
undertaken proactive measures to strengthen the foundation of the Company and
preserve its long-term viability.
Beginning in July 2013, Cliffs' Board took decisive action to fundamentally
shift the strategic, operational and financial direction of the Company.
Cliffs' Board takes an active approach in overseeing Cliffs' strategy and its
execution, and, with the new management team, led by Gary Halverson, have:
o Refocused and strengthened our core US business, including the successful
extension of three long-term, value-enhancing commercial contracts in our
US iron ore business.
o Sharpened our strategic focus by aggressively adjusting our Canadian
portfolio of assets, including:
o Significantly reducing 2014 expansion capital expenditures at Bloom
Lake Mine and initiating a major cash cost reduction program.
o Idling production at the Wabush Mine and Labrador at the end of Q1
2014.
o Indefinitely suspending investments in the Chromite Project and
preserving future value options for the asset should a
government-backed infrastructure solution emerge.
o Fortified our balance sheet with cash flows from operations and maintained
a disciplined approach to capital spending, further reducing full-year
2014 capital expenditures by an additional $100 million, lowering the
total expected capital expenditures by approximately $562 million, or 65%,
since 2013.
o Implemented an enterprise cost reduction initiative commenced under the
Board's directive in July of 2013, resulting in SG&A cost reduction of
$134 million, or 32%, in 2013, with further reductions in SG&A and
exploration costs of 31% expected for 2014.
We remain diligent in our review and control of costs and have plans in place
to continue improving operational effectiveness. Your Board and management
team believe that these efforts will allow Cliffs to operate successfully in
today's pricing environment, while driving long-term growth and delivering
value to shareholders. The facts are clear: Cliffs' management team has
implemented sustainable, long-term financial and operating policies while
Casablanca has urged short-term financial engineering in a volatile iron ore
and met coal price environment.
SUPPORT YOUR BOARD - VOTE THE WHITE PROXY CARD TODAY
Your vote is extremely important, no matter how many or how few shares you
own. We urge investors to support your current Board, which continues to
implement a plan designed to enhance value at Cliffs for all shareholders over
the long-term, rather than support the potentially value-destructive
short-term agenda of a single minority shareholder.
The Cliffs Board recommends shareholders vote today by telephone, by Internet,
or by signing and dating the enclosed WHITE proxy card to vote "FOR ALL" of
the Company's nine highly qualified and experienced director nominees with
expertise in leading mining, steel, basic materials, engineering and natural
resources businesses: Gary B. Halverson, Barry J. Eldridge, Mark E. Gaumond,
Susan M. Green, Janice K. Henry, James F. Kirsch, Stephen M. Johnson, James F.
Kirsch, Richard K. Riederer and Timothy W. Sullivan.
If you have any questions on cumulative voting or need assistance voting your
shares, please contact D.F. King & Co., Inc., which is assisting us in
connection with this year's Annual Meeting, at (800) 487-4870. For additional
information on the Annual Meeting, we encourage you to also visit
www.cliffsnr.com/annualmeeting.
On behalf of the Board, we thank you for your continued support of
Cliffs.
Sincerely,
Cliffs' Board of Directors
J.P. Morgan and Bank of America Merrill Lynch are acting as financial advisors
to the Company and Wachtell, Lipton, Rosen & Katz and Jones Day are acting as
legal counsel.
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