Activist fund Casablanca Capital has disclosed a 5.2% stake in Cliffs Natural Resources Inc (NYSE:CLF). The company’s stock rose more than 12% in premarket trading after the revelation. They continued rising during the regular trading as well, increasing as much as 5%.
Casablanca pushes for spin-off at Cliffs
The activist hedge fund disclosed a letter it sent to management at Cliffs Natural Resources Inc (NYSE:CLF). The fund said it would like to see the mining company spin off its international assets. Specifically, it wants Cliffs to create a new company called Cliffs International, which would own its Canadian Bloom Lake property and its Asian assets. Casablanca wants Cliffs to spin the new company off to current shareholders.
The ExodusPoint Partners International Fund returned 0.36% for May, bringing its year-to-date return to 3.31% in a year that's been particularly challenging for most hedge funds, pushing many into the red. Macroeconomic factors continued to weigh on the market, resulting in significant intra-month volatility for May, although risk assets generally ended the month flat. Macro Read More
The fund said what was left of Cliffs Natural Resources Inc (NYSE:CLF) should then put its remaining assets in a master limited partnership. According to The New York Times, that’s a sort of special corporate structure which doesn’t pay an taxes and hands over most of its profits to investors.
Casablanca also urged Cliffs Natural Resources Inc (NYSE:CLF) to reduce costs and sell other assets which it considers to be non-essential.
Cliff responds to Casablanca
Casablanca believes these steps will unlock value for shareholders, and the fund said that if Cliffs Natural Resources Inc (NYSE:CLF) decides to follow its suggestions, its stock could increase to about $53 per share. That is still more than double what the mining company’s stock is trading at right now.
Management at Cliffs Natural Resources Inc (NYSE:CLF) said they welcome “open communication” with shareholders and said that they have already made a number of changes. Among those changes was the addition of four more directors and also a new chairman. The company said it also expects to continue cutting costs and “strengthening its balance sheet with cash flows from operations. It also said it took “a disciplined approach to capital spending.”