The seven month conflict ended with Casablanca winning 6 seats on the board, and just a couple of weeks later one of the nominees was appointed CEO. Cliffs Natural Resources Inc (NYSE:CLF) had claimed that Casablanca was unwilling to compromise, but then shortened its slate at the last minute, which meant that four Casablanca candidates were elected without contest.
Proxy voting advisors ISS and Glass Lewis had recommended this outcome, but it still came as a surprise at the time. Until that point Casablanca had been relatively anonymous in the activist sphere.
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Donald Drapkin’s vision
Chairman Donald Drapkin has been known as a dealmaker since his time at MacAndrews & Forbes, where he famously fell out with Ron Perelman. Donald Drapkin claims that he is happy to be investing on a case-by-case basis after having jettisoned Casablanca’s hedge fund.
He succinctly summarizes the Cliffs victory as one where the existing management was “so bad” that it was easy to install Lourenco Goncalves as the new CEO in a recent interview with Activist Insight ( ValueWalk readers can receive 33% discount on Activism Monthly Premium by using this link to purchase a subscription)..
One interesting point is the apparent increase in the appearance of cracks in the traditional alliance between management and institutional investors, which Donald Drapkin sees as a big opportunity for his firm: “You can see the institutions are starting take anti-management positions”
Potential for big returns
He goes on to predict that now the company has a competent CEO, share prices could soar to $50, assuming that iron ore prices rise in line with predictions. However Donald Drapkin does admit that most shareholders would be happy with $40-45.
Casablanca has recommended that Cliffs Natural Resources Inc (NYSE:CLF) spin off its overseas mines into a newco named Cliffs International, a move which would leave Cliffs USA in a good position to take advantage of a predicted economic recovery, and potentially double its dividend payments.
The chairman states that management plans for Cliffs could be accomplished over a 12-24 month timeline. Donald Drapkin refused to comment on future projects, but did hint that Casablanca could be involved in activism again in the near future.