Proxy advisory firms back Cleveland-Cliffs, urge shareholders to reject Harbinger's bid for more shares

By Lisa Kerner

Charlotte, N.C., Sept. 19 - Independent proxy advisory firms RiskMetrics Group/ISS and Proxy Governance, Inc. recommended that shareholders of Cleveland-Cliffs Inc. vote against Harbinger Capital Partners' proposed share acquisition at the special meeting on Oct. 3.

"We are pleased that RiskMetrics and Proxy Governance recognize that no single investor should be able to gain effective control over Cleveland-Cliffs' future strategic decisions without paying a customary control premium," chairman, president and chief executive officer Joseph A. Carrabba said in a company news release.

As previously reported, Harbinger - Cleveland-Cliffs' largest shareholder - wants to acquire enough Cleveland-Cliffs shares to bring its total voting power to at least one-fifth but less than one-third of the company's voting power.

In response to the advisory firms' recommendations, Harbinger reached out to Cleveland-Cliffs shareholders asking for their support on Oct. 3.

Harbinger, in a Sept. 19 letter to shareholders, reiterated its belief that the company's proposed merger with Alpha Natural Resources Inc. is "too much, too fast" and said it demonstrates "the urgent need for a strong, independent shareholder advocate that management cannot ignore."

The investor denied it was attempting to seek control of the company.

In a prior, similar letter to shareholders, Harbinger admitted that with an increased stake in Cleveland-Cliffs, it could block transactions it believes do not maximize shareholder value, including possibly the Alpha acquisition, depending on the record date.

Cleveland-Cliffs said that because Harbinger has already acquired more than 10% of the company's voting shares without board approval, the investor is prohibited from engaging in certain transactions with Cleveland-Cliffs, such as mergers, dispositions and asset sales, for a three-year period.

Harbinger Capital Partners Master Fund I, Ltd. directly and indirectly owns 9 million shares, or 8.43%, of Cleveland-Cliffs. Harbinger Capital Partners Special Situations Fund, LP directly and indirectly owns 7,616,472 shares, or 7.14%, of the company's total issued and outstanding shares, it was noted previously.

Cleveland-Cliffs, a mining company, produces iron ore pellets in North America and supplies metallurgical coal to the steelmaking industry. The company is based in Cleveland.

Alpha Natural Resources, located in Abingdon, Va., supplies Appalachian coal to the steel industry, electric utilities and other industries.

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