FT.com: Mittal (MT) Considering Bid for Alpha Natural Resources (ANR)

Thanks for a reader for highlighting this to me We so deserve this ;) Somehow we are the only investors in America whose top position lost its value after getting bought out.

I wrote [Jul 16: Thoughts on Cleveland Cliffs (CLF), Alpha Natural Resources (ANR) Deal]

If other bidders emerge, Alpha Natural Resources is a massive strong buy for obvious reasons

Folks, I've written multiple times on how I differ with Ken Heebner on playing the steel trend - I've chosen to play the inputs (metallurgical coal/iron ore) versus the actual steel producers where he is overweight. I think both strategies work, but I think the inputs have some inherent advantages as I've written out multiple reasons, including takeover potential. [Jul 6: Is the Buck Finally Stopping in Steel?]

Ironically, I think I've written at least 5 times that I've been amazed that Cleveland Cliffs (CLF) has not been taken over and still remains an independent company. [Jul 9: Cleveland Cliffs Up 15% on Guidance and Starting a Dividend] So to see them actually be the acquirer is sort of funny. I still think a combined Cliffs Natural Resources - if the merger goes through - would be a very attractive target for one of the major steel players such as Mittal (MT).

Lo and Behold... tonight we hear

• ArcelorMittal is considering breaking up the $8.8bn (€5.6bn) takeover of US coal miner Alpha Natural Resources by Cleveland-Cliffs with a counter-bid
• ArcelorMittal, the world’s largest steelmaker, is also looking at waiting for the deal to either fall apart or create one digestible takeover target. ArcelorMittal indicated it was willing to make an all-cash offer for Alpha in June, prompting the target company to seek other higher bids, said people close to the companies. They said ArcelorMittal’s approach was pegged at or near $110 a share.
• Alpha was able to drum up a higher cash-and-stock offer from US iron ore miner Cleveland-Cliffs, and then returned to gauge whether ArcelorMittal would top it. Rather than besting Cleveland-Cliffs’ bid, however, ArcelorMittal pulled back to evaluate the few other large North American coal assets on the market. That left Alpha matched with Cleveland-Cliffs, and the companies announced a deal on July 16.
• Their proposal has run into a significant snag, however. Top Cleveland-Cliffs shareholder Harbinger Capital opposes the transaction, and holds enough shares to make the two-thirds vote needed to approve the deal difficult to win.
• Unless Cleveland-Cliffs can change Harbinger’s mind, the companies may have handed ArcelorMittal, a key Cleveland-Cliffs customer, an advantage.
• “It’s safe to say their (Mittal's) strategy of buying smaller coal assets in central Appalachia has been tougher to execute than expected, so they’ve got to go for the big guys,” one merger adviser said.
• Rather than entering into a bidding war, ArcelorMittal or another steel or mining giant could potentially buy either company more cheaply if the deal falls apart. As one of many foreign companies shopping for assets in the US, ArcelorMittal may also want to avoid generating the impression that it broke up the deal, one person close to the company said.
• If the deal wins approval, the company, which would currently have an enterprise value of about $18.5bn, could still make a target. Iron ore and metallurgical coal are steel’s two key ingredients and demand for both is hot. (to everyone but Harbinger and hedge fund computers)
  

A fascinating snippet from the article (boggling!)

• A Cleveland-Cliffs spokesman said the company had not heard from Harbinger since it initially rebuffed the deal.

Summary: Boo Yah. I really am amazed that a hedge fund is stepping in on management's toes like this and ruining their strategic deal in their quest for maximizing profits. I believe this will be a trend that happens more and more as more and more capital flows to these "dark pools" of money. But it is sort of sad that companies are beholden to 1 shareholder to this degree. As I've said - the combined company would be a powerhouse, even if I believe Alpha Natural Resources should wait it out since it will be a $200 stock on it's own in a year.

Very interesting folks. Keep your popcorn warm - this should put a floor under the stock price of Alpha Natural Resources. EVEN IF CRUDE falls $110 from here. ;) But it could take quite a while to play out - especially when Harbinger is not even returning phone calls. Nice.

I still believe our other 2 metallurgical focused coal stocks will also be in play in the coming year. Or sooner. I really need my real mutual fund up and running so I can take advantage of these deals and profit potential. Ugh.

Long Alpha Natural Resources, Cleveland Cliffs in fund; long Alpha Natural Resources in personal account