We like to find big "events" that signal sector tops, and have been quite good at catching them but in our bullishness for commodities missed the signs that this merger basically called the top in commodities. And so ends one of the more bizarre proposed mergers to (not) go down; the spread between the stock prices of the two names in relation to their original agreement has been so wide for so long, one could assume there was a very good chance this deal would never go through... those "in the know" apparently knew within hours that Harbinger was opposed to the deal while the rest of us scratched our head after the initial pop why the stocks were not acting as if the merger would happen. This situation also marked one of the turning points in the growing power of hedge funds to interfere with actual business decisions by company managements.
[Aug 22: Bloomberg: Cleveland Cliffs Asks Shareholders to Block Harbinger]
[Aug 15: Harbinger Seeks to Raise Stake in Cleveland Cliffs]
[Jul 31: FT.com - Mittal (MT) Considering Bid for Alpha Natural Resources]
[Jul 25: More Drama at the Cleveland Cliffs Corral]
[Jul 16: Thoughts on Cleveland Cliffs (CLF), Alpha Natural Resources (ANR) Deal]
I still like both these companies as independent entities but we've been out of them for a long while in the great gutting of commodities, circa 2nd half 2008. We'll be back probably in the back half of 09 when commodities might be cool again. (although they are overdue for an oversold bounce)
- Cliffs Natural Resources' proposed $2.7 billion takeover of coal producer Alpha Natural Resources has been called off, the companies said Monday.
- Terminating the deal is in the best interest of shareholders due to the faltering U.S. economy, uncertainty in the steel industry and other factors, the companies said in a joint news release. Cliffs agreed to pay Alpha a $70 million breakup fee. In turn, Alpha agreed to drop a lawsuit filed against Cliffs for unilaterally delaying a shareholder vote on the proposed acquisition.
- Alpha spokesman Ted Pile said the deal never overcame opposition from hedge fund Harbinger Capital Partners. A spokesman for the Birmingham, Ala.-based firm, which owns almost 15 percent of Cliffs, did not immediately return a call seeking comment. "There isn't any underlying issues with the two companies," Pile said. "The main reason is one shareholder that opposed the deal and would not move off his position.
- Harbinger came out against the deal just days after it was announced last July, then sought shareholder approval to acquire up to a third of Cleveland-based Cliffs' shares -- enough to kill the deal. Harbinger, which labeled the Alpha acquisition too risky, failed to win approval to buy the shares last month.
- The deal also ran into economic reality. Supplying steel plants with coking coal to fire blast furnaces was a big factor in Cleveland-based Cliffs' decision to acquire Alpha last summer. Abingdon, Va.-based Alpha bills itself as the largest U.S. producer and exporter of coking coal. Cliffs operates primarily iron ore mines in Michigan, Minnesota, Canada and Australia, but last year branched out by acquiring three coal mines with high coking production in West Virginia and Alabama.
- Global financial turmoil has since hit steel producers hard. Plummeting demand has cut prices about 50 percent from all-time highs reached earlier this year and prompted production cuts by ArcelorMittal and other big international producers.
- The value of the cash-and-stock deal, which was once valued at nearly $10 billion, also has plunged over the past four months along with shares of both companies.
4 comments:
TM,
Excellent link on Rogers' blog and on the Prudent Investor blog. Thanks.
I have studied the deflation/inflation issue in fair detail in the last few months because I felt it would have a big impact on how the markets and individual sectors would perform. Deflation has won out for now and Precther, who has been predicting this for years, has been right on the mark. (For those interested internet search "Conquer the Crash... a deflationary depression" by Robert Prechter. It was written earlier this decade and is a great read. I highly recommend it.
In a deflationary situation everything goes down. Everything. I think this has been shown so far.
When we sufficiently overcome the huge credit inflation of the last 25 years (whenever that may be) I agree with Rogers that we will see hyperinflation. I agree with most of what Rogers says... except that I personally believe that the rise in the dollar is much more than just a short squeeze- it is the unwinding of years and years of easy money that has inflated the dollar enormously. According to Prechter, we are still early in the deflationary contraction. He predicted a commodity top in May (only a few months off... amazing accuracy in my opinion) and sees commodities bottoming cerca 2012.
So when it comes to commodities, especially ag commodities, I fully agree with Rogers and hence have not sold my fertilizer stocks (though it has hurt a bit for sure) but I am not willing to be too aggressive by adding in this space except for trades until the market and/or commodities show some technical sign of improvement.
To predict the market ten years out you have to either be really really accurate or really really stupid.
One other point: had I used my general rule of never letting any stock lose more than 15% like I do with all stocks instead of looking at POT as an exception because of the tremendous long term fundamentals I would have more available cash to invest right now and would probably be a bit more aggressive even now.
Just goes to show that breaking rules for any stock is usually a bad idea. Lesson learned. If not for POT and MOS I would be wildly successful in this market but "if not for" is a very important phrase. I've learned and I hope others use risk management for every stock and never get too bullish on any piece of paper.
Nothing to do with CLF or ANR, but I thought I would pass on a good read. http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?print=true
That is odd... I would have thought that this merger would have gone through. Fording Coal and Teck Cominco just went through the end of October. And the Budweiser/Imbev thing did as well.. I expected that this would be a good time for a steel company to pick up a coal source before the rush...
jegan
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