July 29, 2008

$8 Billion Coal Deal Might Be in Trouble

By Mark Williams

COLUMBUS, Ohio - Cleveland-Cliffs' largest shareholder may attempt to scuttle a proposed $8 billion buyout of coal company Alpha Natural Resources Inc.

Hedge fund Harbinger Capital Partners owns 18.4 percent of the iron ore producer's stock, giving it enough weight to put any deal in jeopardy.

In a regulatory filing that followed the announced buyout last week, Phil Falcone's Harbinger Capital said the proposal was not in the best interests of shareholders.

The Wall Street Journal reported that Falcone is pushing for the sale of Cleveland-Cliffs Inc. An unidentified person familiar with Falcone's views told the Journal that Falcone believes commodity prices are nearing their peak and with global steel companies searching for fuel to feed their mills, now is the optimum time to sell.

The company declined comment Friday.

Cleveland-Cliffs needs affirmative votes from the holders of two- thirds of all shares for the deal to go forward under Ohio law.

The Cleveland-based company announced its bid for Alpha on July 16 in which Abingdon, Va.-based Alpha shareholders would receive 0.95 Cleveland-Cliffs shares and $22.23 in cash for each share. The companies pegged the deal at $10 billion the day it was announced. Based on the company's 70.3 million outstanding shares at April 23, the deal is valued at $8 billion currently.

The attempted buyout comes amid a global consolidation of the commodities industry that has begun to accelerate, with major acquisitions by Luxembourg-based ArcelorMittal, the world's largest steelmaker, and Korean steel giant Posco.

The price of the U.S. coal used to make the coke that fuels the blast furnaces can go for as much as $250 a ton. Just last year, the cost was closer to $90.

The combined company would be named Cliffs Natural Resources, and own nine iron ore facilities and more than 60 coal mines in North and South America and Australia.

Originally published by The Associated Press.

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