Cliffs Shareholder Backing Former Metals USA Leader for Vacant Cliffs CEO Position
02/12/2014 - Casablanca Capital LP, one of the largest shareholders of Cliffs Natural Resources Inc., with beneficial ownership of approximately 5.2%, announced that it is backing Lourenco Goncalves, former CEO of Metals USA, to fill the currently open position of chief executive officer of Cliffs.
Casablanca has also delivered a letter to the company declaring its intention to nominate a majority of directors for election to Cliffs’ Board of Directors at the company’s 2014 annual meeting of shareholders.
Goncalves, a 30-year veteran of the metals and mining industry, is standing as CEO candidate, has agreed to be a Casablanca director nominee, and recently made a personal investment of approximately US$1 million in Cliffs shares. Goncalves was most recently chairman, president and CEO of Metals USA. Over the first two years of his 10-year tenure as CEO, the company’s share price grew from US$3.08 to US$22.00 when taken private. Under Goncalves’ leadership, Metals USA then returned 5.5x to its principal shareholders when it was sold to Reliance Steel and Aluminum for US$1.2 billion in 2013.
“The steps Cliffs announced yesterday are, in our view, a knee-jerk response to our call for change. We believe they are inadequate to address Cliffs’ issues, including the need for dramatic cost savings, and do not demonstrate the strong leadership needed to create substantial value for shareholders,” said Donald Drapkin, chairman of Casablanca. “In spite of its public statements, Cliffs hasn’t engaged us in any meaningful dialogue on the issues we’ve raised or provided a timetable for doing so.”
Drapkin continued, “The sad truth is that shares of Cliffs have lost more than 80% of their value since mid-2011. The company’s actions to date have confirmed our lack of faith in the ability of the current Board and management team to reverse the deterioration in Cliffs’ financial performance. We are therefore calling for the business to be refocused under a dynamic and experienced CEO, Lourenco Goncalves, supported by a significantly reconstituted Board of Directors. We are confident Mr. Goncalves will bring the strategic and operational skills needed to effect urgent change and restore the fundamental value we see in Cliffs. We will shortly announce a slate of highly qualified Board nominees to oversee this effort.”
Goncalves said, “Cliffs is undervalued by the market, not because of any inherent shortcoming in the assets, but rather because of how the assets have been structured and managed. The personal investment I have made in Cliffs underscores my belief in the opportunity as well as my support for the cost-cutting and other recommendations Casablanca has made. I look forward to working with Casablanca and our fellow investors to catalyze positive change and generate significant shareholder value.”
Schulte Roth & Zabel LLP is acting as legal advisor to Casablanca.
Lourenco Goncalves has over 30 years of experience in the metals and mining sector, having served most recently as chairman, president and CEO of Metals USA prior to its sale to Reliance Steel & Aluminum in 2013 for US$1.2 billion. Mr. Goncalves served as president and CEO for 10 years and chairman of the Board of Directors for seven years, overseeing the company’s expansion from operations in 18 to 49 locations, its growth in profitability from approximately US$17 million to US$143 million annually, and its establishment as one of the largest metals service center businesses in the United States. Prior to his time at Metals USA, he served from 1998 to 2003 as president and CEO of California Steel Industries (CSI), a leading Los Angeles-based producer of flat rolled steel in the Western United States. From 1981 to 1998, he was employed in progressively senior positions by Companhia Siderurgica Nacional (CSN), a steel producer that is vertically integrated with iron ore operations and one of the largest steel producers based in Brazil.
Casablanca Capital is an event driven and activist investment manager based in New York, founded in 2010 by Donald G. Drapkin and Douglas Taylor. Casablanca invests in high quality but underperforming public companies that have multiple levers to unlock shareholder value. The firm seeks to engage with the management, boards, and shareholders of those companies in a constructive dialogue in order to enhance shareholder value through improved operational efficiencies, strategic divestitures, capital structure optimization and increased corporate focus. In 2011, Casablanca successfully initiated a campaign at Mentor Graphics Corporation to improve profitability and enhance value at the company, working with shareholders to elect three nominees to Mentor’s Board.
Goncalves, a 30-year veteran of the metals and mining industry, is standing as CEO candidate, has agreed to be a Casablanca director nominee, and recently made a personal investment of approximately US$1 million in Cliffs shares. Goncalves was most recently chairman, president and CEO of Metals USA. Over the first two years of his 10-year tenure as CEO, the company’s share price grew from US$3.08 to US$22.00 when taken private. Under Goncalves’ leadership, Metals USA then returned 5.5x to its principal shareholders when it was sold to Reliance Steel and Aluminum for US$1.2 billion in 2013.
“The steps Cliffs announced yesterday are, in our view, a knee-jerk response to our call for change. We believe they are inadequate to address Cliffs’ issues, including the need for dramatic cost savings, and do not demonstrate the strong leadership needed to create substantial value for shareholders,” said Donald Drapkin, chairman of Casablanca. “In spite of its public statements, Cliffs hasn’t engaged us in any meaningful dialogue on the issues we’ve raised or provided a timetable for doing so.”
Drapkin continued, “The sad truth is that shares of Cliffs have lost more than 80% of their value since mid-2011. The company’s actions to date have confirmed our lack of faith in the ability of the current Board and management team to reverse the deterioration in Cliffs’ financial performance. We are therefore calling for the business to be refocused under a dynamic and experienced CEO, Lourenco Goncalves, supported by a significantly reconstituted Board of Directors. We are confident Mr. Goncalves will bring the strategic and operational skills needed to effect urgent change and restore the fundamental value we see in Cliffs. We will shortly announce a slate of highly qualified Board nominees to oversee this effort.”
Goncalves said, “Cliffs is undervalued by the market, not because of any inherent shortcoming in the assets, but rather because of how the assets have been structured and managed. The personal investment I have made in Cliffs underscores my belief in the opportunity as well as my support for the cost-cutting and other recommendations Casablanca has made. I look forward to working with Casablanca and our fellow investors to catalyze positive change and generate significant shareholder value.”
Schulte Roth & Zabel LLP is acting as legal advisor to Casablanca.
Lourenco Goncalves has over 30 years of experience in the metals and mining sector, having served most recently as chairman, president and CEO of Metals USA prior to its sale to Reliance Steel & Aluminum in 2013 for US$1.2 billion. Mr. Goncalves served as president and CEO for 10 years and chairman of the Board of Directors for seven years, overseeing the company’s expansion from operations in 18 to 49 locations, its growth in profitability from approximately US$17 million to US$143 million annually, and its establishment as one of the largest metals service center businesses in the United States. Prior to his time at Metals USA, he served from 1998 to 2003 as president and CEO of California Steel Industries (CSI), a leading Los Angeles-based producer of flat rolled steel in the Western United States. From 1981 to 1998, he was employed in progressively senior positions by Companhia Siderurgica Nacional (CSN), a steel producer that is vertically integrated with iron ore operations and one of the largest steel producers based in Brazil.
Casablanca Capital is an event driven and activist investment manager based in New York, founded in 2010 by Donald G. Drapkin and Douglas Taylor. Casablanca invests in high quality but underperforming public companies that have multiple levers to unlock shareholder value. The firm seeks to engage with the management, boards, and shareholders of those companies in a constructive dialogue in order to enhance shareholder value through improved operational efficiencies, strategic divestitures, capital structure optimization and increased corporate focus. In 2011, Casablanca successfully initiated a campaign at Mentor Graphics Corporation to improve profitability and enhance value at the company, working with shareholders to elect three nominees to Mentor’s Board.
