11/11/2008

Analysts doubt that Cliffs Natural Resources Inc. is reworking its cash-and-stock acquisition offer for coal miner Alpha Natural Resources Inc. after postponing a shareholder vote on the proposed merger to Dec. 19 from Nov. 21.

"There has been speculation about sweetening the deal ad nauseam, but Cliffs has held firm with the initial offer," said Mark Parr, analyst at KeyBanc Capital Markets Inc., Cleveland. "Cliffs could potentially change its position, but we haven't seen any movement in that direction."

Reuters earlier this week quoted Longbow Research analyst David MacGregor as saying that Cliffs could offer more cash after the value of the original bid dropped to around $3.75 million from $8.3 million as shares in Cleveland-based Cliffs have fallen 75 percent since the merger was announced in July.

Cliffs' stock closed at $25.40 per share on the New York Stock Exchange Thursday, down 16.6 percent from Wednesday's close at $30.46. Abingdon, Va.-based Alpha closed at $24.36 per share, down 17.2 percent from $29.41 at the end of Wednesday.

Cliffs said it delayed the vote because it wanted to provide updated financial information on the proposed merger, considering the metallurgical coal market has fared better than iron ore in the current economic slump and is expected to continue to do better next year.

"(Cliffs) indicated the potential accretion had changed for the better and it wanted time to get the new outlook to investors," Parr said.

Amir Arif of FBR Research also said that Cliffs did not delay the vote to revise the deal, but rather to increase chances that shareholders would approve it. "The deal is more accretive now," Arif said. "It's still going to be difficult (to get shareholder approval), but currently it's next to impossible."

Hedge fund Harbinger Capital Partners has said the proposed acquisition "represents a profound strategic mistake" and last month tried to boost its stake in Cliffs to 33 percent from 15.6 percent in an attempt to block the merger. Cliffs' shareholders, however, voted against the Harbinger move.

Arif said Harbinger likely opposes the transaction because shares in Cliffs are currently undervalued and the deal would reduce earnings per share. And while Parr said he did not know if Cliffs' management would get the required 67 percent of shareholders to support the acquisition, Arif said he still did not think the deal would go through, "but at least (the delay) gives it a chance."

Arif said that he would prefer to see Cliffs' management concentrate on a share buyback program rather than battling on all fronts to push the merger through.

Alpha asked a Delaware court Monday to require Cliffs to hold the shareholder vote on Nov. 21 as initially scheduled (AMM, Nov. 5). Alpha, which needs only 50-percent approval to move ahead with the merger, will still hold its special shareholders meeting Nov. 21.

The acquisition would create one of the largest mining companies in the United States and double Cliffs' output of metallurgical coal.

Cliffs didn't return calls for comment.