US mining companies Cliffs and Alpha call off merger

18 November 2008

US mining companies Cliffs Natural Resources and Alpha Natural Resources have jointly announced the termination of their merger agreement, citing ''the current macroeconomic environment, uncertainty in the steel industry, shareholder dynamics and risks and costs of potential litigation.''

In a compromise, Cliffs agreed to pay Alpha $70 million as a break up fee and Alpha will withdraw the legal suit it had filed in Delaware Chancery Court against Cliffs for delaying the acquisition.

Both companies said in a statement that the decision to end the deal and the legal dispute was in the best interest of the companies and shareholders.

Iron ore pellet maker, Cliffs Natural Resources had agreed to acquire the largest US producer and exporter of metallurgical coal, Alpha Natural Resources, in July this year, for $8.3 billion. Its its stock price since then has fallen to approx $2.7 billion, due to the global economic crisis which has seen steel and commodities price crashing.

Just after announcing its proposed acquisition in July, Birmingham, Alabama based hedge fund Harbringer Capital Partners, the largest shareholder with 15 per cent stake in Cliffs, and 0.4 per cent in Alpha, vehemently opposed the merger saying it was too risky and asked Cliffs to look for an alternative, like selling itself.

Harbringer Capital Partners even asked shareholder's approval to acquire up to a third of Cliffs in order to scuttle the deal but Cliffs shareholder's voted against Harbringer.