Struggling iron ore and coal miner Cliffs Natural Resources (NYSE: CLF) will have to make close to $28 million in severance payments to executives and other key staff that have been turfed following a proxy battle.
Activist hedge fund Casablanca Capital succeeded in gaining control of Cliffs’ board at the company’s annual meeting in late July. Six of the 11 board members elected were nominated by Casablanca, a shareholder with only a 5.2% interest in Cliffs.
The nominees included Lourenco Goncalves, who has taken over as Cliffs’ new chairman, president and CEO from Gary Halverson. Although Halverson was only instated as CEO in February after joining the company as president and chief operating officer in November 2013, he is entitled to $11 million in severance under change of control provisions in the company’s previously adopted incentive equity plan.
Over the next two years, the miner could also be liable for up to $40 million in additional “double-trigger” payments based on its current share price. However, the company says it expects triggering events — and therefore actual payments — will be minimal.
Goncalves, a former president and CEO of Metals USA Holdings Corp., has promised to lead Cliffs on a “new strategic path,” which could include a sale of some assets, including its iron ore businesses in Canada and Asia.
The transition under Goncalves’ leadership is off to a rocky start, with at least one director from Cliffs’ pre-Casablanca era finding himself unable to work with the new board members.
Timothy Sullivan, a Cliffs director since early 2013, resigned shortly after the new board’s first meeting in early August.
In a letter to Goncalves dated Aug. 11, Sullivan said that before the meeting, he had been looking forward to working with the new board, based on the reputations of some of the new members. However, his enthusiasm quickly faded.
“During the meeting, it was clear that neither you nor the new directors wanted to hear anything that might be contrary to your pre-scripted plan,” he wrote.
“I can assure you that I have never experienced anything like what transpired in our initial board meeting.”
Sullivan said he was resigning because he felt he could no longer represent the interests of all Cliffs shareholders in light of the new board’s direction.
“In my relatively short term on the Cliffs board, a great deal of work was done by the reconstituted board and management team to improve a very bad situation,” Sullivan wrote. “I believe you have done yourself, your fellow directors and the shareholders of Cliffs a disservice by your unwillingness to engage the legacy directors in a meaningful way and by ignoring Gary Halverson’s accomplishments since he joined the company a mere nine months ago.”
One of Goncalves’ first moves as CEO was to reverse the company’s previous decision to idle its Pinnacle metallurgical coal mine in West Virginia starting in late August due to poor market conditions.
Cliffs shares traded at US$16.56 at press time in a 52-week trading window of US$13.60 to US$28.98. The company has 153.2 million shares outstanding.
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