The Rising Influence of Rising Affluence

[Democritus_of_Abdera]

Re: CLF Share Buyback Plans....

In general I support the idea of having a buyback plan on the books. However, in my opinion, a share buyback plan that is on the books should only be executed if 1) there are excess funds than cannot be profitably reinvested in the company and 2) the current stock price is at a large discount to a conservative estimate of the business value. Otherwise, the buyback will have a short-term effect when the company's revenues eventually are shown to be stagnant.

In CLF's case, seeking growth is not the theme-of-the-day. So, company cash might not be needed for reinvestment in the company... and, the interest rates are low, which removes much of the incentive for a stagnant cash hoard.... However, I'm not convinced that the stock price is under-estimating the intrinsic business value for CLF... My doubts rise from the large short position which argues that many sophisticated investors believe that the stock price is still too high (not my opinion, but a signal that my opinion should not be given much credit). Thus, at this time, I would prefer that CLF does not execute a stock buyback plan.

In fact, I question Casablanca's intentions, largely because of Drapkin's past association with the notorious Greenmailer, Ronald Perelman (see: http://dealbook.nytimes.com/2012/02/16/drapkin-and-perelman-kiss-and-make-up/?_php=true&_type=blogs&_r=0 ).

It could be that the buyback plan is being established as a potential exit strategy whereby CLF will buy Casablanca's shares. A company buyback from Casablanca, if it occurs, would provide liquidity for such a large transaction without causing downward price volatility. see: http://online.wsj.com/articles/activist-funds-dust-off-greenmail-playbook-1402527339 and
http://www.reuters.com/article/2013/12/12/us-sharebuyback-activists-idUSBRE9BB0YJ20131212 .

It is unlikely that CLF stock will be at a large discount to its business value when Casablanca exits. Thus, in my opinion, if the buyback plan is used to purchase Casablanca's shares, it would not be good for CLF's other shareholders.

see also: http://en.wikipedia.org/wiki/Ronald_Perelman