Carl Icahn’s letter to the board of Commercial Metals Company is presented below. The stock is up 23% today after Carl Icahn‘s $15 per share offer.
Ladies and Gentlemen:
I am currently your largest shareholder and beneficially own 9.98% of the
outstanding common shares of Commercial Metals Company (the “Company”) through
several affiliated entities, including subsidiaries of Icahn Enterprises LP
(NYSE: IEP). Based upon publicly available information, Icahn Enterprises (which
currently has, on a consolidated basis, $22.4 billion of assets, including in
excess of $13 billion in liquid assets, which are cash and marketable
securities) hereby proposes to purchase the Company in a merger transaction at
$15 per share without any financing or due diligence conditions. That price
represents a premium of 31% over the stock’s closing price on November 25, 2011,
which was $11.45, and a premium of 72.6% from its low this year on October 3,
2011, which was $8.60.
IEP is prepared to proceed to immediately negotiate and execute definitive
documents. We firmly believe that the Board’s fiduciary duties require the Board
to allow shareholders to decide for themselves if they wish to accept this
offer. Accordingly, we are also prepared to structure the transaction with an
immediate front end tender offer, with protections for minority shareholders
pending completion of the merger. This transaction will allow shareholders the
opportunity to monetize their investment in the Company. Those who desire to
stay invested in this industry could take their proceeds and invest in direct
competitors in the steel industry which we believe are much better managed and
better situated to take advantage of any possible economic recovery than
Commercial Metals.
The reason IEP is paying a 31% premium over the November 25, 2011 closing price
is because of IEP’s ownership of PSC Metals Inc. When the acquisition is
completed IEP intends to combine Commercial Metals with IEP’s own metals
recycling assets. IEP will sell Commercial Metals’ non-core assets and
immediately appoint a new management team to run the steel business. In our
opinion, these undertakings are imperative to realize future profits at
Commercial Metals.
As a 10% shareholder of Commercial Metals we are extremely concerned about the
capabilities and behavior of the current Board and management, and therefore, we
intend to nominate three individuals as directors at the Company’s 2012 annual
meeting of shareholders, as well as make several proposals for shareholder
consideration. We do not believe the current Board is capable or willing to
undertake the actions necessary to enable Commercial Metals to compete in the
future. Such actions include, but are not limited to, the sale of non-core
assets, the immediate replacement of management, and the refocusing of the
business on core operations in North America. The track record established by
the current Board and management team over the last several years is dismal.
Unfortunately, a below average operating performance fueled by a distracting and
misguided international growth plan, combined with a disastrous investment
record, has become the defining characteristic of Commercial Metals. We have no
confidence in management’s ability to continue running the Company, nor do we
have any confidence that the Board will ever hold management accountable for
poor performance – as shown by the recent and inexplicable bonuses paid to
management. But, hopefully, even this Board will finally take its fiduciary duty
to shareholders seriously enough to allow shareholders to decide whether or not
to sell the Company at a 31% premium over current market price.
Your management team has suggested a recovery in key end markets will not
materialize in 2012. Further, in our opinion, because the Company has been so
poorly managed, shareholders are exposed not only to cyclical industry risks,
but also to permanent risks. Astoundingly, between 2006 and 2011, the Company
squandered $2 billion of capital on ill-conceived acquisitions and “growth”
projects, many of which generated negative EBITDA through the period.
Despite this dismal record, the Board recently granted bonuses to management,
including a $750,000 bonus to the new CEO — for what exactly?! Not in
recognition of the Company’s operating performance, but because management threw
in the towel and admitted that the Company should walk away from many of the
substantial investments that you approved only a few years earlier. The logic is
absurd! The Company spends shareholder money on disastrous investments, and then
several years later, awards management special bonuses – again shareholder money
– for having the “courage” to run away from those very same investments!
Unfortunately, over the next several years even if the steel markets shift into
a cyclical recovery, we fear, and believe, that Commercial Metals will simply
shift back from the current strategy where management is supposedly focused on
unwinding its disastrous investments, to the previous “strategy”, where
management travels the world investing in losing “growth” projects from Croatia
to Australia.
In light of the above, we again ask you to finally show that even this Board is
serious enough about its fiduciary obligations to allow shareholders, and not
themselves, to decide whether to sell the Company at a substantial premium over
the current market price. We would like to move forward immediately and we are
ready to meet. We are prepared to enter immediate negotiations and would like to
see a tender offer launched as soon as possible.
Carl C. Icahn
tender offer launched as soon as possible. Carl C. Icahn
