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Carl Icahn’s November 28, 2011 Letters to Takeover Target Commercial Metals Company

November 29, 2011 | About:
CanadianValue

CanadianValue

210 followers
Yes, two letters in the same day. One to detail the offer. The second to reply to management's reaction to the first.

I don’t think this one will fall into the “friendly” category.

http://www.sec.gov/Archives/edgar/data/22444/000092847511000268/cmcsch13damd3112811.txt

November 28, 2011

Board of Directors

Commercial Metals Company (CMC)

6565 North MacArthur Boulevard, Suite 800

Irving, Texas 75039

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 (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

http://www.sec.gov/Archives/edgar/data/22444/000092847511000274/cmcsch13damd4112811.txt

November 28, 2011

Board of Directors

Commercial Metals Company

6565 North MacArthur Boulevard, Suite 800

Irving, Texas 75039

Ladies and Gentlemen: We have seen your press release "Commercial Metals Company to Review Unsolicited Letter From Carl Icahn" issued earlier today. You stated in your press release that: "The Company noted that Icahn's letter did not constitute a formal offer and, as such, stockholders do not need to take any action." This is absurd and in-keeping with the confused decisions and statements that this management team and Board have made over the past 3 to 4 years. We have no idea why the Board would want to misconstrue what was obviously a formal offer?

We do not want any confusion or misinformation, so let's reiterate what should have already been clear. The offer we delivered to the Board earlier today is, in all respects and without any doubt, a formal all cash offer to acquire the Company. In fact, we will repeat our offer in order to eliminate the Board's confusion. Here it is again:

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. Given the obvious market interest in your securities, as evidenced by today's heavy trading volumes, it is incumbent on the Board to respond to our offer as soon as possible.

Carl C. Icahn

About the author:

CanadianValue
http://valueinvestorcanada.blogspot.com/

Rating: 3.7/5 (7 votes)

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