I think this is a good example of why the stock market doesn’t work well when owning or influencing decision making for long-term-investment type industry. Ironically, that’s the type of industry that stock markets were originally meant to service …
Paulson & Co., which controls 19 per cent of the steelmaker’s stock, sent a letter to Algoma last week, asking the steelmaker to refinance its debt and pay cash to shareholders to boost its ‘depressed’ stock price.
Ben Duster, chairman of Algoma’s board, said ‘Paulson’s proposal involves drastically reducing Algoma’s cash position as the company goes into an uncertain time in the steel industry’s cycle.’
As steel prices soared to unprecedented levels last year, the firm racked up a cash balance of $453 million. That soared to $700.2 million by June 30.
In August, the company announced a special dividend of $6 a share – using up about $240 million of its cash surplus. In addition, it said it would buy back about 3.3 million shares.
“We will make further shareholder distributions when it is prudent to do so in the context of the company’s cash needs,” Duster said in the announcement that Algoma was rejecting Paulson’s proposal.
Anyone who has anything to do with steel knows that the future is uncertain at the moment, and having a nest egg from the good times of a year ago could be the difference between success and failure in the long term.
Forcing the company to cash out the nest egg could be a death-knell.