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A.M. Castle shareholder critiques decisions

Keywords: Tags  A.M. Castle, Huber Capital Management, common stock, Joseph Huber, Scott Stephens, Platinum Equity, Ryerson, Tube Supply debt issue

CHICAGO — After holding a small amount of A.M. Castle & Co. shares passively for five years, Huber Capital Management LLC (HCM) and its principal have opted to take a more active role, also criticizing the company’s activities.

HCM and principal Joseph R. Huber now have sole voting power of 1.23 million shares of the Oak Brook, Ill.-based carbon steel and specialty metals distributor’s common stock, as well as sole dispositive power over slightly less than 1.9 million shares, revealing that it has increased its ownership to 8.2 percent from 3.2 percent at the end of June.

"HCM was a patient and passive investor for years, but recent (management) decisions have caused HCM to reconsider this approach," the company said in a Schedule 13D filing Tuesday with the U.S. Securities and Exchange Commission.

First among HCM’s criticisms was A.M. Castle’s approval of the December 2011 buy of Houston-based Tube Supply Inc. It paid "a premium price. ... The acquisition was made at the top of the market, as evidenced by recent revenue trends: Revenue at Tube (Supply) has dropped over 33 percent in only two quarters," to $39.9 million in the third quarter from $59.8 million in the first quarter, the filing stated.

Second, A.M. Castle "badly miscalculated its ability to tap debt markets to finance the acquisition," HCM said. Management "left the impression that debt could be issued at a cost in the high single digits. Instead, (A.M. Castle) was forced to pay what HCM believes was an exorbitant 13.7 percent for term debt at a time of record-low interest rates."

The day after the debt pricing, A.M. Castle’s share value fell over 30 percent, "representing the destruction of over $88 million of shareholder value," causing an "enormous transfer of value from shareholders to convertible debtholders."

HCM also claimed that its request to obtain shares without triggering a new shareholder rights plan containing a poison-pill clause—ostensibly to prevent an unwanted buyout by rival Ryerson Inc. and Platinum Equity LLC (, Nov. 1)—was denied. HCM wanted an exemption to buy 15 percent of outstanding shares vs. the 10 percent allowed under the plan. It aims to recoup its losses by buying additional shares at prices much lower than those acquired in 2007.

HCM has requested that A.M. Castle’s board grant the exemption. If it doesn’t, HCM reserves the right "to formulate other plans and/or make other proposals," it said. 

A spokesman for A.M. Castle confirmed Wednesday that "the company has reviewed the 13D filing and continues to have an active dialogue with its shareholders."

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