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
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
distributors 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
First among HCMs
criticisms was A.M. Castles 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. Castles 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 clauseostensibly to
prevent an unwanted buyout by rival Ryerson Inc. and Platinum
Equity LLC (
amm.com, 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.
Castles board grant the exemption. If it doesnt,
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