What happened
Shares of iron oremining companyandsteelmaker Cleveland-Cliffs(NYSE:CLF)closed 5.5% higher on Thursday, buoyed by news that it has bought back from Arcelor Mittal(NYSE:MT)all of its Series B Participating Redeemable Preferred Stock.
So what
Thepreferred stockin question amounted to 58 million common shares, and was worth $1.2 billion in total.
Management described the buyback as "a no-brainer," saying it was "highly accretive" for Cleveland-Cliffs shareholders, in that it will concentrate profits among fewer shares outstanding, shrinking the company's diluted share count by 10% "on a pro forma basis."
Moreover, the buyback was quite affordable, consuming "less [cash] than the free cash flow we expect to generate this quarter."
Now what
Now, because Cleveland-Cliffs just finished reportingsecond-quarter earnings last week, it will be another several months before shareholders see the benefit of this transaction in dollars and cents. Still, that benefit could be substantial.
According to published estimates, analysts are forecasting that third-quarter earnings will be $2.13 per share, but a 10% reduction in share count could bump that per-share profit up by $0.21 or so, which leads me to suspect that part of the reason Cleveland-Cliffs stock popped today was because investors are anticipating an earnings beat three months from now.