Ancora demands U.S. Steel board records, ratchets up proxy fight

By Svea Herbst-Bayliss

NEW YORK(Reuters) -Activist investor Ancora Holdings is demanding access to records from U.S. Steel, ranging from board minutes to financial documents, as it ratchets up a campaign to replace some of the company's board members and chief executive, according to a letter seen by Reuters.

Ancora last month launched a boardroom challenge at U.S. Steel as the iconic American company is fighting in court to salvage a planned merger with Japan's Nippon Steel. The company is asking the U.S. Court of Appeals to set aside former U.S. President Joe Biden's order that blocked the deal citing national security concerns. U.S. Steel has said it would need to make layoffs and close plants if the deal were scuttled.

Ancora's decision to make a so-called books and records request shows how the activist is using one of the legal tools available to try and win a potentially bitter board room battle.

In its letter - sent to Megan Bombick, U.S. Steel Associate General Counsel, Securities & Corporate Secretary - Ancora told U.S. Steel it wants to investigate "potential wrongdoing in connection with ... the company's futile (lawsuit) ... and "the unusual trading plan of the company's CEO (David Burritt)."

According to the letter, Ancora is looking for information to determine whether the board violated its fiduciary duties by filing the lawsuit and to determine whether Burritt "sought to trade on material nonpublic information."

U.S. Steel called Ancora's request a "distraction that repeats its baseless claims." The company's board "has been and remains unwavering in its commitment to acting in the best interests of all stakeholders, including our stockholders," a representative said, adding U.S. Steel will review the request "and respond in accordance with applicable laws and regulations."

The investor currently owns roughly 500,000 shares, or less than 1%, in U.S. Steel but has said it plans to increase its position significantly. The company, which was once the world's biggest steel producer, has a market value of $8.7 billion.

Ancora plans to hold an investor call to discuss its campaign at 10 a.m. on Wednesday.

Last month, Ancora nominated nine director candidates to U.S. Steel's 12-person board, including an executive who could replace the CEO. The activist also wants the company to drop the lawsuit where it is asking a federal appeals court to overturn Biden's decision to scuttle the $14.9 billion deal.

By pursuing the lawsuit, U.S. Steel is hurting shareholders, Ancora argued in the letter, noting it wants management and the board to concentrate on fixing the business.

"In continuing to litigate the Petition for Review, the Board wastes money and resources in the desperate hope that (the) Merger will land them significant personal benefits," the letter said.

Ancora has given the company until February 24 to provide it with typically confidential documents related to the proposed merger with Nippon and Burritt's trading plan, according to the letter.

It wants to investigate whether directors and officers of the company "breached their fiduciary duties to the company and its stockholders" and find out more about Burritt's trading in U.S. Steel stock "in relation to merger discussions" and how he used his predetermined 10b5-1 plan that allows insiders to sell stock.

Earlier this month, U.S. President Donald Trump said Nippon's bid would take the form of an investment instead of a purchase.

A Japanese government spokesperson earlier this month said Nippon is considering proposing a bold change in plan from its previous approach of seeking to buy U.S. Steel and Prime Minister Shigeru Ishiba called the decision to block the deal "unjust political interference."

Ancora has already identified Alan Kestenbaum, the former CEO of Canadian steel company Stelco, as a suitable replacement for Burritt. Stelco was purchased by steel manufacturer Cleveland-Cliffs last year.

The company has not yet set an annual meeting date and last year's was held on April 30.

Ancora has taken on a number of big companies and won board seats. Earlier this month, auto-parts company LKQ handed two board seats to the investor and a year ago Norfolk Southern shareholders elected three Ancora nominated directors to the railroad's board. Late last year, Norfolk Southern pledged to work with Ancora to add a new director to avoid another fight with the firm.

(Reporting by Svea Herbst-Bayliss; Editing by Aurora Ellis and Chizu Nomiyama )