Cliffs Natural Resources Inc. (NYSE: CLF) shares fell sharply after the proposed with rival Alpha Natural Resources (NYSE: ANR) fell through toady. This didn't come as a surprise to many shareholders as the value of the deal fell from $8.3 billion when announced to just $2.9 billion right now. However, the failure marks a victory for Philip Falcone's Harbinger Capital who faught the merger agreement since it was announced. The activist hedge fund criticized the move and suggested that Cliffs instead put itself up for sale.

Harbinger owns about 15% of Cliffs Natural Resources and is now facing further declines in the stock price. As part of the settlement, Cliffs will have to pay a $70 million breakup fee, but the hedge fund is optimistic. A combined company could have not only prevented the eventual sale of Cliffs to a third party, but also created an entity with substantial debt and problems. After all, the economies of scale argument doesn't work in every situation.

Cliffs Natural Resources Inc, formerly Cleveland-Cliffs Inc, is an international mining company, a producer of iron ore pellets in North America and a supplier of metallurgical coal to the global steelmaking industry. It operates six iron ore mines in Michigan, Minnesota and Eastern Canada, and three coking coal mines in West Virginia and Alabama. Cliffs also owns 80.4% of Portman, an iron ore mining company in Australia, serving the Asian iron ore markets with direct-shipping fines and lump ore. In addition, it has a 30% interest in the Amapa Project, a Brazilian iron ore project, and a 45% economic interest in the Sonoma Project, an Australian coking and thermal coal project. It is organized into three business segments: North America Iron Ore, North American Coal and Asia-Pacific Iron Ore.