Ryerson Inc. (NYSE:RYI) may find itself in trouble soon after Harbinger Capital disclosed a 9.7% stake in the company and voiced their concerns with management and the company's board of directors. The materials distribution company went from a high of $31 earlier this year to its current levels in the low $20s, as its lackluster numbers failed to impress investors. These numbers have also prompted investors like Harbinger to take a more active role in unlocking shareholder value.

In the Purpose of the Transaction section of the SC13D form filed today, Harbinger elaborated on their problems with the company:

"The Reporting Person initially reported their investment on a Schedule 13G on November 27, 2006. Since that time, the Reporting Persons have examined the financial and operating performance of the Issuerand have grown  increasingly concerned that the board of directors and senior management of the Issuer have not been appropriately vigilant in their management of the Issuer, particularly with respect to its lack of focus on profitability and the management of inventory.

The Reporting Persons observe that the Issuer's peer companies have been consistently successful in turning inventory more rapidly than the Issuer and have also consistently earned high gross, operating and net margins throughout the business cycle. Given this persistent under performance by the Issuer since it was established as a stand-alone enterprise in 1999, the Reporting Persons have concluded that the board of directors has provided insufficient oversight of management's ability to deliver acceptable performance in the key factors that are critical to maximizing the value of the Issuer's existing asset base, geographic presence and product portfolio. The Reporting Persons believe that the current board of directors, while talented and undoubtedly qualified in general business matters, lacks the specific qualifications necessary for understanding the value drivers within the metals processing and distribution business which drive acceptable shareholder returns.

As a result, the Reporting Persons are considering a range of actions by which they may be able to encourage the Issuer to improve its performance. Such activities may include taking a position (including by contacting management and other shareholders of the Issuer) with respect to potential changes in the operations, management, or capital structure of the Issuer as a means of enhancing shareholder value. Such suggestions or positions may include one or more plans or proposals that relate to or would  result in any of the actions required to be reported herein. In addition, the Reporting Persons are also considering nominating one or more persons for election to the Issuer's board of directors at the Issuer's next annual meeting of shareholders." (Read More)

Ryerson is currently trading at just 8.15x earnings compared to an industry average 16.36x, making the company's stock worth $44.50 at the industry's valuation. Harbinger maintains that this poor valuation is a result of lackluster growth stemming from poor inventory turnover and low margins. If the company is able to improve these numbers, it could mean significant returns for shareholders. This makes RYI a stock definitely worth watching closely into 2007!

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