Ryerson Inc. (NYSE:RYI) shares dropped $1.99, or 5.71%, to $32.89 today after Owl Creek disclosed a 5.3% stake and expressed their dissatisfaction with the company's  management in a Schedule 13D filing with the SEC. The activist hedge fund said that they have reviewed Harbinger Capital's recommendations made on January 2, 2007 and concluded that they are not confident in current management's ability to improve the operating results of the company given the company's history of underperformance. Consequently, they said they would support Harbinger's slate of seven independent directors, whom they believe would add more specific industry experience and be more proactive managers of the company.

Why is change needed? Well, under the leadership of the current management team and Board of Directors, the company has underperformed its peer group in several key operating metrics such as inventory turns, margins, return-on-invested-capital, and share price returns. Indeed, the majority of the stock's rise over the past year was a result of Harbinger's proposal to replace the Board of Directors. Owl Creek is concerned that the current management team and Board of Directors are not sufficiently proactive in managing the company in an industry with a constantly changing business and operating environment.

The hedge fund also noted that it was strange that the current management team specified a number of new initiatives only after Harbinger filed its Schedule 13D in January. Meanwhile, the hedge fund siad it does not see evidence of a credible plan to support management's goals of improving underperforming service centers, achieving an inventory turn rate of 5x by the end of 2007, and operating more efficiently. And indeed, if there are actionable ways for the company to achieve these goals, it begs to question why these actions have only been implemented in response to shareholder pressure and have not been implemented sooner since the management team has been in place since 1999.

Overall, with the additional support of Owl Creek, it is increasingly likely that Harbinger's proposals will gain traction. Whether or not the Board of Directors is actually replaced depends on many factors; however, we do know that there is now increased pressure on management to perform. This makes RYI a stock worth watching!

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