Algoma Steel Inc has settled a fierce proxy battle with its biggest shareholder by agreeing to make a special C$200 million cash payment to shareholders. In addition to the C$200 million payout, which will be made by the end of the second quarter, Algoma has agreed to put two directors acceptable to Paulson on the steel maker's board.

After it makes the C$200 million payment, Canada's third-largest steelmaker will have distributed C$476 million to its shareholders in less than a year.

Algoma had earlier rejected a proposal from Paulson which outlined how Algoma should pay out more than $400 million in cash to its shareholders. In response, Paulson launched a proxy battle to replace Algoma's board. That battle was to have been decided at a March 22 meeting, where Algoma's shareholders were to vote on whether to replace the board. That meeting has been cancelled as a result of Tuesday's deal.

But the deal has angered the United Steelworkers union, which had gone to the Ontario Superior Court in an effort to stop Paulson, whose actions they fear will weaken the company's finances.