A REVIEW OF FINANCIAL ACTIVISM BY GENEVA PARTNERS December 17th,2012

TO P AC T I V I S T STO R I E S

If the sage can’t find mispricings in big-cap stocks other than Berkshire, who can ? […]

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GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – info@geneva-partners.com – www.geneva-partners.com

Buffett buyback – the only bargain

Danone and DE Master Blenders

Ingersoll Plans Security Spinoff After Peltz Breakup Push

Illinois Tool to Sell Units After Whitworth Divestiture Push

Knight Bemoans Xstrata Influence on Glencore Board Appointments

Vivendi appoints tycoon Vincent Bolloré to board

Carl Icahn busiest shareholder activist in 2012

Activist Investor Elliott Boosts Stake in Emulex to 11%

Is it too late to join the buffet ? […]

Ingersoll-Rand Plc (IR) plans to spin off its commercial and residential security businesses within the next year after hedge-fund manager Nelson Peltz pressed for a breakup to boost shareholder value. […]

Illinois Tool Works Inc. plans to sell commodity-tied businesses that make up a quarter of the company after Ralph Whitworth’s Relational Investors LLC took a stake earlier this year and pushed for moves to boost profit […]

Knight Vinke Asset Management LLC, an Xstrata Plc investor that opposed its $33 billion takeover by Glencore International Plc, said it would be better if departing Xstrata directors weren’t allowed to choose their successors […]

Vincent Bolloré, a French industrialist and tycoon, will join the board of entertainment-to-telecom group Vivendi in which he is the second-biggest shareholder […]

Carl Icahn led a busy year for shareholder activism that saw well over 100 different companies around the world come under fire for weak performance […]

Elliott Management Corp., the activist investor that pushed Novell Inc. to sell itself in 2010, has amassed more than an 11% stake in Emulex […]

Franck Berlamont Jean-François Bassignot

December 10th, 2012 If the sage can’t find mispricings in big-cap stocks other than Berkshire, who can? Why do you give your money to Warren Buffett? Simple: he is a better stock picker than you are. The tricky part comes when the best stock he can find is his own. Berkshire Hathaway on Wednesday said it had bought back $1.2bn of shares from a long-term shareholder. And the company raised its valuation limit for repurchases to 20 per cent above book value from the 10 per cent limit set last year, when the first buybacks were executed. Mr Buffett historically has avoided buybacks, preferring to buy securities

and whole businesses at deep discounts instead. The company still won’t buy back stock if its cash falls beneath $20bn and Berkshire is not obliged to purchase Berkshire shares if better opportunities emerge – the advantage of buybacks over dividends. But the company was sitting on $48bn of zero-yielding cash as of the end of September. And, before Wednesday’s announcement, the shares were trailing the S&P 500 by about 2 per cent for the year. One way to calculate Berkshire’s value is by applying a market multiple to the pre-tax earnings of Berkshire’s wholly owned companies, then adding the market value of its investments. Using that formula and its own estimates as of the end of the third quarter, T2 Partners, a Berkshire

shareholder, estimates the intrinsic value of the shares to be about $180,000; they trade at $134,000. So perhaps Buffett is doing for his investors what they hope he will – finding juicy opportunities. But the fact that Berkshire raised its value for repurchases may suggest something quite depressing about the prospects for companies large enough for Berkshire to buy. In October, he said he was “salivating” over a big acquisition but revealed that two $20bn deals fell through this year over price. If Buffett can’t find mispricings in big-cap stocks other than Berkshire, what, dear investor, makes you think you can? Source :Financial Times

Buffett buyback – the only bargain

December 14th, 2012 Here’s a recipe to consider as you eat your breakfast. Take an underperforming consumer goods company in Europe. Add in some stake-building by a high-profile investor. Leave to mature for a few weeks or months and, hey presto, the company makes big changes. The recipe has turned out well at both DE Master Blenders and Danone. On Monday the former, a coffee maker, said its chief executive would leave. The company has suffered a series of problems since it was spun off from Sara Lee in June. The stake-builder in this case is Joh A Benckiser, a holding company that also owns stakes in Coty and Reckitt Benckiser.

Danone announced a €200m cost saving plan on Thursday. In its case the stake-builder is Nelson Peltz, the activist US investor who owns 1 per cent of the shares. Both companies deny that the investors have anything to do with the changes. Still, their shares have done nicely. DE Master Blenders is up 6 per cent since the spin-off despite its problems, while Danone is up 5 per cent since Mr Peltz took his stake in November. Is it too late to join the buffet? Perhaps not. DE Master Blenders looks particularly tasty. Danone’s cost savings come in the face of tough trading conditions in Europe, which accounts for more than half of its sales. Morgan Stanley says that the savings will limit, but not entirely

eliminate, margin declines during the next two years. Having taken his stake, Mr Peltz is also pushing for cash returns to shareholders, which could stymie future growth. Benckiser’s intentions for DE Master Blenders are far more vague. But bear in mind, first, that it has built its stake to 15 per cent, while making moves to reduce its holdings elsewhere. Second, it bought Peet’s Coffee & Tea in the US for $1bn in July. A combination of the two businesses would not be out of the question. On 19 times forecast earnings, DE shares are no steal. Decent coffee is rarely cheap. Source : Financial Times

Danone and DE Master Blenders

A REVIEW OF FINANCIAL ACTIVISM BY GENEVA PARTNERS December 17th,2012

TO P AC T I V I S T STO R I E S

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By David Welch & Brooke Sutherland December 10th, 2012 Ingersoll-Rand Plc (IR) plans to spin off its commercial and residential security businesses within the next year after hedge-fund manager Nelson Peltz pressed for a breakup to boost shareholder value. Ingersoll’s strategy, which also includes a stock buyback and a 31% dividend boost, marks the culmination of talks with Peltz’s Trian Fund Management LP, which disclosed a 7.3% stake in May. Peltz had threatened a proxy battle, a person familiar with the matter said. The new security company have about $2 billion in yearly sales, while the existing Ingersoll will generate about $12 billion, retaining climate-control operations with brands such as Trane and American Standard. The move will let investors value the different businesses separately, said Chief Executive Officer Michael W. Lamach, who will stay at Ingersoll. “In separating out the security

business, which really has very few synergies with the rest of the business, that’s a great step and likely to allow that business on its own to seek some potential buyers,” Steven Winoker, a New York-based analyst at Sanford C. Bernstein & Co., said in a telephone interview. "It's an industry that continues to consolidate.” Some heating and air-conditioning companies have an enterprise value of about 9 times earnings, and strong security firms have a multiple of about 11 on the same basis, Julian Mitchell, a New York-based analyst with Credit Suisse AG, said in a note to clients. With Ingersoll’s current multiple of 8, a split may mean the separate businesses “yield a closing of this valuation discrepancy over time,” he said.

Structure, Management […] Completion of the spinoff will require more work on structure and management, and those plans will be subject to board approval, the

Swords, Ireland-based company said. Ingersoll said it would repurchase as much as $2 billion of existing shares starting in 2013 and plans to complete the buyback in the first three months of 2014. The company also raised its quarterly dividend to 21 cents a share, payable March 28 to investors holding stock as of March 12. Peltz suggested in a regulatory filing in August, the same month he joined the board, that the maker of air-conditioning systems, climate-control technologies and security systems be split into three companies. Separating the security businesses, with brands such as Schlage and Kryptonite, will be tax-free for shareholders, the company said. Ingersoll moved its headquarters to Bermuda from New Jersey in 2001 and then to Ireland in 2009, in part because of tax laws. Source : Bloomberg

Ingersoll Plans Security Spinoff After Peltz Breakup Push

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Illinois Tool to Sell Units After Whitworth Divestiture Push

By Thomas Black December 14th, 2012 Illinois Tool Works Inc. plans to sell commodity-tied businesses that make up a quarter of the company after Ralph Whitworth’s Relational Investors LLC took a stake earlier this year and pushed for moves to boost profit. The units will be divested “at the appropriate time” over the next few years, the Glenview, Illinois-based company said today in a slide presentation for analysts and investors. The businesses lack “strong core competitive advantages

necessary to sustain meaningful differentiation.” Today’s divestiture plan builds on Illinois Tool’s decision in August to sell a 51% stake in its decorative-surfaces division for $1.1 billion. Relational disclosed its holding in January and said it had begun talks with management to increase earnings by paring the number of operating units at the maker of welding equipment, construction supplies and auto parts. Illinois Tool’s plan also calls for consolidating business units, reducing the number to 150 from 800 while increasing the average revenue from each to $100 million from $25 million,

according to the presentation.[…] Relational’s 3.1% stake made it the seventh-largest shareholder as of Sept. 30, based on data compiled by Bloomberg. Illinois Tool reported $17.8 billion in sales in 2011 Source : Bloomberg

Franck Berlamont Jean-François Bassignot

By Jesse Riseborough December 13th, 2012 Knight Vinke Asset Management LLC, an Xstrata Plc investor that opposed its $33 billion takeover by Glencore International Plc, said it would be better if departing Xstrata directors weren’t allowed to choose their successors. Xstrata’s non-executive directors “failed adequately to represent their shareholders in the negotiations that led to the merger with Glencore and are therefore not the right individuals to hold the management of Glencore Xstrata to account,” Knight Vinke Chief Executive Officer Eric Knight wrote in a letter. “It would be unfortunate if these directors were allowed to select their own successors,” Knight said. Xstrata Chairman John Bond, scheduled to take on the role in the combined group, quit last month on the day shareholders defied his board’s recommendation to approve bonuses for about

70 managers. Bond said he planned to depart the group once the takeover was complete and once the three-man nominations committee that he was chairman of selected a replacement. A Glencore-dominated committee may “aggravate concerns of those who question Glencore’s corporate governance,” Knight wrote in the letter first published in the Financial Times. They must “act decisively, quickly and with the interests of all shareholders clearly in their sights. Their first task will be to hire a new Chairman who shares this vision.” Glencore and Xstrata officials declined to comment. Reid Going Two weeks after Bond announced his intention to resign, Xstrata’s Chief Financial Officer Trevor Reid also decided against taking on the same role in the group and instead would work as a consultant to the new company for six months. Xstrata CEO

Mick Davis is set to leave the company within six months. “There can be no doubt as to who has come out on top,” Knight said. “Whether Xstrata’s shareholders like it or not, their Board has handed full control of Xstrata to Glencore and they now only have two real choices: to seek a major reconstruction of the Board through direct negotiation; or to sell their shares.” Shareholders in Zug, Switzerland-based Xstrata voted Nov. 20 to approve this year’s biggest takeover, combining the company’s coal, copper, nickel and zinc mining assets with Glencore’s commodities trading to create the world’s fourth- biggest mining company. Knight Vinke owns 16 million shares in Xstrata and 2 million shares in Glencore. Source : Bloomberg

Knight Bemoans Xstrata Influence on Glencore Board Appointments

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By Laurence Frost and Leila Abboud December 13th, 2012 Vincent Bollore, a French industrialist and tycoon, will join the board of entertainment-to-telecom group Vivendi in which he is the second-biggest shareholder. Bollore's appointment will need to be ratified at the company's next shareholder meeting, Vivendi said in a statement on Thursday. The appointment, which had been expected and is likely to be approved by shareholders, may stoke investors' hopes that Bollore can influence Vivendi's ongoing strategy review. Vivendi is working on selling assets, including telecom units in Brazil and

Morocco, in an effort to reduce debt and streamline a conglomerate structure that has weighed down the shares. Bollore is also expected by investors to back Vivendi's effort, now led by chairman Jean-Rene Fourtou, to reduce its exposure to the capital-intensive telecom business, while beefing up in music and pay-TV. Bollore will replace outgoing director Jean-Yves Charlier, who was named director of the group's telecom activities in October, Vivendi said. Pascal Cagni, the former general manager for Apple in Europe, Middle East, India and Africa, was also appointed as an attending director of

Vivendi's board. Cagni's name had circulated among people close to the group over the summer as a potential candidate to replace the prior chief executive, who left in June over disagreements about the group's direction. Source : Reuters

Vivendi appoints tycoon Vincent Bolloré to board

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By David Pett December 11th, 2012 Carl Icahn led a busy year for shareholder activism that saw well over 100 different companies around the world come under fire for weak performance, says new research from Activist Insight, a London-based company that provides global information on activist investment. The research showed 73 different activists publicly engaged with 135 different companies in in 2012, with 41% of activists seeking to gain board representation either through proxy access granted by the company or by launching a proxy contest. Mr. Icahn was the most prominent global activist this year, having gained board representation at 5 companies, including Navistar International Corp, Chesapeake Energy and WebMD Health Corp. He was less successful, however, at Oshkosh Corp. and recently withdrew after a failed

takeover bid. Other notable activists this year included Starboard Value LP, Clinton Group Inc., Trian Fund Management LP, Value Act Capital Partners Inc. and Pershing Square Capital Management LP led by Bill Ackman, who won a high-profile proxy contest against Canadian Pacific Railway Ltd. The research showed that activists succeeded in having a nominee(s) elected onto the board in more than 3 out of every 4 occasions and of the 135 activist campaigns identified, there have been 21 proxy contests. In six of these proxy contests, an activist submitted regulatory proxy filings but then later withdrew. As for the remaining 15 proxy fights, activists had their nominees join the board on seven occasions, while being rejected on five occasions. Three contests, meanwhile, are yet to be re-solved due to delayed shareholder meetings and ongoing legal proceedings.

“Activists clearly see board representation as an integral part of pursuing a successful campaign for change at a company, said Nick Arnott, co-founder at Activist Insight. “It’s an important way to ensure they have a voice in company decisions and to assist in the implementation of their strategies.” Source : Financial Post

Carl Icahn busiest shareholder activist in 2012

By Serena Saitto December 14th, 2012 Elliott Management Corp., the activist investor that pushed Novell Inc. to sell itself in 2010, has amassed more than an 11% stake in Emulex Corp. (ELX), a provider of converged networking solutions for data centers. Elliott, the New York-based hedge-fund investor, said in a regulatory filing yesterday it bought an additional 1.34 % stake in the company through derivative agreements. Elliott reported a 9.96% stake in Emulex with a 13D filing Nov. 23, becoming the largest shareholder and gaining an opening to agitate for change at the Costa Mesa, California-

based company. Peter Truell, a spokesman for Elliott, and Katherine Lane, a spokeswoman for Emulex, declined to comment. Emulex has a market capitalization of about $597 million.[…] Fund managers sometimes use their status as shareholders to urge management to shift strategy or look for a buyout. Emulex adopted a so-called poison pill in 2009 to fend off Broadcom Corp.’s takeover approach. Elliott made an unsolicited $2 billion offer for Novell after building an 8.5% stake in the Linux software maker. Novell was later bought by Attachmate Corp. for $2.2 billion. More recently, Elliott pressed BMC

Software Inc. for several months to consider a sale, resulting in a $1 billion share buyback announced Oct. 31. The activist investor amassed a stake in Brocade Communications Systems Inc. as of August 2011, and a year later Chief Executive Officer Michael Klayko said he would step down after trying to sell the company for more than two years. Source : Bloomberg

Activist Investor Elliott Boosts Stake in Emulex to 11%

Franck Berlamont Jean-François Bassignot

C T I V I S T A C T I V I T Y

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A C T I V I S T A C T I V I T Y

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Company Name

Ticker Activist investor

Position Position Change

% Outstanding

Shares

% Portfolio

Source Date

OSHKOSH OSK US Icahn Associates

Corp. 4,263,043 -654,219 4.7 1.0 13D/A 12-14-2012

OSHKOSH OSK US Icahn Associates

Corp. 4,917,262 -1,290,809 5.4 1.2 13D/A 12-13-2012

NAVISTAR NAV US

Icahn Associates Corp.

11,845,167 0 14.9 2.4 13D/A 12-12-2012

Icahn employee Samuel Merksamer appointed to the board, as the mutually agreed-upon designee with MHR Fund Management, pursuant to the October 2012 settlement agreement.

OSHKOSH OSK US Icahn Associates

Corp. 6,208,071 -2,457,189 6.8 1.5 13D/A 12-10-2012

ADOBE SYSTEMS ADBE US

ValueAct Capital Management LP

31,303,362 1,000,000 6.3 15 13D/A 12-07-2012

ValueAct partner Kelly J. Barlow appointed to the board. ValueAct agreed to a standstill agreement lasting through the 2014 annual meeting.

OSHKOSH OSK US

Icahn Associates Corp.

7,440,933 -1,224,327 8.1 1.8 13D/A 12-05-2012

Icahn withdrew his tender offer after failing to receive enough support.

FEDERAL MOGUL FDML US Icahn Associates

Corp. 76,697,804 443,449 77.6 7.3 13D/A 12-04-2012