A REVIEW OF FINANCIAL ACTIVISM BY GENEVA PARTNERS May 15th, 2013TOP ACTIVIST STORIES N°10Third Point, Mr Loeb’s $11bn hedge fund, has amassed a $1.1bn stake in Sony, equivalent to about 6.5 percent of the Japanese conglomerate’s total stock.1GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – email@example.com – www.geneva-partners.comHess, the US oil group, has offered to bring on to its board two directors nominated by hedge fund ElliottManagement as the battle for control of the company enters its final week.TW Telecom Inc. (TWTC), a supplier of phone and Internet services to businesses, jumped the most in almosttwo years after shareholder Corvex Management LP said the company may be a takeover target.Dell Inc. (DELL)’s special committee asked billionaire Carl Icahn for more information about his proposedtakeover of the personal-computer maker, made last week as a challenge to founder Michael Dell’s $24.4billion buyout.Activist makes his point to SonyDell Committee Asks Icahn for More Information on PlanHess in compromise move over board battleTW Telecom Jumps After Investor Says It May Be Takeover TargetActivist investor to push for new debt deal at PagesJaunesActivist investor Guy Wyser-Pratte said he is seeking board seats at French phone directories companyPagesJaunes to force its biggest shareholder - U.S. private equity firm Cerberus - to cut the groups debt.UBS Looks at All Investor Input on Knight Vinke ProposalUBS AG (UBSN) is always looking at all shareholder suggestions, Chief Executive Officer Sergio Ermotti said, aday after investor Knight Vinke Asset Management LLC called for a spinoff of the lender’s investment bank.
A REVIEW OF FINANCIAL ACTIVISM BY GENEVA PARTNERS May 15th, 2013TOP ACTIVIST STORIES N°102GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – firstname.lastname@example.org – www.geneva-partners.comActivist makes his point to SonyBy Sam Jones and Jonathan SobleMay 14th, 2013There used to befew surer ways of losing money in theinvesting world than undertaking anactivist campaign in Japan.On Tuesday, however, one of themost high-profile investors in the US,the billionaire hedge fund managerDaniel Loeb, turned his attention tothe country.Third Point, Mr Loeb’s $11bn hedgefund, has amassed a $1.1bn stakein Sony, equivalent to about 6.5 percent of the Japanese conglomerate’stotal stock.More to the point, last weekend MrLoeb delivered a carefully-wordedtwo-page letter – the activistinvestor’s calling card – in person, toSony chief executive Kazuo Hirai.The approach may have been velvet-gloved, but its content wassubstantial: Sony should float as muchas 20 per cent of its entertainmentbusiness to raise much-needed cash,Mr Loeb said, and concentrate on itsunderperforming electronics base.Mr Loeb’s investment is typically bold,but it is also being seen assymptomatic of a broader trend.Interest in Japan is soaring amongforeign investors and, in particular,hedge fund managers thanks toAbenomics: the programme ofexpansionist monetary and fiscalpolicies unleashed by Japan’s newprime minister, Shinzo Abe, whichhave propelled the Nikkei on to a six-month rally that has yet to show signsof fading.“Japan was, until eight months ago,an irrelevant place,” says PhilippeJabre, one of Europe’s mostprominent hedge fund managers.“People used to say to us, ‘why areyou wasting your time there?’ ”But, powered primarily by Japaneseinvestments, Mr Jabre’s flagshipglobal fund has made 35 per cent thisyear.“The violence of the move in theNikkei just shows how under-ownedthe market is. You don’t have amarket that goes up 50 per cent whenlots of people own it,” says Mr Jabre.Abenomics certainly played its part inattracting Mr Loeb’s eye.After visiting the country to look foropportunities in April last year, ThirdPoint laid on a series of macro tradesto short the yen and buy the Nikkei inanticipation of Mr Abe’s policies.The trades were a huge success. Butextracting concessions from Japanesecompanies is an altogether differentchallenge.Mr Loeb’s gently worded letter toSony – a contrast to the oftenscathing messages he is known tosend US companies – suggests he isaware of the suspicion with whichactivist shareholders, particularlyforeign ones, are still viewed in Japan.“We called it a mission impossible toour investors when we took a stakein Japan Tobacco,” says Chris Hohn,head of The Children’s InvestmentFund, one of the world’s biggestactivists.Although TCI’s JT bet has been asuccess – the stock has risen 140 percent since they acquired it – it is “anexception to the rule,” according toMr Hohn:“Japan is not a good place for activistinvestors. Although there are a hugenumber of mismanaged companiesthat are cheap and should be takenover, the laws are catastrophic foractivists.”And the jury is still out on Mr Loeb’ssoftly-softly approach. Diplomaticexchanges, larded with compliments,have been the starting points formany activists’ campaigns in thecountry but, in the face of corporateintransigence, stances can quicklyharden.“Culturally, there are very few peoplewho are willing to think outside thebox,” says Mr Hohn. “People whohave tried to do activism in Japanhave failed.”“The success of shoot-from-the-hip,too direct, culturally insensitiveactivists in Japan ranges from spottilypoor to very poor,” says NicholasBenes, a corporate governanceactivist and founder of the BoardDirector Training Institute of Japan.Mr Loeb, for all his polite words, ispressing for a seat on Sony’s boardand has taken his campaign publicalmost immediately, Mr Benes notes– tactics that could mark him as anaggressor in Sony’s eyes. “The thingto do here is to give it nine months togel.”Still, Mr Benes says Sony is a “grown-up” company with a relatively openand global outlook that mightultimately benefit from Mr Loeb’sprodding.“If we’re lucky, this could be a catalystfor focus and change.”Source : Financial Times
3GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – email@example.com – www.geneva-partners.comDell Committee Asks Icahn for More Information on PlanBy Lisa Rapaport and Aaron RicadelaMay14th, 2013Dell Inc. (DELL)’sspecial committee askedbillionaire Carl Icahn for moreinformation about his proposedtakeover of the personal-computermaker, made last week as a challengeto founder Michael Dell’s $24.4 billionbuyout.In a letter to Icahn today, thecommittee said it wants more detailsabout the financing for his transactionand asked him to identify the personshe would expect to form the seniormanagement team. It also requesteda draft of a “definitive agreement” forthe transaction.Icahn and his partner SoutheasternAsset Management Inc. plan toborrow money for Dell to offer $12 ashare in cash or stock to investors,while also letting them retain stakesin a public company. The payoutwould dilute existing Dell shares,which Icahn said would have a valueof at least $1.65 apiece. In contrastto Michael Dell’s plan to take thecompany private, Icahn is askinginvestors to bet on the future of a PCmaker beset by rising competition,tumbling demand and mounting debt.“The most likely scenario at this pointis that Michael Dell’s deal goesthrough,” Lance Vitanza, an analyst atCRT Capital Group LLC, said in aninterview today. “There are a lot ofpeople who don’t want the volatility.”Icahn is also seeking a seat on Dellboard and proposed five otherpotential board members, accordingto a filing today.Dell’s shares rose less than 1 percentto $13.52 at the close in New York,about 1 percent below the $13.65-a-share price CEO Dell and SilverLake Management LLC are offering totake the company private.Committee’s Questions“It is not clear to us whether youintend to formulate your transactionas an actual acquisition proposal thatthe Board could evaluate andpotentially endorse or accept orrather to propose it as an alternativethat the Board could consider in theevent the pending sale to Silver Lakeand Michael Dell is not approved,” thespecial committee said in today’sletter.In addition to working capital, Dell islikely to have “other significant cashneeds,” such as approximately $1.7billion of debt maturities within about12 months after closing, according tothe letter.Lee Harper, a spokeswoman forSoutheastern, and Icahn didn’timmediately return calls seekingcomment. Gordon Goldstein, aspokesman for Silver Lake, declined tocomment on Dell’s letter to the twoinvestors today.Icahn, who along with Southeasternowns almost 13 percent of the shares,said last week that if he prevails, hewould look to replace founder andCEO Michael Dell. Financing for theirproposal will come from existing cashat the PC maker and about $5.2 billionin new debt.Board ProposalsIcahn today proposed himself and fiveother potential board members,including Harry Debes, former CEO ofbusiness-software maker Infor, andRajendra Singh, CEO of investmentfirm Telecom Ventures LLC, as part ofthe effort to scuttle the originalagreement.Icahn also said he would nominateIcahn Enterprises President and CEODaniel Ninivaggi, and IcahnEnterprises Managing DirectorJonathan Christodoro. Southeasternnominated Bernard Lanigan, Jr., CEOof Southeast Asset Advisors Inc., andfive other people, including New YorkCity Chief Information Officer RahulMerchant. Merchant is an appointeeof New York City Mayor Michael R.Bloomberg, who is the founder andmajority owner of Bloomberg LP, theparent of Bloomberg News.Potential GrowthTo prevail, Icahn will have to persuadethose investors who want to keep anequity stake in Dell that freshleadership can do a better job playingcatch-up in cloud computing whilemanaging greater debt andcombating the biggest sales decline inthe history of personal computing.Investors who don’t want Dell stockface bigger risks under Icahn’s plan.While they would receive $12 a share,there’s no guarantee that they’ll beable to find a buyer willing to pay$1.65 or more for their existingholdings -- a prospect that may makethe Silver Lake-Dell bid more alluring.Icahn and Southeastern said last weektheir proposal gives investors achance to benefit from potentialfuture growth.“Mathematically, there is no questionit is superior,” Icahn said in aninterview on Bloomberg Televisionlast week. “You have a choice ofgetting $12 and still owning Dell,which has great potential.”Lackluster GrowthDell’s board is predicting another yearof lackluster growth as demand for PCebbs, underscoring the urgencybehind the company’s decision to betaken private, documents filed inMarch showed.Sales for the year ending next Januarywill slip to $56.5 billion, and Dell’s PCbusiness will shrink by $10 billion overfour years, according to projections ina proxy statement filed withregulators.“I think Icahn is gesticulating in orderto push Dell/Silver Lake to bump sothat he can get out break-even orwith a small profit,” said AlbertSaporta, managing director at atAIM&R, an investment research firmbased in Geneva. “It should be prettyclear by now that Dell is not worth alot more than $13.65.”Cash CertaintyEven so, Jefferies Group LLC, theinvestment bank that Icahn said may
4GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – firstname.lastname@example.org – www.geneva-partners.comHess in compromise move over board battleBy Ed CrooksMay 13th, 2013Hess, the US oilgroup, has offered to bring on to itsboard two directors nominated byhedge fund Elliott Management asthe battle for control of the companyenters its final week.In a suggested compromise, Hess saidthat if its slate of five nominateddirectors was elected, it would quicklyappoint two more board membersfrom the rival list proposed by Elliott,which has been pushing for change atthe company.The proposal follows Elliott’s decisionto drop a controversial remunerationplan for its slate of five nominees.Elliott described the move as “a PRstunt”, made because Hess was“seeing the writing on the wall”.The battle for Hess, which will cometo a head at the company’s annualmeeting on Thursday, reflects risingshareholder activism among USinvestors in general and particularly inthe energy industry.Separately on Monday, Transocean,one of the world’s largest offshoredrilling contractors, said ChairmanMichael Talbert planned to step downthis year, in another last-minuteconcession before its annual meetingon Friday. It is under pressure fromCarl Icahn, the activist investor whoowns 5.6 per cent.The offer from Hess over Elliott’sboard nominees follows a U-turn lastweek, when it offered to strip chiefexecutive John Hess of thechairmanship, replacing him withJohn Krenicki, a former senior GeneralElectric executive.Both Institutional ShareholderServices and Glass Lewis, the investoradvisory firms, have backed thedirectors nominated by Elliott.However, they said severalshareholders had favoured acompromise bringing in new directorsfrom both sides – an outcome thatHess has now offered, albeit with fiveof its own nominees joining the boardcompared to just two of Elliott’s.In a statement, Elliott said:“Shareholders want real change, yetHess is doing everything they can toavoid it . . . Hess should accept all fiveshareholder nominees and replace asmany of their incumbent directorswith management’s nominees as isreasonable.”Earlier on Monday Elliott, which owns4.5 per cent of Hess, moved toneutralise one of the main objectionsto its directors by dropping theirplanned bonus scheme.It had intended to pay them $30,000for every percentage point by whichHess shares outperformed its peersby 2016, leading to concerns that theboard could be divided because thedirectors were rewarded differently.The plan had been criticised by GlassLewis.In a statement, the Elliott nomineesdescribed the controversy over theirpay as an “ongoing distraction”.They added: “While each of usbelieves that these arrangements areappropriate and consistent with theperformance of our duties asindependent directors, each of us hasmade the decision to waive our rightto receive these payments fromElliott.”Meanwhile, Transocean said that ifMr Talbert, its chairman since 2002,was voted back on to the board at themeeting on Friday, he would stepdown as chairman by November andleave the company no later than nextyear’s meeting.Mr Talbert, who was chief executivefor eight years before becomingchairman, has been criticised by MrIcahn for presiding over “thedestruction of at least $11bn ofshareholder value”, most of itresulting from the merger withGlobalSantaFe, another drillingcontractor, in 2007.ISS and Glass Lewis had bothrecommended voting against MrTalbert’s re-election to the board.Transocean said the company would“promptly” begin a search for areplacement, and would “take intoconsideration the views of thecompany’s shareholders” in makingan appointment.In another example of increasedshareholder activism inenergy, investors this month removedRay Irani, executive chairmanof Occidental Petroleum, followingconcerns over his disagreements withthe company’s chief executive.Source : The Financial Timescommit $1.6 billion to help finance histakeover, told clients in a researchreport that Dell’s investors are morelikely to favor a competing offer.“Most shareholders would prefer thecertainty of $13.65 in cash” fromMichael Dell and Silver Lake, PeterMisek, an analyst at New York-basedJefferies, wrote in a note today.Investors may accept that rather“than risk the uncertainty and theensuing stock volatility if the SilverLake proposal were voted down andIcahn/Southeastern attempt to installa new board of directors.”Richard Khaleel, a spokesman for NewYork-based Jefferies, declined tocomment on whether the firm hascommitted funding or on the analystnote.Owning Dell hasn’t been such anattractive option for shareholders inrecent years. The shares were tradingabove $30 in 2007 after Michael Dellreturned as CEO following a hiatus,yet they have been sinking amidplummeting demand for PCs andaccelerating competition for sellingthe data-center products and servicesDell has opened its coffers to acquire.Source : Bloomberg
5GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – email@example.com – www.geneva-partners.comActivist investor to push for new debt deal at PagesJaunesBy Christian Plumb and MatthieuProtardMay 13th, 2013Activist investor GuyWyser-Pratte said he is seeking boardseats at French phone directoriescompany PagesJaunes to force itsbiggest shareholder - U.S. privateequity firm Cerberus - to cut thegroups debt.PagesJaunes has been struggling withbig debts since a private equitybuyout of the company in 2006. Thefirm has also had to cope with theimpact of the Internet on its printeddirectories businesses.Wyser-Pratte, a U.S. investor whofocuses on European companies, hasbuilt up a 0.85 percent stake inPagesJaunes, which he said wasenough to mount a challenge toCerberus.Cerberus became PagesJaunesbiggest shareholder, with 28 percentof voting rights, via the purchase ofdebt from Mediannuaire, a holdingcompany controlled by GoldmanSachs Group and private equity firmKKR & Co.A restructuring earlier this year hascut the debt but Wyser-Pratte saidthis had not done enough forPagesJaunes."These people have left them hockedup to the eyeballs, and its not right,"told Reuters on Monday. "Thats thefirst goal, get this thing renegotiated,and with two people on the board ... Ithink weve got a good shot at it."He plans to seek investor support tovote himself and Pierre Nollett asindependent directors atPagesJaunes June 5 shareholdermeeting.Wyser-Pratte said his 0.85 percentstake was enough to proposeresolutions for the annual meeting."Were on the side of management,"he said. "They feel like theyve gottenshort shrift. Theyre in shackles withthis debt."Cerberus was not immediatelyavailable for comment.PagesJaunes net debt was more thanfour times its earnings beforeinterest, tax, depreciation andamortization in 2012, compared withan industry average of 0.78 times,according to Thomson Reuters data.PagesJaunes said it had received aletter from Wyser-Pratte demandingthe appointment of two boardmembers. The company declinedfurther comment.Shares in PagesJaunes, which isrenaming itself Solocal Group, rose4.2 percent."Guy Wyser-Prattes activist stance isfuelling speculation on the stock,"Gilbert Dupont analyst Jean-BaptisteSergeant said. "If he manages to unitethe minority shareholders, hell seek asale to a big group and work out theproblem of the remaining debt."Source : ReutersTW Telecom Jumps After Investor Says It May Be Takeover TargetBy Saijel Kishan and Joshua FinemanMay 8th, 2013TW Telecom Inc.(TWTC), a supplier of phone andInternet services to businesses,jumped the most in almost two yearsafter shareholder CorvexManagement LP said the companymay be a takeover target.Level 3 Communications Inc. (LVLT),the operator of a global fiber-opticnetwork, would be a good acquirerfor TW Telecom, Keith Meister, thefounder and managing partner ofNew York- based Corvex, said today ata conference. Meister was a protegeof billionaire Carl Icahn before startingCorvex, which owns stakes in bothcompanies.Meister said he is bullish on theindustry and sees the stocks of thetwo companies climbing. TW Telecomcould rise about 40 percent to $38 ashare, while Level 3 may reach $34,he said.“Great space, growing trends, greatcompanies,” Meister said at theconference. TW Telecom isparticularly attractive as anacquisition, he said. “There is massivevalue in an M&A context.”Shares of TW Telecom, based inLittleton, Colorado, climbed 7.1percent to $29.13 at 1:43 p.m. in NewYork after his remarks. The stock roseas high as $29.24 during the session,marking the biggest intraday jumpsince August 2011. Level 3, located innearby Broomfield, Colorado, rose asmuch as 6.7 percent to $24.76.Source : Bloomberg
6GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – firstname.lastname@example.org – www.geneva-partners.comUBS Looks at All Investor Input on Knight Vinke ProposalBy Elena LogutenkovaMay 3rd, 2013UBS AG (UBSN) isalways looking at all shareholdersuggestions, Chief ExecutiveOfficer Sergio Ermotti said, a day afterinvestor Knight Vinke AssetManagement LLC called for a spinoffof the lender’s investment bank.“We’re taking the input andsuggestions of every shareholderalways very carefully,” Ermotti, 52,told Bloomberg News in an interviewat a conference in St.Gallen, Switzerland today. “Yesterdaywas a good opportunity for all ourshareholders to come to the AGM andvoice their opinions.”Ermotti’s comments come a day afterNew York-based Knight Vinke said inan open letter to shareholders beforeUBS’s annual general meeting thatownership of the investment bank,which “nearly destroyed UBS” duringthe financial crisis, could betransferred to employees andmanagers. In 2011, a $2.3 billion lossfrom unauthorized trading at the unitled to the exit of former CEO OswaldGruebel, three years after the bankreceived a government bailout toward off a collapse.UBS shares rose 0.4 percent to 16.85Swiss francs at 4:20 p.m. in Zurich.They have gained about 18 percentthis year, trailing Credit Suisse GroupAG’s 24 percent increase.Knight Vinke, led by founder EricKnight, targets large, publicly tradedcompanies and seeks to recruit otherinstitutional investors to press thecompanies’ management to changecourse. In 2007, the firm saidthat HSBC Holdings Plc(HSBA), Europe’s largest bank, misledinvestors about a new share planpayable in 2008 to rewardmanagement.‘Serious Threat’The firm wrote in the letter that itquestions “the merits of keeping theinvestment bank under the same roofas the wealth management and Swissbanking businesses.” Investmentbanking“ is a very risky business,”which poses “a serious threat.”No Knight Vinke representative spokepublicly at yesterday’s shareholdermeeting in Zurich and the proposal tosplit off the investment bank wasn’tdiscussed. The firm says it ownsalmost 1 percent of UBS shares.Ermotti announced plans last year toeliminate 10,000 jobs and exit mostdebt-trading businesses toconcentrate on money managementand boost profitability. UBS this weekposted first- quarter earnings thatexceeded analysts’ estimates.Pay StructuresThe investment bank posted a 92percent gain in first- quarter pretaxprofit to 977 million francs ($1 billion),UBS said on April 30. That was morethan triple the average analysts’estimate of 321 million francs. Theunit had a pretax return on equity of49.5 percent for the quarter, up from17 percent a year earlier.The lender has changed its paystructures, limiting cash payouts, afteralmost 37 percent of shareholdersvoted last year against its 2011compensation report. Yesterday, the2012 report was approved with 83percent of the votes.“Clearly our shareholders understandthat we’re fixing past mistakes in acritical and constructive way, but thefirm also needs to look forward,”Ermotti said today. “We’re pleasedwith the recognition of ourshareholders for these efforts.”Ermotti, who was appointed CEO inNovember 2011, said later during apanel at the conference that had UBSintroduced its current pay structure in2004 or 2005, it would “most likely”not have needed the bailout as claw-back provisions are linked to long-term performance.“The real problem is to make surethat people are paid for sustainableperformance,” Ermotti said. “And youcan only measure sustainability overthe next at least three to five years.”Source : Bloomberg
7GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – email@example.com – www.geneva-partners.comThis newsletter has been prepared by, and is subject to the copyright of, Geneva Partners S.A. (Geneva Partners).This newsletter is confidential and has been furnished to the intended recipient solely for such recipient’s information and private useand may not be referred to, disclosed, reproduced or redistributed, in whole or in part, to any other person.This newsletter has been prepared on the basis of information provided to Geneva Partners and publicly available information. Thisinformation has not been independently verified by Geneva Partners. This newsletter does not constitute a due diligence review andshould not be construed as such. No representation or warranty as to this newsletters accuracy, completeness or correctness is madeand no reliance should be placed on the accuracy, completeness or correctness thereof. The information contained, and any opinionsexpressed, in this newsletter are subject to change at any time and Geneva Partners is under no obligation to inform the intendedrecipient or any other person of any such change.Geneva Partners accepts no responsibility or liability whatsoever in relation to this newsletter (including for any error or in relation tothe accuracy, completeness or correctness of this newsletter). The exclusion of liability provided herein shall protect Geneva Partners,its officers and employees in all circumstances.This newsletter is not intended to form the basis of any investment decision and does not constitute or form part of any offer to sell oran invitation to subscribe for, hold or purchase any securities or any other investment, and neither this newsletter nor anythingcontained herein shall form the basis of or be relied on in connection with any contract or commitment whatsoever. This newsletter isnot, and should not be treated or relied upon as investment research or a research recommendation under applicable regulatory rules.Geneva Partners is a member of the Swiss Association of Asset Managers (SAAM).Franck Berlamont Jean-François Bassignot