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A REVIEW OF FINANCIAL ACTIVISM BY GENEVA PARTNERS April 16th, 2013TOP ACTIVIST STORIES N°9Ashland Inc. (ASH), the biggest producer of specialty papermaking chemicals, rose the most in 17 months onspeculation that a 7.4 percent stake acquired by activist investor Jana Partners LLC may lead to a breakup ofthe company.1GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – email@example.com – www.geneva-partners.comIcahn Enterprises has delivered 20% annual gains for a decade.CommonWealth REIT (CWH) rejected a $2.9 billion buyout offer by shareholders Corvex Management LP andRelated Cos., and said it adopted board rules designed to thwart unsolicited takeover attempts.Alex Denner, Carl Icahn’s former top health-care investing executive, is starting an activist hedge- fund firmcalled Sarissa Capital Management LP, according to three people familiar with the matter.Activist investors are salivating at the chance to profit from the companies that make Oreo cookies and Fritoschips, with Nelson Peltz and Bill Ackman both taking stakes in Mondelez, and Mr Peltz joining Ralph Whitworthin targeting PepsiCo.Still Cagey After All These YearsAshland Climbs as Jana Stake Seen Hastening BreakupActivists hope to profit when cookie crumblesCommonWealth Rejects $2.9 Billion Takeover Bid From CorvexEx-Icahn’s Denner Said to Start Activist Health-Care Hedge FundHedge fund manager Ackman says mistakes made in JCP turnaroundHedge fund manager William Ackman said that Ron Johnson, the chief executive he handpicked to turn aroundJC Penney, has made "big mistakes" and the impact on the struggling retailer has been "very close to adisaster."
A REVIEW OF FINANCIAL ACTIVISM BY GENEVA PARTNERS April 16th, 2013TOP ACTIVIST STORIES N°92GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – firstname.lastname@example.org – www.geneva-partners.comStill Cagey After All These YearsBy Andrew BaryApril 6th, 2013Icahn Enterprises has delivered 20%annual gains for a decade.Activist investor CarlIcahn has been garnering headlinessince his hostile takeover of TWA in1985, and at 77, hes still makingnews. This year alone, he has battledMichael Dell for control of computermaker Dell, butted heads with fellowactivist Bill Ackman over multilevelmarketer Herbalife, and pressed rig-operator Transocean to pay a biggerdividend to investors. Icahnssuccessful, sharp-elbowed investmentstyle has helped make him one of theworlds wealthiest men.Icahns $6 billion hedge fund, IcahnCapital, returned outside money to itsinvestors in 2011, but you can still getin on the action through IcahnEnterprises, a publicly traded masterlimited partnership.The $6 billion MLP has a concentratedportfolio of about 10 holdings. At $55,the units (as shares of an MLP areknown) trade at a discount to the $64sum-of-the-parts value, based on thecompanys analysis, which has beenupdated by Barrons based on thecurrent share price of key publiclytraded investments. The units yield ahefty 7%, reflecting a recentlyinitiated $4-a-share annual payout.Icahn Enterprises has proved a veryattractive investment over the years,returning an average of nearly 20%annually over the past decade. Sincewe wrote favorably about thecompany a year ago, the stock is up26.2% ("Still a Master of theGame," April 9, 2012), compared with11.6% for the Standard & Poors 500.The companys largest holding—andbiggest winner—is an 82% stake,worth $3.6 billion, in CVREnergy (CVI), a oil-refining andfertilizer company. The MLPpurchased 80% of CVR in a tenderoffer last May at $30 and has seen theshares rise to $50, resulting in a $1.4billion gain. The second-largestinvestment is a $2.6 billion stake inthe Icahn hedge fund.Icahn Enterprises has sought tobroaden ownership with a recent$200 million equity offering and anincreased dividend. It also recentlybegan publishing an asset valueestimate, which makes it easier tounderstand. Still, the stock probably isbetter suited to individuals thaninstitutions thanks to limited liquidity.Icahn, who works for a bargain salaryof $1 a year, owns 89% of thecompany.Other sizable investments are a 78%interest in Federal-Mogul (FDML), anauto-parts company; 56% in AmericanRailcar (ARII), a maker of tank cars;68% of TropicanaEntertainment (TPCA), a regionalcasino operator; real estate, and twowholly owned business, PSC Metals, ascrap-metals company, andWestPoint Home, a maker of sheets,towels, and other textiles. The MLPhas a strong balance sheet, with $1.5billion in cash offset by $4 billion indebt. Looking at the two Icahnentities, Icahn Enterprises tends tohold controlling positions incompanies or entire businesses, someof which were formerly owned by CarlIcahn personally. Icahn Capital ownssizable, non-controlling stakes in ahandful of companies that are oftenthe target of Carl Icahns activistinitiatives, including Dell (DELL),Chesapeake Energy (CHK),Transocean (RIG), and Netflix (NFLX)."There are many companies that areundervalued and badly managed.Theres great profit in controllingthem or making changes," Icahntold Barrons. "Icahn Enterprises isuniquely positioned to do thatbecause we have permanent capital.Were able to take advantage ofopportunities in undervaluedcompanies that others cant do.“Icahns brashattitude and financial acumen havemade him one the countrys mostpowerful—and richest and busiest—investors. Bloomberg estimatesIcahns net worth at $18.6 billion,ranking him 38th on its list of theworlds wealthiest.Indeed, last month, he pledged $4billion of his own money and that ofIcahn Enterprises in a counterbid toMichael Dells buyout offer for hisnamesake company. Icahn retains atough-guy persona reflecting hisBrooklyn roots and isnt afraid toattack opponents. He went afterhis Herbalife (HLF) adversary, investorBill Ackman, calling him a "liar" and"crybaby in a schoolyard" in a CNBCinterview. Ackman is short the stock.Though Icahn may be controversial,his track record as a money maker isundisputed. Over the past 10 years,Icahn Enterprises hasoutperformed Berkshire Hathaway(BRK.A), Leucadia National (LUK),and Loews (L), three notablecompanies with an investment focus.Icahns hedge fund is up 200% on agross basis since 2004, including a12% gain this year through mid-March.Theres successionrisk with Icahn Enterprises becauseits unclear who—if anyone—willfollow him, and what will happen tothe company when Icahn retires ….
3GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – email@example.com – www.geneva-partners.comand, the company when Icahn retiresand, ultimately, when he dies. (Thebillionaire has no plans to retire.)Its possible that control may pass tohis son Brett, 33, who is running asmuch as $3 billion for the Icahn hedgefund and has racked up a strongrecord.Brett Icahn and his investmentpartner David Schechter are behind arecent Icahn coup, an investment inNetflix, which is the second-biggestwinner in the S&P 500 this year withan 80% gain. Icahn Enterprises has aprofit of more than $500 million on itsinvestment, now worth more than$900 million.The net-asset-value calculationemployed by the MLP is based on themarket values of its largest and mostliquid investments, including CVR.However, Icahn Enterprises bases itsvaluation of Tropicana and Viskase,both thinly traded, on its ownestimate of their value, which ishigher than their market value. Avalue of $488 million, or eight times2012 cash flow, is assigned to thestake in Tropicana. Thats $200 millionmore than the market value of theMLPs interest in the casino operator,which owns properties in Atlantic Cityand certain regional markets.If the MLPs calculations are right,shares of both Tropicana and Viskase,a packaging company, areundervalued. Tropicana is potentiallyworth more than $25 a share,compared with its recent price of $16.Some investments may be carried atconservative levels. Icahn Enterprises,for instance, paid $150 million in 2010for the unfinished Las Vegas casino,the Fontainebleau; the property nowcould be worth $300 million or more.CVR Energy also could be worth moreif the company sold more shares inthe MLP for its refining assets, CVRRefining.At a time when many investors areplacing money with high-fee hedgefunds and getting mediocre returns,theres a nice alternative in IcahnEnterprises, which trades at adiscount to its net asset value. Thecompany has a great record and aproven money maker at the helmwho works for just $1 a year.Source : Barron’sAshland Climbs as Jana Stake Seen Hastening BreakupBy Jack KaskeyApril 12th, 2013Ashland Inc. (ASH),the biggest producer of specialtypapermaking chemicals, rose themost in 17 months on speculationthat a 7.4 percent stake acquired byactivist investor Jana Partners LLCmay lead to a breakup of thecompany. Ashland climbed 9.9percent to $86.66 at the close in NewYork, the biggest gain since Nov. 30,2011, according to data compiled byBloomberg. The shares had dropped 2percent this year before today.Jana owned 5.81 million Ashlandshares as of April 10, including optionsto buy stock, the New York-basedcompany said yesterday in aregulatory filing. Jana’s investmentdraws attention to Ashland’sundervalued shares and shouldinfluence management to hastenplans for boosting value, said ChrisShaw, an analyst at Monness CrespiHardt & Co.“Jana could very well push for abreakup, seeking a sale of non-corebusinesses like water andperformance materials,” New York-based Shaw said in a note today. “Wethink there could be a high likelihoodthat asset sales happen.” Herecommends buying the shares.Jana has spoken with Ashlandmanagement and may take steps “tobring about changes toincrease shareholder value,” thehedge fund said in the filing. Theshares are undervalued, Jana said.Gary L. Rhodes, a spokesman forCovington, Kentucky-based Ashland,and Charles Penner, a spokesman forJana, declined to comment today.Performance UnitsAshland’s water treatment andperformance-materials units, whichmakes chemicals used in packaging,mining, tires and energy production,are the smallest of four businessesand accounted for 40 percent of thecompany’s $8.21 billion of revenuelast year, according to data compiledby Bloomberg. Water treatment andperformance materials would sell fora higher multiple than Ashland as awhole trades for, and divestitureswould boost the value of the tworemaining businesses, including theconsumer markets business, whichmakes Valvoline motor oil, Shaw said.Ashland said last month that fiscalsecond-quarter profit will be lowerthan forecast because of weaker-than-expected demand in February.That followed first-quarter earningsthat trailed analysts’ estimatesbecause of lower sales volumes in thespecialty-ingredients unit.Jana, which has been pushing forchanges at Calgary-based fertilizerproducer Agrium Inc. (AGU) sinceMay, said executives spoke withAshland management about “thebusiness, capitalization, corporatestructure, operations, strategy andfuture plans,” according to the filing.Jana said it expects to have morediscussions with Ashland managersand possibly with directors.Source : Bloomberg
4GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – firstname.lastname@example.org – www.geneva-partners.comCommonWealth Rejects $2.9 Billion Takeover Bid From CorvexBy David M. Levitt and Brian LouisApril 15th, 2013CommonWealthREIT (CWH) rejected a $2.9 billionbuyout offer by shareholders CorvexManagement LP and Related Cos.,and said it adopted board rulesdesigned to thwart unsolicitedtakeover attempts.The $24.50-a-share bid from Corvexand Related was conditional anddidn’t include a financing plan,Newton, Massachusetts-basedCommonWealth said in a statementtoday. The real estate investmenttrust, incorporated in Maryland, alsosaid it had adopted provisions of thestate’s Unsolicited Takeovers Act,which it believes means boardmembers “may only be removed ‘forcause,’ and that no such cause exists.”CommonWealth is trying to fend offCorvex and Related, which said lastmonth they would try to remove theboard if their takeover bid wasn’taccepted. The investors own 9.2percent of the stock, making them thelargest shareholders.“It is disgraceful that CWH wouldunilaterally attempt to take away aright shareholders have had since1986 solely in an effort to furtherentrench its underperformingleadership team,” Corvex and Relatedsaid in an e-mailed statement today.“This latest effort is in our and ourlawyers’ view completely invalidunder Maryland law.”Corvex and Related have told thetrustees in detail the third-party debtfinancing it would use in a takeover“and the combination of sources thatwill provide for a fully financedoffer,” Joanna Rose, a spokeswomanfor the investors, said in an e-mail.Deutsche Bank AG is the financialadviser to the shareholder group.Management CompanyCommonWealth’s five-member boardof trustees includes President AdamPortnoy and his father, Barry Portnoy,a company founder. They also ownReit Management & Research LLC, orRMR, the external managementcompany for the REIT.Corvex, founded by activist investorKeith Meister, and Related, led by ……Activists hope to profit when cookie crumblesBy David Gelles,Dan McCrum and NeilMunshiApril 14th, 2013Activist investorsare salivating at the chance to profitfrom the companies that make Oreocookies and Fritos chips, with NelsonPeltz and Bill Ackman both takingstakes in Mondelez, and Mr Peltzjoining Ralph Whitworth intargeting PepsiCo.Mr Peltz of Trian Partners hasamassed his stakes in PepsiCo andMondelez in recent months,according to people familiar with thesituation. The size of his stakes is notyet known, but they are “large”,according to a person familiar withthe situation.Mr Ackman disclosed his nearly 6mshares in Mondelez, worth about$182m, in a regulatory filing onFriday. He began building the stake inthe Oreo cookie maker last year butonly disclosed it last week.Mr Whitworth, who runs RelationalInvestors, bought into PepsiCo lastyear and owns about 7.6m sharesworth $600m.The motives of all three men remainunclear. Speculation that Mr Peltz willpush for PepsiCo to buy Mondelez hasbeen met with scepticism by peopleclose to the companies.Another scenario in which PepsiCospun off its snacks business – whichincludes Fritos – and sold it toMondelez, could be more feasible,these people said. People in MrWhitworth’s camp have tacitlyendorsed that idea.It remains to be seen whether any ofthe men will campaign for thecompanies to reduce costs, acommon activists’ tactic.Shares in both PepsiCo and Mondelezare up more than 10 per cent eachover the past three months.This is not Mr Peltz’s first time roundwith these companies. In 2007, hetook a position in CadburySchweppes, just before the companysplit. Cadbury was bought in 2010 byKraft, which last year split itself intothe snacks-focused Mondelez and theKraft Foods grocery business.Mondelez has struggled since thesplit, with net income falling 29 percent year on year in the three monthsto September.Irene Rosenfeld, chairman and chiefexecutive, has said she is bullish,pointing to Mondelez’s presence infast-growing emerging markets, whichaccount for about 45 per cent ofsales. It has also suffered because 36per cent of sales come fromrecessionary Europe.Mondelez said it had createdsignificant value: “We remain focusedon leveraging our advantagedcategory mix, leading marketpositions and strong geographicfootprint to deliver top-tier financialperformance and enhance value forall our shareholders.”PepsiCo, Mr Peltz and Mr Ackmandeclined to comment. Mr Peltz’sstakes in Mondelez and Pepsi werefirst reported by the Daily Telegraph.Source : The Financial Times
5GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – email@example.com – www.geneva-partners.comEx-Icahn’s Denner Said to Start Activist Health-Care Hedge FundBy Kelly Bit and Meg TirrellApril 9th, 2013Alex Denner, CarlIcahn’s former top health-careinvesting executive, is starting anactivist hedge- fund firm called SarissaCapital Management LP, according tothree people familiar with the matter.Denner, 43, will begin Greenwich,Connecticut-based Sarissa by nextquarter with a seed investment fromMeritage Group LP, one of the peoplesaid. He will be joined by Mayu Sris, aformer investment analyst at IcahnAssociates Corp. from 2005 to 2010,as managing director at Sarissa andRichard Mulligan, a professor ofgenetics at Harvard Medical School,as senior managing director, said thepeople, who asked not to beidentified because the informationisn’t public.Mark DiPaolo, a lawyer who workedwith Icahn from 2005 until this year,has also joined Denner’s fund,according to one of the people.Denner declined to comment. MarkMindich, chief operating officer atMeritage, didn’t respond to atelephone call and e- mail seekingcomment.Sarissa will run a health-care focused,typically activist, and long-biasedportfolio with fewer than 20positions, one of the people said. Fivecore positions will usually representmore than 50 percent of investments,the person said.Drugmaker TurnaroundsDenner, a senior managing directorwho generated about $2 billion inprofit at Icahn, joined in 2006 and leftat the end of 2011, the people said.His activist strategy is to identifycompanies whose research effortslack focus or whose senior executivesaren’t effectively expanding thebusiness. After buying a stake, hetypically urges management toconsider his suggestions. If they resist,he seeks board seats to push forchange and sometimes a sale of thecompany.Before joining Icahn, Denner workedat Viking Global Investors LP in NewYork from 2005 to 2006 as a portfoliomanager specializing in health care,the people said. Before that, he was aportfolio manager at Morgan Stanley.Denner and Mulligan worked withIcahn on many of his investments indrugmakers, facilitating Icahn’snegotiations with biotechnologycompanies including Biogen Idec Inc.,Genzyme Corp., MedImmune LLC andImClone Systems Inc.Denner and Icahn met more than adecade ago when both invested inImClone, at a time when most peoplewere writing the company off.ImClone’s founder, Sam Waksal,pleaded guilty in 2002 to insidertrading on word that regulatoryapproval of the company’s main drugwould be delayed. Yet theexperimental cancer medicine,Erbitux, was still a good drug,according to Denner. He boughtImClone stock and later teamed withIcahn to win board seats -- Icahneventually became chairman -- andthey engineered ImClone’s 2008 saleto Indianapolis-based Eli Lilly & Co. for$6.5 billion.Profitable RecordIcahn has a track record of investing indrugmakers and profiting from theirturnarounds or sales to largercompanies. In addition to ImClone, heinvested in Genzyme, which was soldto Sanofi for $20.1 billion in 2011;Amylin Pharmaceuticals Inc., whichagreed to be bought by Bristol-MyersSquibb Co. for $5.3 billion in June; andBiogen, whose stock has more thandoubled in the last two years.Denner and Mulligan sit on the boardsof Biogen and Enzon PharmaceuticalsInc. and have previously beendirectors at other drug companies.Hedge funds that opened in 2012totaled 1,108 as industry assetsincreased to a record $2.25 trillion,slightly lower than 2011’s total of1,113 startups, according to Chicago-based Hedge Fund Research Inc.Source : BloombergSource : BloombergChief Executive Officer Jeff Blau, saidlast week that they delivered toCommonWealth a formal demand forthe company set a record date todetermine the shareholders entitledto vote to remove the trustees.CommonWealth said today theconsent solicitation is invalid becauseof its move.Rather than pursue a sale, the REITplans to stick to its strategy ofconcentrating on urban officeproperties, selling non-core assetsand cutting debt.
6GENEVA PARTNERS – 33 Quai Wilson – 1201 Geneva – Switzerland – Tel. : +41/22 906 95 95 – firstname.lastname@example.org – www.geneva-partners.comHedge fund manager Ackman says mistakes made in JCP turnaroundBy Svea Herbst-Bayliss and KatyaWachtelApril 5th, 2013Hedge fundmanager William Ackman said thatRon Johnson, the chief executive hehandpicked to turn around JC Penney,has made "big mistakes" and theimpact on the struggling retailer hasbeen "very close to a disaster."The "criticism is deserved," Ackmansaid on Friday of Johnson, a formerApple executive who has come underfire for his dramatic plans to overhaulthe staid retailer with cost cuts, morefashionable merchandise and a newpricing strategy.The stock price has plummeted 27.6percent in the first quarter asJohnsons plans alienated JC Penneyscore clientele and has not resonatedwith new shoppers."One of the big mistakes was perhapstoo much change too quickly withoutadequate testing on what the impactwould be," Ackman said on Friday atan investment conference sponsoredby Thomson Reuters.After months of being a publiccheerleader for Johnson, often sayingthat he was a doing a great job, thefund manager tempered his normallyupbeat comments on Friday.Speaking bluntly, Ackman, who sits onthe JC Penney board and whose $12billion Pershing Square CapitalManagement is the companys largestshareholder, said big mistakes havebeen made remaking the 110 year-oldretail brand.JC Penney traditionally drew incustomers with big sales and couponsbut Johnson has been criticized foreliminating those in favor of everydaylow prices.The company has now brought backtheir old pricing strategy to try tobring shoppers back.Ackman said that Johnson faces oneof the toughest challenges incorporate America in cutting costsand changing the merchandise andthat "the impact has been, on aconsolidated basis, very close to adisaster."Right now Johnson is "working veryaggressively with his team to fix themistakes that has been made, andthere have been some big mistakes,"Ackman said.JC Penney did not immediatelyrespond to a request for comment.JC Penneys stock price climbed 3.3percent on Friday to $15.57 in lateafternoon trading.Ackman, a favorite with pension fundsand wealthy investors, has comeunder criticism for bets on retailers inthe past, including bets on Target andbookseller Borders a few years ago.Currently Pershing Square is sitting onroughly $500 million in paper losses inJC Penney."If you get a retailer fixed and you canreplicate it, its about the best way tomake money," he said.While JC Penneys losses are makingheadlines, Ackmans portfolio gained6.1 percent during the first quarterthanks to bets on Canadian PacificRailway and Procter & Gamble.In a nod to his ongoing commitmentto JC Penneys fortunes, the billionaireinvestment manager wore sockspurchased at JC Penney.Herbalife battleAt the conference Ackman was alsoasked about his other high profileinvestments, including nutritionalsupplements company Herbalife onwhich Pershing Square has a $1 billionshort bet, expecting the multi-levelmarketing companys share price willmove to zero.The investment has been the talk ofWall Street in recent months as otherwell-known hedge fund managers,including Carl Icahn and Daniel Loeb,moved to the other side of the betwith long positions in Herbalife."Taking a short position and goingpublic with it is a pretty seriousbusiness," Ackman said. "Did I think agroup of hedge fund managers wouldtake the other side of the trade andtry to orchestrate a short squeeze?No, I didnt think that," Ackman said.Short-sellers borrow shares and sellthem, seeking to profit by returningthem after buying them back at alower price. A short squeeze occurswhen the share price rises instead,forcing the borrowers to try to buythem back at a higher price, thuspushing the share price even higher.Talking about the public feud overHerbalife, Ackman said that the $2.25trillion hedge fund industry, onceclose-knit where managers oftenworked collaboratively, now seemsmuch more competitive."This was the first case where therewas a lot of sniping going on betweenmanagers," he said, referring to therecent backbiting over the Herbalifetrade.But he acknowledged that hedge fundmanagers cant be overly sensitive."You have to have thick skin to be inthis business."Source : Reuters
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