A REVIEW OF FINANCIAL ACTIVISM BY GENEVA PARTNERS April 16th, 2013

TO P AC T I V I S T STO R I E S N°9

Ashland Inc. (ASH), the biggest producer of specialty papermaking chemicals, rose the most in 17 months on speculation that a 7.4 percent stake acquired by activist investor Jana Partners LLC may lead to a breakup of the company.

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Icahn Enterprises has delivered 20% annual gains for a decade.

CommonWealth REIT (CWH) rejected a $2.9 billion buyout offer by shareholders Corvex Management LP and Related 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 firm called 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 Fritos chips, with Nelson Peltz and Bill Ackman both taking stakes in Mondelez, and Mr Peltz joining Ralph Whitworth in targeting PepsiCo.

Still Cagey After All These Years

Ashland Climbs as Jana Stake Seen Hastening Breakup

Activists hope to profit when cookie crumbles

CommonWealth Rejects $2.9 Billion Takeover Bid From Corvex

Ex-Icahn’s Denner Said to Start Activist Health-Care Hedge Fund

Hedge fund manager Ackman says mistakes made in JCP turnaround

Hedge fund manager William Ackman said that Ron Johnson, the chief executive he handpicked to turn around JC Penney, has made "big mistakes" and the impact on the struggling retailer has been "very close to a disaster."

A REVIEW OF FINANCIAL ACTIVISM BY GENEVA PARTNERS April 16th, 2013

TO P AC T I V I S T STO R I E S N°9

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Still Cagey After All These Years

By Andrew Bary April 6th, 2013 Icahn Enterprises has delivered 20% annual gains for a decade. Activist investor Carl Icahn has been garnering headlines since his hostile takeover of TWA in 1985, and at 77, he's still making news. This year alone, he has battled Michael Dell for control of computer maker Dell, butted heads with fellow activist Bill Ackman over multilevel marketer Herbalife, and pressed rig-operator Transocean to pay a bigger dividend to investors. Icahn's successful, sharp-elbowed investment style has helped make him one of the world's wealthiest men. Icahn's $6 billion hedge fund, Icahn Capital, returned outside money to its investors in 2011, but you can still get in on the action through Icahn Enterprises, a publicly traded master limited partnership. The $6 billion MLP has a concentrated portfolio of about 10 holdings. At $55, the units (as shares of an MLP are known) trade at a discount to the $64 sum-of-the-parts value, based on the company's analysis, which has been updated by Barron's based on the current share price of key publicly traded investments. The units yield a hefty 7%, reflecting a recently initiated $4-a-share annual payout. Icahn Enterprises has proved a very attractive investment over the years, returning an average of nearly 20% annually over the past decade. Since we wrote favorably about the company a year ago, the stock is up 26.2% ("Still a Master of the Game," April 9, 2012), compared with 11.6% for the Standard & Poor's 500. The company's largest holding—and

biggest winner—is an 82% stake, worth $3.6 billion, in CVR Energy (CVI), a oil-refining and fertilizer company. The MLP purchased 80% of CVR in a tender offer last May at $30 and has seen the shares rise to $50, resulting in a $1.4 billion gain. The second-largest investment is a $2.6 billion stake in the Icahn hedge fund. Icahn Enterprises has sought to broaden ownership with a recent $200 million equity offering and an increased dividend. It also recently began publishing an asset value estimate, which makes it easier to understand. Still, the stock probably is better suited to individuals than institutions thanks to limited liquidity. Icahn, who works for a bargain salary of $1 a year, owns 89% of the company. Other sizable investments are a 78% interest in Federal-Mogul (FDML), an auto-parts company; 56% in American Railcar (ARII), a maker of tank cars; 68% of Tropicana Entertainment (TPCA), a regional casino operator; real estate, and two wholly owned business, PSC Metals, a scrap-metals company, and WestPoint Home, a maker of sheets, towels, and other textiles. The MLP has a strong balance sheet, with $1.5 billion in cash offset by $4 billion in debt. Looking at the two Icahn entities, Icahn Enterprises tends to hold controlling positions in companies or entire businesses, some of which were formerly owned by Carl Icahn personally. Icahn Capital owns sizable, non-controlling stakes in a handful of companies that are often the target of Carl Icahn's activist initiatives, including Dell (DELL), Chesapeake Energy (CHK), Transocean (RIG), and Netflix (NFLX).

"There are many companies that are undervalued and badly managed. There's great profit in controlling them or making changes," Icahn told Barron's. "Icahn Enterprises is uniquely positioned to do that because we have permanent capital. We're able to take advantage of opportunities in undervalued companies that others can't do.“ Icahn's brash attitude and financial acumen have made him one the country's most powerful—and richest and busiest—investors. Bloomberg estimates Icahn's net worth at $18.6 billion, ranking him 38th on its list of the world's wealthiest. Indeed, last month, he pledged $4 billion of his own money and that of Icahn Enterprises in a counterbid to Michael Dell's buyout offer for his namesake company. Icahn retains a tough-guy persona reflecting his Brooklyn roots and isn't afraid to attack opponents. He went after his Herbalife (HLF) adversary, investor Bill Ackman, calling him a "liar" and "crybaby in a schoolyard" in a CNBC interview. Ackman is short the stock. Though Icahn may be controversial, his track record as a money maker is undisputed. Over the past 10 years, Icahn Enterprises has outperformed Berkshire Hathaway (BRK.A), Leucadia National (LUK), and Loews (L), three notable companies with an investment focus. Icahn's hedge fund is up 200% on a gross basis since 2004, including a 12% gain this year through mid-March. There's succession risk with Icahn Enterprises because it's unclear who—if anyone—will follow him, and what will happen to the company when Icahn retires ….

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and, the company when Icahn retires and, ultimately, when he dies. (The billionaire has no plans to retire.) It's possible that control may pass to his son Brett, 33, who is running as much as $3 billion for the Icahn hedge fund and has racked up a strong record. Brett Icahn and his investment partner David Schechter are behind a recent Icahn coup, an investment in Netflix, which is the second-biggest winner in the S&P 500 this year with an 80% gain. Icahn Enterprises has a profit of more than $500 million on its investment, now worth more than $900 million. The net-asset-value calculation employed by the MLP is based on the market values of its largest and most liquid investments, including CVR.

However, Icahn Enterprises bases its valuation of Tropicana and Viskase, both thinly traded, on its own estimate of their value, which is higher than their market value. A value of $488 million, or eight times 2012 cash flow, is assigned to the stake in Tropicana. That's $200 million more than the market value of the MLP's interest in the casino operator, which owns properties in Atlantic City and certain regional markets. If the MLP's calculations are right, shares of both Tropicana and Viskase, a packaging company, are undervalued. Tropicana is potentially worth more than $25 a share, compared with its recent price of $16. Some investments may be carried at conservative levels. Icahn Enterprises, for instance, paid $150 million in 2010

for the unfinished Las Vegas casino, the Fontainebleau; the property now could be worth $300 million or more. CVR Energy also could be worth more if the company sold more shares in the MLP for its refining assets, CVR Refining. At a time when many investors are placing money with high-fee hedge funds and getting mediocre returns, there's a nice alternative in Icahn Enterprises, which trades at a discount to its net asset value. The company has a great record and a proven money maker at the helm who works for just $1 a year.

Source : Barron’s

Ashland Climbs as Jana Stake Seen Hastening Breakup

By Jack Kaskey April 12th, 2013 Ashland Inc. (ASH), the biggest producer of specialty papermaking chemicals, rose the most in 17 months on speculation that a 7.4 percent stake acquired by activist investor Jana Partners LLC may lead to a breakup of the company. Ashland climbed 9.9 percent to $86.66 at the close in New York, the biggest gain since Nov. 30, 2011, according to data compiled by Bloomberg. The shares had dropped 2 percent this year before today. Jana owned 5.81 million Ashland shares as of April 10, including options to buy stock, the New York-based company said yesterday in a regulatory filing. Jana’s investment draws attention to Ashland’s undervalued shares and should influence management to hasten plans for boosting value, said Chris Shaw, an analyst at Monness Crespi Hardt & Co. “Jana could very well push for a breakup, seeking a sale of non-core businesses like water and

performance materials,” New York-based Shaw said in a note today. “We think there could be a high likelihood that asset sales happen.” He recommends buying the shares. Jana has spoken with Ashland management and may take steps “to bring about changes to increase shareholder value,” the hedge fund said in the filing. The shares are undervalued, Jana said. Gary L. Rhodes, a spokesman for Covington, Kentucky-based Ashland, and Charles Penner, a spokesman for Jana, declined to comment today.

Performance Units

Ashland’s water treatment and performance-materials units, which makes chemicals used in packaging, mining, tires and energy production, are the smallest of four businesses and accounted for 40 percent of the company’s $8.21 billion of revenue last year, according to data compiled by Bloomberg. Water treatment and performance materials would sell for a higher multiple than Ashland as a whole trades for, and divestitures

would boost the value of the two remaining businesses, including the consumer markets business, which makes Valvoline motor oil, Shaw said. Ashland said last month that fiscal second-quarter profit will be lower than forecast because of weaker-than-expected demand in February. That followed first-quarter earnings that trailed analysts’ estimates because of lower sales volumes in the specialty-ingredients unit. Jana, which has been pushing for changes at Calgary-based fertilizer producer Agrium Inc. (AGU) since May, said executives spoke with Ashland management about “the business, capitalization, corporate structure, operations, strategy and future plans,” according to the filing. Jana said it expects to have more discussions with Ashland managers and possibly with directors.

Source : Bloomberg

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CommonWealth Rejects $2.9 Billion Takeover Bid From Corvex

By David M. Levitt and Brian Louis April 15th, 2013 CommonWealth REIT (CWH) rejected a $2.9 billion buyout offer by shareholders Corvex Management LP and Related Cos., and said it adopted board rules designed to thwart unsolicited takeover attempts. The $24.50-a-share bid from Corvex and Related was conditional and didn’t include a financing plan, Newton, Massachusetts-based CommonWealth said in a statement today. The real estate investment trust, incorporated in Maryland, also said it had adopted provisions of the state’s Unsolicited Takeovers Act, which it believes means board

members “may only be removed ‘for cause,’ and that no such cause exists.” CommonWealth is trying to fend off Corvex and Related, which said last month they would try to remove the board if their takeover bid wasn’t accepted. The investors own 9.2 percent of the stock, making them the largest shareholders. “It is disgraceful that CWH would unilaterally attempt to take away a right shareholders have had since 1986 solely in an effort to further entrench its underperforming leadership team,” Corvex and Related said in an e-mailed statement today. “This latest effort is in our and our lawyers’ view completely invalid under Maryland law.” Corvex and Related have told the

trustees in detail the third-party debt financing it would use in a takeover “and the combination of sources that will provide for a fully financed offer,” Joanna Rose, a spokeswoman for the investors, said in an e-mail. Deutsche Bank AG is the financial adviser to the shareholder group.

Management Company CommonWealth’s five-member board of trustees includes President Adam Portnoy and his father, Barry Portnoy, a company founder. They also own Reit Management & Research LLC, or RMR, the external management company for the REIT. Corvex, founded by activist investor Keith Meister, and Related, led by ……

Activists hope to profit when cookie crumbles

By David Gelles,Dan McCrum and Neil Munshi April 14th, 2013 Activist investors are salivating at the chance to profit from the companies that make Oreo cookies and Fritos chips, with Nelson Peltz and Bill Ackman both taking stakes in Mondelez, and Mr Peltz joining Ralph Whitworth in targeting PepsiCo. Mr Peltz of Trian Partners has amassed his stakes in PepsiCo and Mondelez in recent months, according to people familiar with the situation. The size of his stakes is not yet known, but they are “large”, according to a person familiar with the situation. Mr Ackman disclosed his nearly 6m shares in Mondelez, worth about $182m, in a regulatory filing on Friday. He began building the stake in the Oreo cookie maker last year but only disclosed it last week. Mr Whitworth, who runs Relational Investors, bought into PepsiCo last year and owns about 7.6m shares worth $600m.

The motives of all three men remain unclear. Speculation that Mr Peltz will push for PepsiCo to buy Mondelez has been met with scepticism by people close to the companies. Another scenario in which PepsiCo spun off its snacks business – which includes Fritos – and sold it to Mondelez, could be more feasible, these people said. People in Mr Whitworth’s camp have tacitly endorsed that idea. It remains to be seen whether any of the men will campaign for the companies to reduce costs, a common activists’ tactic. Shares in both PepsiCo and Mondelez are up more than 10 per cent each over the past three months. This is not Mr Peltz’s first time round with these companies. In 2007, he took a position in Cadbury Schweppes, just before the company split. Cadbury was bought in 2010 by Kraft, which last year split itself into the snacks-focused Mondelez and the Kraft Foods grocery business. Mondelez has struggled since the split, with net income falling 29 per cent year on year in the three months

to September. Irene Rosenfeld, chairman and chief executive, has said she is bullish, pointing to Mondelez’s presence in fast-growing emerging markets, which account for about 45 per cent of sales. It has also suffered because 36 per cent of sales come from recessionary Europe. Mondelez said it had created significant value: “We remain focused on leveraging our advantaged category mix, leading market positions and strong geographic footprint to deliver top-tier financial performance and enhance value for all our shareholders.” PepsiCo, Mr Peltz and Mr Ackman declined to comment. Mr Peltz’s stakes in Mondelez and Pepsi were first reported by the Daily Telegraph.

Source : The Financial Times

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Ex-Icahn’s Denner Said to Start Activist Health-Care Hedge Fund

By Kelly Bit and Meg Tirrell April 9th, 2013 Alex Denner, Carl Icahn’s former top health-care investing executive, is starting an activist hedge- fund firm called Sarissa Capital Management LP, according to three people familiar with the matter. Denner, 43, will begin Greenwich, Connecticut-based Sarissa by next quarter with a seed investment from Meritage Group LP, one of the people said. He will be joined by Mayu Sris, a former investment analyst at Icahn Associates Corp. from 2005 to 2010, as managing director at Sarissa and Richard Mulligan, a professor of genetics at Harvard Medical School, as senior managing director, said the people, who asked not to be identified because the information isn’t public. Mark DiPaolo, a lawyer who worked with Icahn from 2005 until this year, has also joined Denner’s fund, according to one of the people. Denner declined to comment. Mark Mindich, chief operating officer at Meritage, didn’t respond to a telephone call and e- mail seeking comment. Sarissa will run a health-care focused, typically activist, and long-biased portfolio with fewer than 20 positions, one of the people said. Five core positions will usually represent more than 50 percent of investments,

the person said.

Drugmaker Turnarounds

Denner, a senior managing director who generated about $2 billion in profit at Icahn, joined in 2006 and left at the end of 2011, the people said. His activist strategy is to identify companies whose research efforts lack focus or whose senior executives aren’t effectively expanding the business. After buying a stake, he typically urges management to consider his suggestions. If they resist, he seeks board seats to push for change and sometimes a sale of the company. Before joining Icahn, Denner worked at Viking Global Investors LP in New York from 2005 to 2006 as a portfolio manager specializing in health care, the people said. Before that, he was a portfolio manager at Morgan Stanley. Denner and Mulligan worked with Icahn on many of his investments in drugmakers, facilitating Icahn’s negotiations with biotechnology companies including Biogen Idec Inc., Genzyme Corp., MedImmune LLC and ImClone Systems Inc. Denner and Icahn met more than a decade ago when both invested in ImClone, at a time when most people were writing the company off. ImClone’s founder, Sam Waksal, pleaded guilty in 2002 to insider trading on word that regulatory

approval of the company’s main drug would be delayed. Yet the experimental cancer medicine, Erbitux, was still a good drug, according to Denner. He bought ImClone stock and later teamed with Icahn to win board seats -- Icahn eventually became chairman -- and they engineered ImClone’s 2008 sale to Indianapolis-based Eli Lilly & Co. for $6.5 billion.

Profitable Record

Icahn has a track record of investing in drugmakers and profiting from their turnarounds or sales to larger companies. In addition to ImClone, he invested in Genzyme, which was sold to Sanofi for $20.1 billion in 2011; Amylin Pharmaceuticals Inc., which agreed to be bought by Bristol-Myers Squibb Co. for $5.3 billion in June; and Biogen, whose stock has more than doubled in the last two years. Denner and Mulligan sit on the boards of Biogen and Enzon Pharmaceuticals Inc. and have previously been directors at other drug companies. Hedge funds that opened in 2012 totaled 1,108 as industry assets increased to a record $2.25 trillion, slightly lower than 2011’s total of 1,113 startups, according to Chicago-based Hedge Fund Research Inc.

Source : Bloomberg

Source : Bloomberg

Chief Executive Officer Jeff Blau, said last week that they delivered to CommonWealth a formal demand for the company set a record date to determine the shareholders entitled to vote to remove the trustees.

CommonWealth said today the consent solicitation is invalid because of its move. Rather than pursue a sale, the REIT plans to stick to its strategy of concentrating on urban office

properties, selling non-core assets and cutting debt.

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Hedge fund manager Ackman says mistakes made in JCP turnaround

By Svea Herbst-Bayliss and Katya Wachtel April 5th, 2013 Hedge fund manager William Ackman said that Ron Johnson, the chief executive he handpicked to turn around JC Penney, has made "big mistakes" and the impact on the struggling retailer has been "very close to a disaster." The "criticism is deserved," Ackman said on Friday of Johnson, a former Apple executive who has come under fire for his dramatic plans to overhaul the staid retailer with cost cuts, more fashionable merchandise and a new pricing strategy. The stock price has plummeted 27.6 percent in the first quarter as Johnson's plans alienated JC Penney's core clientele and has not resonated with new shoppers. "One of the big mistakes was perhaps too much change too quickly without adequate testing on what the impact would be," Ackman said on Friday at an investment conference sponsored by Thomson Reuters. After months of being a public cheerleader for Johnson, often saying that he was a doing a great job, the fund manager tempered his normally upbeat comments on Friday. Speaking bluntly, Ackman, who sits on the JC Penney board and whose $12 billion Pershing Square Capital Management is the company's largest shareholder, said big mistakes have been made remaking the 110 year-old retail brand. JC Penney traditionally drew in customers with big sales and coupons but Johnson has been criticized for eliminating those in favor of everyday low prices. The company has now brought back their old pricing strategy to try to bring shoppers back. Ackman said that Johnson faces one

of the toughest challenges in corporate America in cutting costs and changing the merchandise and that "the impact has been, on a consolidated basis, very close to a disaster." Right now Johnson is "working very aggressively with his team to fix the mistakes that has been made, and there have been some big mistakes," Ackman said. JC Penney did not immediately respond to a request for comment. JC Penney's stock price climbed 3.3 percent on Friday to $15.57 in late afternoon trading. Ackman, a favorite with pension funds and wealthy investors, has come under criticism for bets on retailers in the past, including bets on Target and bookseller Borders a few years ago. Currently Pershing Square is sitting on roughly $500 million in paper losses in JC Penney. "If you get a retailer fixed and you can replicate it, it's about the best way to make money," he said. While JC Penney's losses are making headlines, Ackman's portfolio gained 6.1 percent during the first quarter thanks to bets on Canadian Pacific Railway and Procter & Gamble. In a nod to his ongoing commitment to JC Penney's fortunes, the billionaire investment manager wore socks purchased at JC Penney.

Herbalife battle

At the conference Ackman was also asked about his other high profile investments, including nutritional supplements company Herbalife on which Pershing Square has a $1 billion short bet, expecting the multi-level marketing company's share price will move to zero. The investment has been the talk of Wall Street in recent months as other well-known hedge fund managers,

including Carl Icahn and Daniel Loeb, moved to the other side of the bet with long positions in Herbalife. "Taking a short position and going public with it is a pretty serious business," Ackman said. "Did I think a group of hedge fund managers would take the other side of the trade and try to orchestrate a short squeeze? No, I didn't think that," Ackman said. Short-sellers borrow shares and sell them, seeking to profit by returning them after buying them back at a lower price. A short squeeze occurs when the share price rises instead, forcing the borrowers to try to buy them back at a higher price, thus pushing the share price even higher. Talking about the public feud over Herbalife, Ackman said that the $2.25 trillion hedge fund industry, once close-knit where managers often worked collaboratively, now seems much more competitive. "This was the first case where there was a lot of sniping going on between managers," he said, referring to the recent backbiting over the Herbalife trade. But he acknowledged that hedge fund managers can't be overly sensitive. "You have to have thick skin to be in this business."

Source : Reuters

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