TOP ACTIVIST STORIES

A REVIEW OF FINANCIAL ACTIVISM BY GENEVA

PARTNERS

December 10th,2012

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Adobe Systems Names ValueAct Capitals Kelly Barlow to Board
ADBE US

Adobe Systems Inc. (ADBE), the largest maker of graphic design software, added Kelly Barlow, a partner at investor ValueAct Capital Partners LP, to its board, expanding the number of directors to 13 from 12. []

Icahn Ends Oshkosh Bid After Shareholder Support Falls Short

OSK US

Billionaire activist investor Carl Icahn dropped his bid to buy Oshkosh Corp. (OSK) after failing to receive enough shareholder support. []

Canadian Pacific Surges on Ackman-Backed Plan for Rebound

CP CN

Canadian Pacific Railway Ltd. surged the most in six weeks after Chief Executive Officer Hunter Harrison said he would cut jobs and study asset sales to boost profitability at North Americas least-efficient railroad. []

Netflix Gains Disney Streaming Rights in End Run on Cable

NFLX US

Netflix Inc. (NFLX), the online video service, signed a multiyear accord to carry Walt Disney Co. (DIS) films, marking the first time a major studio has bypassed traditional cable-TV outlets. []

Timken Owners Lose $1.3 Billion Without Spinoff

TKR US

Timken Co. (TKR), the bearings maker that trades at the lowest earnings multiple among its peers, is costing shareholders the chance to recoup $1.3 billion in market value lost this year by not spinning off its steel unit. Ralph Whitworths Relational Investors LLC, known for pushing for changes and board seats at companies from Hewlett-Packard Co. to Illinois Tool Works Inc., announced a 5.7% stake last week and said Timkens value would jump to $64.98 a share by separating the bearings and steel units.[]

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TOP ACTIVIST STORIES

A REVIEW OF FINANCIAL ACTIVISM BY GENEVA

PARTNERS

December 10th,2012

Adobe Systems Names ValueAct Capitals Kelly Barlow to Board

By Aaron Ricadela December 5th, 2012 Adobe Systems Inc. (ADBE), the largest maker of graphic design software, added Kelly Barlow, a partner at investor ValueAct Capital Partners LP, to its board, expanding the number of directors to 13 from 12. ValueAct, a San Francisco-based investment firm with more than $8 billion under management, has a 6.3% stake in the San Jose, California-based company. Adobe said in a filing that ValueAct owned 31.3 million shares as of yesterday, which would be worth $1.11 billion at todays closing stock price. Adobe, which makes print and Web design programs including Photoshop, Illustrator and Dreamweaver, is undergoing a period of slow growth -sales are expected to expand 3% this year and next, according to the average of analysts estimates compiled by Bloomberg. Its stock has declined 19% over the past five years, compared with a 13% gain in the Standard & Poors 500 Information Technology Index during the same period. In an interview in April at an event to release the companys Creative Suite 6 package of design software, Chief Executive Officer Shantanu Narayen

ADBE US

called his interactions with ValueAct a very collaborative relationship and declined to expand on any discussions. ValueAct and Adobe have agreed that Barlow or his replacement must resign from the board if the investment firms stake drops below 5%. ValueAct also agreed not to hold more than 12% of Adobe. Adobe shares rose less than 1% to close at $35.40 inNew York. The company is scheduled to report fiscal fourth-quarter earnings Dec. 13.

Source : Bloomberg

Icahn Ends Oshkosh Bid After Shareholder Support Falls Short

By Brendan McGarry December 4th, 2012 Billionaire activist investor Carl Icahn dropped his bid to buy Oshkosh Corp. (OSK) after failing to receive enough shareholder support. [] Icahn, 76, the companys largest shareholder with a 9.5% stake, had said he would end his bid if fewer than a quarter of the companys outstanding shares were tendered by the deadline. About 22% of the shares were offered, according to a statement from Icahn Enterprises LP (IEP) today. Because he didnt get the 25% of shares sought, we are returning all tendered shares and we will not extend the offer, Icahn said in the statement. Icahns offer to buy all outstanding shares of the Oshkosh, Wisconsinbased truckmaker at $32.50 a share, or about $3 billion, expired at midnight yesterday. Oshkosh fell to as low as $28.41 and traded at $28.63, down 4.9%, at 9:43 a.m. in New York. The stock is up 34% this year. Oshkosh is the U.S. militarys largest supplier of mediumand heavy-duty trucks. John Daggett, a spokesman for Oshkosh, didnt immediately respond to a phone call seeking comment. Icahn has criticized Oshkoshs executives for poor performance. He was seeking to replace its 13-member board of directors with his own

OSK US

nominees, including himself. He has pushed for spinning off its JLG unit, which makes construction lift equipment. Im not surprised that Icahn had difficulty getting the number of shares that he wanted to get to proceed with the proxy fight, Walter Liptak, an analyst at Barrington Research Associates Inc. in Chicago, said in a telephone interview. Liptak has an outperform rating on the company. Oshkosh management presented a really compelling earnings growth plan to shareholders, he said. The trading today sets up a buying opportunity in the stock.

Source : Bloomberg

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Canadian Pacific Surges on Ackman-Backed Plan for Rebound

By Brooke Sutherland December 5th, 2012 Canadian Pacific Railway Ltd. surged the most in six weeks after Chief Executive Officer Hunter Harrison said he would cut jobs and study asset sales to boost profitability at North Americas leastefficient railroad. Canadian Pacific rose 4.1% to C$96.82 at the close in Toronto, the highest since the company was spun off from the former Canadian Pacific Ltd. in 2001. Harrison plans to shrink the companys workforce by 23% and will consider selling a mid-western U.S. line gained in the 2007 acquisition of Dakota, Minnesota & Eastern Railroad. The former head of Canadian National Railway Co. (CNR) stepped into his current post in June after hedge-fund manager William Ackman won a proxy fight to oust then-CEO Fred Green. If youre a shareholder even since the beginning of 2012, I think youre very happy with what Ackman has done and what Hunter is doing, Brian Yarbrough, an Edward Jones analyst, said in a telephone interview. Hes got the track record to do it and now hes laying out his plans. Harrison earned a reputation for operational efficiency at Illinois Central Corp. and then at Canadian National, the countrys biggest railroad, before retiring in 2009. Canadian Pacifics shares have climbed 32% from June 28, the day before his hiring was announced. Canadian National rose 3.7% in that span. Operating Efficiency Harrison, 68, reaffirmed yesterday his pledge to lower Calgary-based Canadian Pacifics operating ratio, a benchmark industry measure of expenses to revenue, to about 65% in four years. The CEOs speech kicked off a two-day presentation to investors and analysts. We need to get our house in order, get our costs under control and do a lot of things, he said in an interview today. While the carriers 74.1% thirdquarter ratio was the lowest in two years, Canadian Pacific was still the least efficient of the six major North American railroads, according to data compiled by Bloomberg. To achieve his goals, Harrison will eliminate 2,300 employee and contractor jobs by the first quarter, and 4,500 total by 2016. You could see more reductions in the future, Harrison said. Im not locking us into any place. Were in a pretty good position where the demographics of what we describe as our natural attrition over the four years would be about 5,700 people. CPs Turn according to Bloomberg. data

CP CN
compiled by

DM&E Assessment As strategy changes take place in the next four years, the companys operating ratio may fall to as low as 63% or may come in closer to 67% depending on revenue growth, Harrison said yesterday. Offering a range rather than a definitive target in no way is to try to indicate that were not confident about this number, he said. The company forecast annual revenue growth of 4% to 7% by 2016, a good portion of which Harrison said would come from increasing shipments of crude oil. In addition to considering selling one of the U.S. lines from the DM&E deal, Canadian Pacific plans to delay indefinitely acting on an included option to expand into the Powder River Basin, the largest U.S. coal reserve. The entire $1.48 billion acquisition was criticized earlier this year by Ackman, who called it a blunder. Whether DM&E was a good investment at the time or not, the investment has not played out like some would have liked, Harrison told investors and analysts today. Interest has already been expressed in the line, which includes about 660 miles (1,060 kilometers) of track from Minnesota through South Dakota, Nebraska and Wyoming, Harrison said. The company currently has no plans to divest other assets acquired through the DM&E transaction, he said. Change is certainly in the air, Walter Spracklin, a Toronto-based analyst at Royal Bank of Canada, wrote in a note to clients today.

Canadian Pacific will also explore options for its real estate holdings and relocate its downtown Calgary headquarters to offices at a local rail yard by 2014, according to a statement released before Harrisons speech yesterday. The railroad plans to introduce a new sidings program that will allow it to use fewer trains while maintaining or even increasing volumes. Its CPs turn for the operating turnaround, Steven Paget, a Calgarybased analyst at FirstEnergy Capital Corp., said in a phone interview. Its CPs time. Paget has an outperform rating on Canadian Pacific, while Edward Joness Yarbrough, who is based in St. Louis, has a buy recommendation. Ackman pushed for Harrisons hiring as he sought to boost investor returns at the 131-year-old company. His Pershing Square Capital Management LP became the carriers largest shareholder in 2011 and held a 14% stake at the end of the third quarter,

Source : Bloomberg

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Netflix Gains Disney Streaming Rights in End Run on Cable

By Cliff Edwards and Christopher Palmeri December 4th, 2012 Netflix Inc. (NFLX), the online video service, signed a multiyear accord to carry Walt Disney Co. (DIS)films, marking the first time a major studio has bypassed traditional cable-TV outlets. The agreement starts with movies released in 2016, the companies said today in a statement, without disclosing terms. Netflix will replace Liberty Media Corp. (LMCA)s Starz Entertainment when its output deal with Disney expires in 2015. Netflix surged the most since January while Liberty Class A tumbled. The deal is a coup for Netflix Chief Executive Officer Reed Hastings, who faces emerging competition in online video and pressure for a sale of the company from activist investor Carl Icahn. U.S. subscribers of Netflix will get access to movies from Disney, including its Pixar and Marvel releases, as soon as seven months after they open in theaters, a time frame traditionally reserved for premium pay-TV channels like Starz. It was a long slog, but ultimately we displayed enough sustainability that Netflix became a real and viable option for the pay-TV window, Ted Sarandos, the video services chief content officer, said in an interview. Netflix, based in Los Gatos, California, surged 14% to $86.65 at the close in New York, more than doubling its year-to-date gain. Liberty Media, based in Englewood, Colorado, slid 4.9%, the most since May 17, to $105.56. Disney, the worlds biggest entertainment company, was little changed at $49.30. direct-to-video releases in 2013. The company doesnt gain movies from Star Wars creator Lucasfilm Ltd., which Disney is buying for $4.05 billion and doesnt yet own, according to Jonathan Friedland, a Netflix spokesman. He declined to say whether they would be included later. For Netflix, with 30 million users worldwide, the Disney agreement extends its lead over competing video services from Amazon.com and Verizon Communications Inc. (VZ) and Coinstar Inc. (CSTR)s Redbox Instant, which is set to begin public testing this month. Netflix is adding exclusive programs such as Lilyhammer andHouse of Cards as it seeks earlier and fuller home-video access to studio movies for its customers. This is a big win for Netflix, Jaison Blair, an analyst with Telsey Advisory Group in New York, said in a telephone interview. Movies Cost Netflix probably agreed to pay in excess of $350 million a year for Disneys movies, estimates Tony Wible, an analyst with Janney Montgomery Scott in Philadelphia. Disney embraced online media sooner than its competitors, becoming the first major studio to sell and rent TV shows and movies through Apple Inc. (AAPL)s iTunes. The companys largest shareholder is the trust of late Apple co-founder Steve Jobs. Netflix beat out several bidders for the Disney pictures, Sarandos said, without identifying them. The company will bid aggressively for exclusive rights to Sony Corp. (6758) films when that studios contract with Starz ends around 2016, he said. Paula Askanas, a Sony spokeswoman, said the company had no comment on Sarandoss remarks. DreamWorks Animation SKG Inc. (DWA), which puts out two to three films a year, also has an agreement with Netflix. Childrens Tales

NFLX US

With a Disney catalog largely geared to children and families, Netflix can build a solid base of subscribers who are less likely to cancel service for competing offerings, said Scott Devitt, a Morgan Stanley analyst who has a buy rating on the shares. In a shrewd move by Netflix, the company is focusing on building a highly differentiated content catalog aimed at kids, which is a demographic that has relatively homogeneous tastes,Devitt wrote in a research note. While Netflix bolsters its film lineup, the announcement doesnt settle a tug-of-war among investors over the companys prospects, said Arvind Bhatia, a Sterne Agee & Leach analyst who has a neutral rating on the shares. With about $4.5 billion in streaming content obligations due before the Disney films are available, and the losses incurred as it expands internationally, Netflix must increase its subscriber count or raise its $7.99a-month price for unlimited viewing to remain viable long-term, Bhatia said. Its a big get, but clearly there are several unknowns out there to determine if its a good get, Bhatia said.Though we dont know the financial terms, its clear this was not a cheap deal. Netflix expects billionaire Icahn, who controls almost 10% of the company through stock and options, to start a proxy battle as he seeks a sale, Hastings said last month. In 2010, Disney extended its digital distribution deal with Starz through 2015. Todays agreement will replace that pact when the latter expires. Courtnee Ulrich, spokeswoman for Englewood, Colorado-based Liberty Media, didnt return a phone call seeking comment.

Seeking Sony
The Disney accord separately gives Netflix immediate access to older classics such as Dumbo, and new

Source : Bloomberg

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Timken Owners Lose $1.3 Billion Without Spinoff

By Lindsey Rupp and Tara Lachapelle December 4th, 2012 steel operations. Chassis, Engines

TKR US
weve seen from analysts, indicating values from $55 to $65-plus per share, Whitworth said during a phone interview yesterday. This discount will persist through all cycles and conditions due to the incongruous nature of these two businesses, he said. Waiting is not the answer. The costs to shareholders of a suboptimal structure compound over time. Relationals Record Ricardo Duran, a spokesman for Sacramento, California-based Calstrs, declined to comment beyond last weeks filing. Relational, based in San Diego, has proven to be a catalyst for change in the past. Illinois Tool Works agreed in August to sell a majority stake in its decorative surfaces division to Clayton, Dubilier & Rice LLC, following pressure from Relational to reduce the number of business units. In November 2011, HP said it would add Whitworth to its board to help shore up investor confidence shaken by strategy shifts and lower sales forecasts. After retreating from an alltime high of $57.72 in April, when the shares had a market capitalization of $5.6 billion, Timken yesterday had the lowest price-earnings ratio among the 12 companies it describes as its peers in the steel industry and the bearings and power-transmission group. Its 8.6 multiple to earnings compares with 16.6 at Carpenter Technology Corp., 14.8 at SKF AB and 22 at Nucor Corp., data compiled by Bloomberg show. The group median is 15.7. Negligible Benefit In an August presentation to Timken management, Relational described Timkens lower valuation as significant, reflecting the markets clear preference for pure-play

Timken Co. (TKR), the bearings maker that trades at the lowest earnings multiple among its peers, is costing shareholders the chance to recoup $1.3 billion in market value lost this year by not spinning off its steel unit. Ralph Whitworths Relational Investors LLC, known for pushing for changes and board seats at companies from Hewlett-Packard Co. to Illinois Tool Works Inc., announced a 5.7% stake last week and said Timkens value would jump to $64.98 a share by separating the bearings and steel units. The plan was revealed after the Canton, Ohio-based company, which closed yesterday at $45.12, fell 28% from its April high. While Timken last week rejected a breakup and said keeping the units combined provides technology and profit benefits, BB&T Corp. said its uncontroversial that the company is worth more in pieces after past attempts to eliminate the discount from the steel business have failed. The $4.3 billion company would be valued 33% more if split, according to the average of four analysts estimates compiled by Bloomberg. Timkens price-earnings ratio of 8.6 is cheaper than every global competitor, with its valuation about 45% less than the median, the data show. Timken doesnt get a proper valuation, Samuel Eisner, a New York-based analyst with William Blair & Co., said in a telephone interview, adding that a breakup may not be imminent because of the relatively high ownership among members of the founding family and the company pension. If you did have a chance to spin it off, you might be able to revalue that business at a higher multiple, he said, referring to the

The company, founded in 1899 by Henry Timken, produces anti-friction bearings and power-transmission components, in addition to running the business Relational wants jettisoned, which produces alloy steel used in vehicle chassis and engines as well as steel forging bars and seamless tubes for oil and gas drill bits. The company runs 58 manufacturing facilities and has operations in 30 countries and territories, according to Timkens annual report from February. We have significant technology, cost and revenue synergies between our bearing and steel businesses as well as diversification benefits in continuing to operate under our current structure, Timken Chief Executive Officer James Griffith said in a Nov. 28 statement. These synergies and benefits, coupled with a potential reduction in financial flexibility, among other factors, led the board to conclude that the separation of the businesses at this time would not be in the best interests of Timken shareholders. Suboptimal Structure Pat Carlson, a spokeswoman for Timken, declined to comment further. Relational and California State Teachers Retirement System announced their purchase of Timken shares in a Nov. 28 filing, with the latter revealing a 0.4% stake. Calstrs, as the second-biggest U.S. pension is known, submitted a proposal to be voted on at the next annual meeting that recommends hiring an investment bank to spin off the steel business into a separate publicly traded entity. There are a range of discounts out there that

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bearings or steel alternatives, according to the document, filed with the Securities and Exchange Commission on Nov. 28. Relational said the value created by keeping the businesses together are negligible when compared to the market discount. We agree that the market is unlikely to properly reward either the steel or the bearing business for the secular improvements they have made as long as these businesses remain combined, Stephen Volkmann, a New York-based analyst at Jefferies Group Inc., wrote in a Nov. 29 report. Volkmann estimates that Timkens parts would be valued at a total of $55 a share if the company were split, and William Blairs Eisner has the same projection. BB&Ts Holden Lewis forecast $61 to $62 a share in a Nov. 29 note. SunTrust Banks Inc.s James Kawai said $69 in a report issued Nov. 14, two weeks before Relational made its proposal public. Those estimates indicate an increase in Timkens market value of $1.4 billion, on average. More Volatile While Timken would be worth more if broken up, the presence of the more volatile specialty steel business suggests a material 20%-type conglomerate discount will likely persist, Kawai wrote. Timkens stock price is depressed because of the seasonality of its business and because investors arent giving its ability to generate cash enough credit, said Tim Kang, an analyst for Olstein Capital Management LP, which oversees $555 million including Timken shares. Timken produced $359 million in free cash flow, or cash from operations after deducting capital expenses, in

the last 12 months, data compiled by Bloomberg show. The shares traded for 12.2 times that amount yesterday, lower than the 16.5 median among peers, the data show. While Kang agrees with Relational that Timken would be valued at about $65 a share if split, he said the stock may climb to that level on its own in the next year or two. Price Forecasts Breakups sometimes act as catalysts to unlocking that value, Kang said in a phone interview from Purchase, New York.We dont necessarily believe Timken has to break up to realize value, he said. However, we would not be against a breakup if the company were for doing it. [] The difference of opinions on a breakup stems from whether investors are seeking an immediate gain or are patient enough to wait, said Stanley Elliott, a Richmond, Virginia-based analyst for Stifel Financial Corp. A longer-term approach can be riskier, he said. Insider Ownership Both Relational and Timken make valid points, Elliott said in a phone interview. Splitting up the company would be a way to unlock the value more near term. The longer-term view would be seeing that the changes that they made to the business and investments that theyre making are allowed to be realized, he said. There would be some execution timing, probably a little more risk involved. Insider ownership may impede a spinoff, William Blairs Eisner said. Members of the founding family, including Chairman Ward J. Timken Jr., have sole or shared voting power covering 10.3% of the companys shares,

according to a March filing. Participants in the Timken savings and investment pension plan have 5.4%. Businesses spun off from larger U.S. companies are beating the rest of the stock market this year. The Bloomberg U.S. Spin-Off Index of 20 stocks has surged 41% in 2012, versus a 12% gain in the Standard & Poors 500 Index. Spinoff Success The index includes such companies as ADT Corp., the residential security business that was once part of Tyco International Ltd., and Kraft Foods Group Inc. after its grocery unit was separated from the snack foods division, now known as Mondelez International Inc. Historically, spinoffs have worked out well, Joe Cornell, founding principal of Spin-Off Advisors LLC in Chicago, said in a phone interview. The common thread that runs through all of this is, if you boil it down, the management focus. They go from being unwieldy conglomerates with different businesses competing for capital and managements attention, to being more focused entities. Often that translates into better financial performance that should work its way into the stock.

Source : Bloomberg

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T A C T ICVTI ISVTI SA CATCIT IIVTIYT Y V

Company Name
ADOBE SYSTEMS

Ticker

Activist investor
ValueAct Capital Management LP Icahn Associates Corp. Icahn Associates Corp. ValueAct Capital Management LP Marcato Capital Management LLC Relational Investors LLC

Position

Position Change
1,000,000

% Outstanding Shares
6.3

% Portfolio
15.0

Source

Date

ADBE US

31,303,362

13D/A

12-07-2012

OSHKOSH

OSK US

7,440,933

-1,224,327

8.1

1.8

13D/A

12-05-2012

FEDERAL MOGUL

FDML US

76,697,804

443,449

77.6

7.3

13D/A

12-04-2012

MSCI

MSCI US

6,159,213

6,159,213

5.1

2.3

13D

11-28-2012

DINEEQUITY

DIN US

1,021,486

250,000

5.5

12.3

13D

11-27-2012

TIMKEN

TKR US

5,495,247

2,270,000

5.7

4.3

13D

11-27-2012

CHESAPEAKE ENERGY

CHK US

Icahn Associates

59,698,689

9,613,487

8.9

9.9

13D/A

11-19-2012

NETFLIX

NFLX US

Icahn Associates

5,541,066

4,291,066

9.9

3.6

13D/A

11-19-2012

TROPICANA ENTERTAINMENT

TPCA US

Icahn Associates

17,862,706

733,047

67.8

2.0

13D/A

11-19-2012

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