Describes shareholder activism factors, targets and strategies from an activist investor and shareholder value perspective. Note: Confidential and proprietary information omitted from public version.

1. WSD Capital Management
An Introduction to Activist Investors

2. Summary 3
Activism Targets 4
Activism Factors 6
Corporate Governance 7
Capital Market Efficiency 9
Shareholder Limitations 11
Activist vs. Acquirer 12
Activism Engagement 19
Shareholder Value 22
Conclusion 24
2

3.  While activist investors gained notoriety for their confrontational
approach, they often aim for collegial if firmly “hands on” approach with
incumbent management.
 There is an overlap in investment philosophies between activist investors
and the prototypical value investor.
 Activist investors typically seek out undervalued companies where they
anticipate shareholder value can be unlocked through intervention.
 In other words, instead of speculating about future performance, activist
investors aim to change future performance.
Source: Institutional Investor (2003); Bruce C. N. Greenwald, Kahn, Sonkin, Biema (2004)
3

4. Governance
Management
Ownership
Financial &
Operational
Event-Driven
Major factors driving
shareholder activism:
1. Undervaluation
relative to peers,
2. Deteriorating share
price performance
relative to peers,
3. Low leverage/high
cash balance,
4. Failure to execute
business plan,
5. Multiple distinct
business operations,
6. Takeover target in
consolidating industry.
Activist investors focus on shareholder value:
4

5. Governance
• Limited board
independence,
• Insufficient
attention to
investor proposals
or concerns,
• History of
reporting,
accounting and/or
governance issues
Management
• Diminished investor
confidence,
• Lack of
accountability and
strategic direction
despite issues,
• Excessive executive
compensation
Ownership
• Heavy institutional
concentrations,
• Limited insider
ownership,
• Large founding
family holdings
potentially looking
for exit
5

6. Financial
• High cash balance,
• Stable cash flow,
• Low debt levels,
• Low book-to-
market ratio
Operational
• Underperforming
line(s) of business,
• Underutilized
assets,
• Uncertain or
unclear strategy
Event-Driven
• Change in CEO,
• Restructurings,
• Cyclical downturns,
• Consolidation
6

7.  They are supposed to prevent
self-interested management
from taking actions
detrimental to shareholders.
 They are not uniform across
countries.
 They are shaped by a variety
of factors that are inherent to
the business environment.
Governance
System
Societal and
cultural
values
Enforcement
of
regulations
Reliability of
accounting
standards
Protections
afforded by
legal system
Efficiency of
local capital
markets
Governance systems are complex:
7

8.  Governance systems are
diverse because these factors
combine in different ways in
different countries.
 Differences in factors impact
prevalence of agency issues
and control mechanisms
needed to prevent them.
 Governance debate is
characterized by considerable
hype but few hard facts.
Managers
Auditors
Customers
Suppliers
Unions
Media
Regulators
Analysts
Creditors
Investors
Board
Governance systems are diverse:
8

9. Efficient markets protect against:
• One party in a transaction has an information
advantage and uses this advantage to receive
preferential pricing or risk transfer
Adverse Selection
• One party does not bear the full risk of its actions and
so engages in excessively risky transactionsMoral Hazard
 When capital markets are efficient, prices (labor, capital, and natural
resources) are “correct”, which improves decision making.
 Efficient capital markets “discipline” companies:
 Poor decisions are punished
 Stock prices decline
 Cost of capital increases
 Risk of bankruptcy or being taken over increases
9

10.  If a country lacks efficient capital markets, something else must take its
place:
 These institutions also “discipline” companies in order to protect their
investment. However, their interests may be different from those of
other shareholders and stakeholders.
 Well-functioning markets require disciplining mechanisms that influence
management to act in the interest of shareholders.
 In efficient capital markets, the “market for corporate control” puts
pressure on the CEO to perform or risk sale of company to new owners.
Wealthy families
Large banking
institutions
Other
companies
Governments
10

11.  Shareholders suffer from two primary limitations:
 Free-rider problem. Shareholder actions are expensive. Although all
shareholders enjoy the benefits, a few bear the costs. This provides a
disincentive to act.
 Indirect influence. Since shareholders do not have direct control over
the company, they tend to exert influence via the following:
 Communicating their concerns
 Withholding votes from directors
 Waging a proxy contest to elect an alternative board
 Voting against company proxy items
 Sponsoring their own proxy items
 Selling their shares
11

12. Activist Investor Hostile Acquirer
Objective Enhancing Shareholder Value Capturing Shareholder Value
Avg. Investment Period 15 to 36 Months 5+ Years
Control Ambition
Aims for significant influence in
cooperation with fellow
shareholders
Total Control
Willingness to Partner
with Others
Yes, seeks often third-party
support and consensus
No
Tolerance for Negative
Publicity
High Low
Credibility with
Investors & Public
Depends on activist’s reputation
and track record
High
Predictability of
Strategy
Low, can be creative and nimble
High, due to influence of many
constituencies
Ability to Pressure
Target Board &
Management
High Higher
12

13. • Acquiring firm believes it can increase profits through revenue
improvements, cost reduction, or vertical integration. This is what
drives strategic buyers.
Financial Synergies
• Two companies whose earnings are uncorrelated might benefit by
relying on capital generated when one business is thriving to help
the other when it is struggling. This is what drives conglomerates.
Diversification
• New owner group might have superior access to capital, managerial
expertise, or other resources. This is what drives private equity
buyers.
Ownership Change
13

14. • Acquirer purchases target primarily for sake of managing a larger
enterprise.
Empire Building
• Company pursues acquisition because its competitors have recently
completed acquisitions.
Herding Behavior
• Management of target company agrees to acquisition primarily
because it stands to receive significant windfall.
Compensation Incentives
14

15. Research has routinely shown that public markets expect the incremental
value of an acquisition to flow to the target rather than to the acquirer.
Source: Eckbo (2009); Servaes (1991); Andrade, Mitchell, and Stafford (2001); Martynova and Renneboog (2008);
Goergen and Renneboog (2004)
The Target
• Receives double-digit takeover premium offer
• Experiences greater excess returns in hostile deals
• Experiences greater excess returns in all-cash deals
The Acquirer
• Experiences no excess returns following bid
• Experiences negative excess returns for hostile bid
• Experiences greater declines if equity-financed bid
15

16. Research has also shown that acquirers realize less value following a merger
than originally projected.
Source: Martynova and Renneboog (2008); Krug and Shill (2008)
The Acquirer
• Underperforms peers on a one-to three-year basis
• Performs worse if acquisition is financed with equity
• Decreases investment in working capital and capex
The Acquisitions
• They are highly disruptive
• They require significant management attention
• The lead to elevated turnover rates for up to 10
years following consummation of deal
16

17.  Activist investors tend to get involved when company performance is
falling short of competitors’ performance and market expectations.
 A collaborative, negotiated, or settled response to activist campaigns
tends to lead to higher excess shareholder returns than a combative one.
 It is often more effective to get companies to change when in crisis.
 Value investors who focus solely on share price may end up investing in
value mines (i.e. stocks that are fatal to investor’s financial health).
“Price is what you pay; value is what you get.”
• Warren Buffett
Source: Cyriac, Backer, and Sanders (2014)
17

18. • Activist investor acquires 1% to 10% of voting class equity;
gains recognition as leading minority shareholder
Stock
Accumulation
• Will include changes to corporate governance, strategic
direction, operational execution, and/or capital allocation
Shareholder
Proposals
• Certain activist investors prefer to engage privately before
going public; other activists prefer to go public first
Private
Communication
• Most activist investors have little trepidation to go public
and are adept at making their case to the press
Public
Communication
• May lobby third parties, including other shareholders,
institutions, and proxy advisory firms
Proxy Contest
Solicitation
Most
Aggressive
Least
Aggressive
Litigation: Expensive and utilized generally as last resort to protect investment
18

19.  Communication between
activists and management
remains most effective
method to achieve goals.
 Not only can it be less
confrontational, but dialogue
helps build relationships
between management and
shareholders in the future.
 Staying out of media is best
for both parties when
negotiating.
Achieving desired results:
Source: Schulte Roth & Zabel (2012)
50%
32%
10%
8%
Dialogue & negotiations Proxy contest & solicitation
Publicity campaigns Shareholder resolutions
19

20. • Many activist investors advocate strategies that
require substantial time to implement with
durations measured in years rather than months.
Strategy
• Research shows that most target’s valuations,
ROA, and operating performance improved in
five-year period following activist engagement.
Engagement
• Three years after partial or full cashing out of an
activist investor’s stake, long-term shareholders
continued to have positive returns.
Value
Source: Enginalev (2014); Brav, Jiang, Thomas, Partnoy (2008)
20

21.  One of the key benefits of
engaging directly with activist
investors is that of getting
another point of view.
 Activist investors provide
management with candid and
educated perspectives from
the investment community.
 Appropriate engagement can
achieve superior performance
when dealing with activist
investors.
Responding to activist engagement:
Source: Linklaters (2013)
60%
32%
26%
21%
Compromise
or Settlement
Activists
objectives
partially
successful
Activists
objectives
successful
Activists
objectives
unsuccessful
0%
10%
20%
30%
40%
50%
60%
70%
Target Company Financial Results
(Average Return Annualized)
21

22. Corporate Governance
• Board Size &
Independence
• Shareholder Rights
• Executive Compensation
Business Strategy
• Growth
• Segments & Subsidiaries
• Mergers & Acquisitions
• Public vs. Private Decision
Operational
• Production Efficiency
• Business Processes
• Personnel Issues
Financial
• Capital Efficiency &
Capital Structure
• Dividend Policy
• Share Buybacks &
Cancellations
Investor Relations
• Analyst Coverage
• Investor Interactions
• Forecast Accuracy
• Credibility with Markets
Factors that impact shareholder value:
22

23.  Activist investors conduct thorough assessments of target company’s
operations, incl. management, product strategies and capital structure.
 Significant shareholder value lies hidden in many public companies that is
difficult to unlock without commitment and proactive involvement.
 Accounting consolidation makes many complex companies look simpler than
they really are. This is important given that markets rely on consolidated
data for valuation purposes.
 Shareholder value can be unlocked by restructuring – changing strategy,
operations, capital structure, capital expenditure plans – but overcoming
status quo requires support from multiple stakeholders.
 Activist investors specialize in fostering such coalitions through the quality
of their analysis, their network of institutional contacts and the credibility
of their reputation and track record rather than the size of their holdings.
23

24.  Activist investors act as important intermediaries in equity markets.
 Activist investors, like M&A acquirers, aim to arbitrage the value gap
between poor company performance and good company performance.
 While an inherent bias in favor of management may once have existed
among institutional investors, this is no longer always the case.
 Open communications with activist investors can build credibility with
shareholders and potentially enhance corporate strategies.
 Shareholder activism can be costly and success is not guaranteed.
24

25. Proxy Warriors. Institutional Investor. January 2003.
Bruce C. N. Greenwald, Judd Kahn, Paul D. Sonkin, Michael Van Biema. Value Investing: From Graham To
Buffett And Beyond. 2004.
B. Espen Eckbo. Bidding Strategies and Takeover Premiums: A Review. 2009. Journal of Corporate Finance.
Henri Servaes. Tobin’s Q and Gains from Takeovers. 1991. Journal of Finance.
Gregor Andrade, Mark Mitchell, and Erik Stafford. New Evidence and Perspectives on Mergers. 2001.
Journal of Economic Perspectives.
Marina Martynova and Luc Renneboog. A Century of Corporate Takeovers: What Have We Learned and
Where Do We Stand? 2008. Journal of Banking and Finance.
Mark Goergen and Luc Renneboog. Shareholder Wealth Effects of European Domestic and Cross-border
Takeover Bids. 2004. European Financial Management.
Jeffrey A. Krug and Walt Shill. The Big Exit: Executive Churn in the Wake of M&As. 2008. Journal of
Business Strategy.
25

26. Joseph Cyriac, Ruth De Backer, and Justin Sanders. Preparing For Bigger, Bolder Shareholder Activists.
March 2014. McKinsey Insights.
Schulte Roth & Zabel. Shareholder Activism Insight. 2012.
Ertan Enginalev. Is Shareholder Activism the Cure for the Common Stock. July 2014. Carried Interest.
Alon Brav, Wei Jiang, Randall S. Thomas, Frank Partnoy. Hedge Fund Activism, Corporate Governance, and
Firm Performance. May 2008. Journal of Finance.
Linklaters. Activism Rising. 2013.
26

27. THESE MATERIALS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
INTERESTS IN ANY FUND MANAGED BY WSD CAPITAL MANAGEMENT, L.P. (the “Firm”) OR ANY OF ITS AFFILIATES.
SUCH AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY INTERESTS MAY ONLY BE MADE PURSUANT TO A
DEFINITIVE SUBSCRIPTION AGREEMENT BETWEEN A FUND AND AN INVESTOR.
The information contained herein reflects the opinions and projections of the Firm and its affiliates as of the
date of publication, which are subject to change without notice at any time subsequent to the date of issue,
and serves as a limited supplement to a verbal presentation. The Firm does not represent that any opinion or
projection will be realized. While the information presented herein is believed to be reliable, no
representation or warranty is made concerning the accuracy of any data presented. All information provided in
this presentation is for informational purposes only and should not be deemed as investment advice or a
recommendation to purchase or sell any specific security. The "WSD" logo, "WSD CAPITAL MANAGEMENT", and
"GROWTH THROUGH FORTITUDE" are registered and unregistered trademarks and/or service marks of the Firm
or its subsidiaries and/or affiliates in the United States and elsewhere. All other trade names, trademarks, and
service marks herein are the property of their respective owners who retain all proprietary rights over their
use. This presentation may not be reproduced without prior written permission from the Firm.
The information contained within the body of this presentation is supplemented by footnotes which identify
the Firm’s sources, assumptions, estimates, and calculations. This information contained herein should be
reviewed in conjunction with the footnotes.
27