CATALYST EQUITY RESEARCH REPORT Weekly Research Highlighting Activist Investments

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1 Weekly Research Highlighting Activist Investments Subscribe to receive this FREE Report ed weekly.

2 HIGHLIGHTING ACTIVIST INVESTMENTS Week Ending August 9, 2013 SYMBOL COMPANY INVESTOR ALCS Alco Stores, Inc. MFP Investors ALR Alere, Inc. Coppersmith Capital ASI American Safety Insurance FairFax Financial ASIA AsiaInfo-Linkage, Inc. Brandes Investment BBRY BlackBerry Limiited FairFax Financial BBRG Bravo Brio Restaurant Group Red Mountain Capital BLT Blount International P2 Capital CSCD Cascade Microtech, Inc. Becker Drapkin DGIT Digital Generation Alex Meruelo HMA Health Management Associates Glenview Capital JCP J.C. Penney Company Perry Capital ODP Office Depot, Inc. Starboard Value SFD Smithfield Foods, Inc. Starboard Value SNE Sony Corporation Third Point SWZ Swiss Helvetia Fund Bulldog Investors SXCL Steel Excel GAMCO Investors TKR Timken Co Relational Investors; CalSTRS (HFS) provides investment research, strategy and stakeholder communications consulting to companies and investors interested in, or involved with, shareholder activist campaigns. Since 2001 HFS has become the trusted advisor to numerous institutional investors, CEOs and board members worldwide. HFS also administers The Official Activist Investing Blog, the definitive source for activist shareholder information. Catalyst Investment Research is a portfolio of activist investing research products that combine company-specific shareholder activism research with deep value investment analysis and access to industry insiders. PORTFOLIO OF ACTIVIST INVESTING RESEARCH INCLUDES: Daily Alerts Weekly Summary of Activist Investments Quarterly Buying Analysis of Top 50 Activist Investors Company-Specific Shareholder Activism Analysis (combining shareholder activism & deep value company analysis) Special Reports on Activist Investing 400+ Page Shareholder Activism Report & Regularly Updated Shareholder Activism Resource Portal To Learn More: Download a brochure Page 2 of 14

3 Alco Stores, Inc. (ALCS) Activist Investor: MFP Investors Shares 264,919 Catalyst: % Outstanding 8.1% MFP believes the $14/share buyout price offered by Argonne Capital is too low. MFP noted, "Alco s book value per share is over $30 and its current assets minus current liabilities and long term debt/capital leases is $16 per share." Share Price M 46M Enterprise Value 131M -85M 14M 52 wk. range EV/ 9.2 Alere, Inc. (ALR) Activist Investor: Coppersmith Capital; Scopia Capital Shares % Outstanding 5,660, % Catalyst: On August 7 ALR announced shareholders had elected all 4 of the Company's nominees. On August 8 Coppersmith issued a statement regarding the annual meeting. In its statement, Coppersmith highlighted a number of positive changes and commitments the company has made as a result of its efforts. Share Price B 2.6B Enterprise Value 6.1B -3.5B 615M 52 wk. range EV/ 10.0 A copy of Coppersmith s press release is available here: On May 8 we reported Coppersmith disclosed a 5.8% active ownership stake and sent a letter to the board suggesting the stock is significantly undervalued and nominated 3 individuals for election to the Board. On June 10 Coppersmith commented on ALR s preliminary proxy materials, expressing disappointment at the board s rejection of cooperation. In addition, Coppersmith announced it will seek the election of 3 Directors to the Board. On July 2 Coppersmith filed definitive proxy materials to elect 3 directors to ALR's board. Coppersmith sent a letter to shareholders and issued a presentation seeking to elect 3 directors to ALR s board. On July 27 Coppersmith announced ISS and Glass Lewis recommends voting for all 3 Coppersmith nominees On August 1 Coppersmith sent a letter to ALR stockholders seeking support for its 3 nominees. Proxy Solicitor to Coppersmith Capital Legal counsel to Coppersmith Capital Page 3 of 14

4 American Safety Insurance Holdings, Ltd (ASI) Activist Investor: FairFax Financial Shares 1,001,301 Catalyst: % Outstanding 10.5% On August 8 FairFax Financial increased its buyout offer from $29.25 to $20.25 and correspondingly increased the breakup fee from $9.1M to 13.4M Share Price M 293M Enterprise Value 205M -88M 59M 52 wk. range EV/ 3.49 We initially covered ASI on March 5 when Catalina disclosed a 5.6% active ownership stake. Catalina currently owns 5.7% at an average cost of 19.92/share On July 29 Catalina offered to purchase ASI for $29.75/share in cash. A copy of the offer letter is available here: On August 6 Catalina sent a letter confirming its offer price of $29.75/share as superior to FairFax Financial's $29.25/share offer Proxy Solicitor to American Safety Insurance AsiaInfo-Linkage, Inc. (ASIA) Activist Investor: Brandes Investment Shares 3,801,160 Catalyst: % Outstanding 5.22% On August 9 Brandes Investment disclosed a 5.22% active stake and announced its opposition to ASIA's proposed $12/share privatization transaction and sent a letter to the board expressing its disappointment that the special committee agreed to remove the condition that the transaction be approved by a majority of disinterred shareholders. Share Price M 837M Enterprise Value 549M 292M 67M 52 wk. range EV/ 8.2 BlackBerry Ltd. (BBRY) Activist Investor: FairFax Financial Shares 51,854,700 Catalyst: % Outstanding 9.89 Blackberry formed special committee to explore strategic options and potentially a sale. Share Price B 5.4B Enterprise Value 2.4B 2.9B 1.3B 52 wk. range EV/ 1.8 With the announcement of the Special Committee, Prem Watsa, Chairman and CEO of Fairfax Financial informed the Company that he felt it was appropriate to resign due to potential conflicts that may arise during the process. Fairfax Financial is the largest BlackBerry shareholder. Mr. Watsa said, "I continue to be a strong supporter of the Company, the Board and Management as they move forward during this process, and Fairfax Financial has no current intention of selling its shares." On September 6, 2011 Jaguar Financial (share ownership not available) demanded BlackBerry explore a sale or spinoff of its patent portfolio. Page 4 of 14

5 Bravo Brio Restaurant Group (BBRG) Activist Investor: Red Mountain Capital Shares 1,473,080 Catalyst: % Outstanding 7.5% On August 5 Red Mountain disclosed it had increased its "active" ownership in BBRG from 5.8% to 7.5% Share Price We Initially covered BBRG on May 20 when Red Mountain disclosed a 5.8% "active" ownership stake in BBRG and said it was having a dialogue with management about operations, strategic direction, capital structure and corporate governance. 417M 315M Enterprise Value 324M -10M 46M 52 wk. range EV/ 7.03 Blount International Inc. (BLT) Activist Investor: P2 Capital Shares % Outstanding 6,985, % Catalyst: On August 9 P2 disclosed it had increased its "active" stake from 10.2% to 14.2% On February 22 we highlighted that P2 had increased its active ownership in BLT from 4.7% to 7.0%. Share Price M 593M Enterprise Value 1.1B -460M 126M 52 wk. range EV/ 8.4 On July 19 P2 increased its active ownership from 7.0% to 10.2%. Cascade Microtech Inc. (CSCD) Activist Investor: Becker Drapkin Shares 1,131,132 Catalyst: % Outstanding 7.8% Becker Drapkin increased its active ownership in CSCD from 6.9% to 7.8% 5.25 On October 5, 2012 we reported that Becker Drapkin had disclosed a 6.9% active ownership stake in CSCD. Share Price M 109M Enterprise Value 79M 29M 12M 52 wk. range EV/ 6.4 Page 5 of 14

6 Digital Generation, Inc. (DGIT) Activist Investor: Alex Meruelo Shares 4,023,570 Catalyst: % Outstanding 14.5% On August 9 Alex Meruelo filed a complaint seeking injunctive relief to confirm that DGIT does not have a classified board because the classified structure was unlawfully adopted through a bylaw amendment. Share Price M 289M Enterprise Value 621M -338M 103M 52 wk. range EV/ 6.03 Meruelo seeks a declaration that the DGIT board does not have the power to amend the bylaws to provide for a classified board and that all directors must stand for election at the 2013 annual meeting of stockholders, which the Company has noticed for October 15, A copy of Meruelo s complaint is available here: We previously covered DGIT in several Catalyst Research Reports initially highlighting Discovery Capital s 5.9% active ownership stake (recently reduced below 5%). On September 11, 2012 we reported that Scott Ginsburg (DGIT s Executive Chairman; 8% shareholder) announced his intentions to examine buying DGIT in connection with the Company s recently announced exploration of strategic alternatives. On November 1 Clinton Group announced that it intended to nominate 3 directors to the board if the board cannot complete its strategic process by the annual meeting. On November 8 Meruelo issued a press release announcing his intention to nominate directors for election to DGIT s board and questioned the strategic alternatives process. On December 6 Meruelo issued a press release reiterating plans to nominate directors to DGIT s board if the Company fails to complete its strategic review process. On January 11, 2013 we reported that Clinton increased its ownership from 3% to 5.9% since announcing plans to nominate 3 directors to the board in early November. On January 16 Clinton entered into a settlement agreement with DGIT. Under the terms of the agreement DGIT increased the size of the board from 7 to 8 directors and added 2 new directors submitted by Clinton. On February 6 Meruelo agreed to withdraw his proposal to elect directors. On February 19 DGIT announced a conclusion of its strategic review, stating: Since August 2012, the Special Committee has explored numerous strategic alternatives available to the Company, including a sale of all or parts of the business, a spin-off and split-off of parts of the business, capital structure alternatives, and potential merger combinations. As part of its active review, the Special Committee and its financial advisor, Goldman Sachs, engaged with over 45 potential financial and strategic partners (including competitors of the Company) to determine their levels of interest in a strategic transaction involving the Company. None of the parties contacted by the Special Committee presented a definitive transaction for final approval by the Special Committee. The Special Committee is not recommending any transaction or other strategic alternative to the Board. On February 21 Clinton disclosed an increase in ownership from 5.9% to 7.2% and expressed its view that the stock is undervalued and requested the board immediately terminate the poison pill. On June 28 Meruelo increased his ownership to 14.5% at an average cost of $8.58/share. On July 2 Clinton increased its active stake from 7.2% to 8.4%. On July 17 Meruelo issued a press release seeking the resignation of the executive chairman and the appointment of additional shareholder representatives to the board. Meruelo also wants to increase his ownership to 25%. Legal counsel to Clinton Group Page 6 of 14

7 Health Management Associates (HMA) Activist Investor: Glenview Capital Shares % Outstanding 37,757, % Catalyst: On August 7 Glenview declined HMA's proposal for a hybrid board. A copy of Glenview s press release is available here: Share Price B 3.4B Enterprise Value 6.9B -2.7B 880M 52 wk. range EV/ 7.9 On August 8 Glenview announced ISS supports its 8 director nominees. HMA announced it was willing to add all of Glenview s nominees to the Board provided that Glenview is willing to retain 2 to 3 members of the HMA Board to ensure continuity and an orderly transition. On June 11 Glenview announced it was urging HMA to increase the threshold on its poison pill to 25%. On June 13 HMA announced it had hired Morgan Stanley and Weil, Gotshal & Manges in connection with Glenview s investment and the ongoing consideration of strategic alternatives and opportunities available. HMA also announced the Board had formed a strategic committee to find a replacement for its CEO. On June 24 Glenview began a Consent Solicitation to replace 8 Directors and launched a website Glenview announced it will deliver consents to begin the 60-day process of replacing HMA s board of directors; Glenview also reduced the size of its slate from 9 to 8 nominees. Glenview s consent solicitation statement is available here: HMA s Consent Revocation Statement is available here: On July 25 Glenview issued a shareholder presentation supporting its position to elect a new board. A copy of the presentation is available here: On July 29 HMA announced it is being sold to Community Health Systems for $13.78 in cash and stock with a contingent value right of $1/sh based upon certain legal issues; On July 30 Glenview commented on HMA's missed earnings, continued legal issues and Community Health's offer (as a floor value) and committed to continuing with its consent solicitation to remove the board. On August 2 Glenview updated its shareholder presentation "The Rationale for a complete and prompt change of the Board at HMA" A copy of that presentation is available here: Continue to Next Page Page 7 of 14

8 J.C. Penney Co. (JCP) Activist Investor: Perry Capital Total Shares % Outstanding 16,000, % Catalyst: On August 9 Perry Capital disclosed a 7.3% "active" stake in JCP and sent a letter to the board expressing its lack of confidence in the company, urging them to improve the financial and operational management of the company. Perry also announced it supports Allen Questrom and Ken Hicks to join the company as Chairman and CEO, respectively. Share Price B 2.8B Enterprise Value 5.8B -3.0B -1.06B 52 wk. range EV/ Negative We initially covered JCP in our January 28, 2011 and October 8, 2010 Catalyst Research Reports, highlighting Pershing Square s initial 16.5% active ownership position. On the same day, Vornado Realty Trust disclosed an 11.9% active ownership position. On January 24, 2011 JCP announced several operational initiatives aimed at maximizing long-term growth and profitability. In addition, JCP announced they will nominate Bill Ackman from Pershing Square and Steve Roth from Vornado Realty to their board. The board also announced they will appoint an additional director in the near future. On April 25 Soros disclosed a 7.91% passive ownership stake in JCP. Continue to Next Page Page 8 of 14

9 Office Depot, Inc. (ODP) Activist Investor: Starboard Value Shares 42,278,000 Catalyst: % Outstanding 14.6% Starboard issued a press release stating that ISS and Glass Lewis recommend ODP shareholders vote to elect 3 of Starboard's nominees. Share Price B 1.3B Enterprise Value 1.4B -178M 244M 52 wk. range EV/ 5.7 We previously covered ODP in several Catalyst Research Reports, initially highlighting Starboard s September 17, 2012 letter to ODP s Chairman stating that they strongly believe the company s shares are deeply undervalued. On October 12 we reported that Starboard had increased its active ownership stake from 13.3% to 14.8% since sending a letter to the Chairman on September 17. On November 16 Starboard sent a letter to ODP criticizing them for adopting a poison pill takeover defense. In the letter Starboard stated that the pill was designed to effectively cap our ownership at our current position and limit the voting ability of shareholders, while protecting the status quo. A copy of Starboard s November 16 letter is available here: On November 27 Starboard disclosed it has retained Joseph Vassalluzzo (former Vice Chairman of Staples) and Bob Nardelli (former CEO of Home Depot) as advisors to its investment in ODP. On January 24 ODP announced management has had conversations with Starboard and, as a result, is extending the deadline for nominating directors to the board to the close of business on February 25, On February 20 ODP announced a merger of equals with Office Max (OMX). On February 27 Starboard sent a letter to the ODP board recommending they obtain consent from OfficeMax under its merger agreement to immediately explore a sale of the Company s JV interest for $690.5 million to Grupo Gigante S.A.B. On March 18 Starboard issued a press release announcing it has nominated 6 individuals for election to ODP s board. On April 22 Starboard sent a letter to the board commencing a consent solicitation to elect new directors. On June 12 Starboard filed a complaint requesting the Delaware Chancery Court compel ODP to hold its 2013 annual meeting. On June 17 ODP announced its annual meeting will take place on August 21 (with a July 11 record date). The special meeting to vote on the proposed merger between ODP and OfficeMax was July 10. Starboard filed its definitive proxy materials to elect 4 directors at the August 21 annual meeting. On August 2 Starboard issued a whitepaper titled, "Transforming Office Depot A Plan For Renewal And Reinvigoration". Starboard also issued a shareholder presentation. A copy of the whitepaper presentation is available here: A copy of Starboard s investor presentation is available here: Legal counsel to Starboard Value Proxy Solicitor to Office Depot Page 9 of 14

10 Smithfield Foods, Inc. (SFD) Activist Investor: Starboard Value Shares % Outstanding 7,962, % Catalyst: Bloomberg news reports that Starboard is seeking a buyout group to make a higher bid for Smithfield. Share Price B 4.7B Enterprise Value 6.9B -2.2B 744M 52 wk. range EV/ 9.2 We initially covered SFD on June 17 when Starboard disclosed a 5.7% active stake in SFD and sent a letter to the board stating the break-up value for the company of $44-$55/share is preferred to a sale of the business for $34/share to Shuanghui International Holdings. A copy of Starboard s June 17 letter is available here: Legal counsel to Starboard Value Sony Corporation (SNE) Activist Investor: Third Point Shares 70,000,000 Catalyst: % Outstanding 7.0% On August 5 Sony rejected Third Point's demand to spin off its entertainment business. Third Point announced its intent to "explore further options to create value". Share Price B 20B Enterprise Value 31B -10.5B 4.1B 52 wk. range EV/ 7.5 A copy of Sony s press release announcing the letter is available here: We previously covered SNE on May 13 when Third Point sent a letter saying Sony should consider a partial listing (btw 15% to 20%) of its entertainment arm to raise money for its electronics business; Third Point would backstop the IPO with $1.5 to $2 billion. A copy of Third Point s letter to SNE is available here: Swiss Helvetia Fund (SWZ) Activist Investor: Bulldog Investors Shares % Outstanding 1,703, % Catalyst: Bulldog announced it intends to propose that SWZ shareholders be afforded an opportunity to realize NAV for their shares by conducting a large self-tender offer at close to NAV, or converting the Fund to an ETF -- which will trade in a narrow range around NAV. Bulldog also may seek to elect Directors and/or terminate the Fund's advisory agreement Share Price Enterprise Value 52 wk. range EV/ SWZ is a closed-end fund currently trading at % to its Net Asset Value Page 10 of 14

11 Steel Excel, Inc. (SXCL) Activist Investor: GAMCO Investors Shares 1,552,645 Catalyst: % Outstanding 12.14% GAMCO increased its ownership in SXCL from 11.1% to 12.14% Share Price M 365M Enterprise Value 106M 258M 30M 52 wk. range EV/ 3.6 Timken Co (TKR) Activist Investor: Relational Investors; CalSTRS Shares 7,744,440 Catalyst: % Outstanding 8.15% Relational increased its active ownership in TKR from 7.31% to 8.15% Share Price B 5.4B Enterprise Value 5.8B -66M 704M 52 wk. range EV/ 8.3 We previously covered TKR in several Catalyst Research Reports, initially highlighting Relational s 6.15% active ownership stake and their belief that the market is significantly undervaluing the Company due to its combination of two incongruent, core businesses and that a spin-off of the Steel segment from the remaining business segments would maximize shareholder value. Relational s August 23 presentation to TKR is available here: On January 18 we reported that Relational had increased its ownership from 6.15% to 7.31%. On February 19 Relational and CalSTRS sent a letter to the Chairman of TKR outlining their analysis for separating the steel business segment from the remaining business segments (the bearing businesses). The letter suggests a sum-of-the parts valuation of $69/share. On February 27 Relational issued a shareholder presentation titled Why a Separation of Timken s Bearings and Steel Business Can Unlock Significant Shareholder Value A copy of Relational s presentation is available here: On April 15 TKR sent a letter to shareholders recommending a vote against a spin-off of the steel business. On April 15 Relational/CalSTRS issued a press release detailing the flawed and misleading nature of TKR s arguments. On April 25 Relational issued a press release announcing that ISS and Glass Lewis recommends that shareholders vote for CalSTRS proposal to separate the Steel and Bearings businesses into two separately traded entities. On June 10 TKR established a board strategy committee to evaluate the separation of the steel business and retained Goldman Sachs to assist with the evaluation, corporate governance and capital allocation. Page 11 of 14

12 CONTACT INFORMATION: Hedge Fund Solutions, LLC Damien J. Park Tel FREE Subscription to the weekly report: or The Catalyst Equity Research Report is a general circulation weekly. Hedge Fund Solutions and/or its affiliates (the Firm ) may have a consulting relationship with the companies featured in this report (the Companies ). The Firm may also actively trade in the securities of the Companies for its own account. At any time, the Firm, funds it manages and/or its employees or their family members may have a long or short position in registered or non-registered securities or in options on any such security of any company mentioned in this report. The information contained in this report is not a complete analysis of every material fact with respect to the company, industry, or security and is not an offer or solicitation to buy or sell any security. Although opinions and estimates expressed in this report reflect the current judgment of the Firm, the information upon which such opinions and estimates are based is not necessarily updated on a regular basis. In addition, opinions are subject to change without notice. The Firm from time to time may perform consulting services for companies mentioned in this report and may occasionally possess material, nonpublic information regarding such companies. This information is not used in the preparation of this report. Facts and other information contained in this report have been obtained from the public sources considered reliable but are not guaranteed in any way. Hedge Fund Solutions Portfolio of Activist Investing Products Catalyst Investment Research Daily: Alerts Weekly: Catalyst Equity Research Report Quarterly Buying Analysis Top 50 Activist Investors Specific Activist Target Catalyst Investment Research Special Reports Shareholder Activism Report & Resource Portal Download a Brochure Page 12 of 14

13 PLATINUM SPONSORS Broker-Dealer APB Financial Group is a Special Situations Brokerage Firm tailored to investors seeking fundamental value and catalyst-driven activist investments. Contact: Steven Abernathy, Principal sabernathy@abbygroup.com Tel: PLATINUM SPONSORS Legal Advisers Olshan Frome Wolosky LLP is a law firm dedicated to providing personal service tailored to the specific requirements and concerns of the firm s clients. Olshan is widely recognized as a preeminent law firm in the activist strategy area, and represents experienced activist investors, funds new to the activist area, as well as other investment and hedge funds. Olshan has extensive experience advising clients in a wide range of activist strategies, from private negotiations with management to public, high profile proxy contests, including expertly and efficiently handling litigation relating to activist matters. We also specialize in mergers and acquisitions and hostile takeovers, with extensive expertise in these matters. Olshan s highly regarded attorneys provide a full range of legal services and are uniquely positioned to provide expert advice regarding the complicated and nuanced legal issues facing activist investors today. Contact: Steve Wolosky, Partner swolosky@olshanlaw.com Tel: Schulte Roth and Zabel LLP, one of the leading law firms in the activist investing area, has been involved in some of the highest-profile campaigns facing the business world in recent years. Serving both activist-only and occasional activists, the firm advises on federal securities law, state corporate law, Hart-Scott-Rodino, proxy rules and related matters, as well as handling investigations and litigations arising out of clients' activist activity. The firm, with over 375 lawyers in offices in New York, Washington, D.C., and London, has a long history of serving private equity and hedge fund clients. Contact: Marc Weingarten, Partner marc.weingarten@srz.com Tel: David Rosewater, Partner david.rosewater@srz.com Tel: Page 13 of 14

14 PLATINUM SPONSORS Proxy Advisors Alliance Advisors LLC is a multi-faceted shareholder communications firm specializing in proxy solicitation, corporate governance consulting, and information agent services. Our in-depth view of the investor communities and governance environment allows us to prepare for successful outcomes. Alliance Advisors fight team has built a distinguished reputation by successfully completing countless contested assignments. The team will complete a comprehensive analysis of the shareholder base and build a calculated battle plan accordingly. We will assist in the crafting and delivery of your message to the target audience, ensuring the message is heard and understood. Alliance Advisors consistently delivers successful outcomes to our clients. Contact: Peter Casey, Executive Vice President pcasey@allianceadvisorsllc.com Tel: Innisfree M&A Incorporated is a full service proxy solicitation/investor relations firm providing clients with sound tactical and strategic advice and results-oriented implementation in proxy and consent solicitations (whether friendly or contested), tender and exchange offers, mergers, rights offerings, strategic restructurings and other domestic and cross-border transactions requiring action by public security-holders. We provide expert consulting services on a wide range of matters, including executive compensation proposals, corporate governance issues and investor relations. Innisfree s reputation derives from our success in complex and/or contested situations. Key to that success is our ability to track, identify and understand the shifting dynamics of a company s security-holder base and provide battle-tested advice based on that information. We are convinced, and our unrivaled record demonstrates, that this refined, analytical based approach enables us to deliver the extraordinary results our clients expect. Contact: Arthur Crozier, Co-Chairman acrozier@innisfreema.com Tel: MacKenzie Partners, Inc. is a full-service proxy solicitation, investor relations and corporate governance consulting firm specializing in mergers-and-acquisitions related transactions. The firm has offices in New York City, Los Angeles, Palo Alto and London. MacKenzie's services include corporate governance consulting, security holder solicitations, information agent services for tender and exchange offers, beneficial ownership identification, market surveillance and associated financial, investor and media relations services. We work in close partnership with our client's attorneys, investment bankers and other consultants, providing advice and counsel at each stage of the transaction. Contact: Mark Harnett, President mharnett@mackenziepartners.com Tel: Page 14 of 14