BOUSSARD & GAVAUDAN HOLDING LIMITED

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1 BOUSSARD & GAVAUDAN HOLDING LIMITED a closed ended investment company incorporated with limited liability under the laws of Guernsey with registration number DECEMBER 2010 STATEMENT Total value of the investments of BGHL based on the final NAV for the Euro & Sterling ordinary shares * 683 million as of 31 December 2010 NAV per share Euro ordinary share Sterling ordinary share BGHL s portfolio The proceeds of the initial and secondary public offerings have been invested into the Sark Fund (net of a certain amount retained by BGHL for working capital requirements and other requirements). Since 1 November 2010, BGHL is invested into the Boussard & Gavaudan Fund ("BG Fund") in lieu of the Sark Fund. In addition to having substantially 100% of its assets under management invested into the BG Fund, BGHL has two investments in private equity companies. Euro Shares Sterling Shares Shares issued 49,417,687 1,932,543 Shares held in treasury 2,005,832 Shares outstanding 47,411,855 1,932,543 A. BG FUND PLC Note that trade examples detailed in each strategy below are among the best and worst performances of the month. COMMENTARY AND HIGHLIGHTS The Eurostoxx 50 index ended the month of December at +5.4%, bringing its year to date performance to 5.8%. Volatilities on stock markets decreased: the VDAX index moved to 19.1% from 22.6% and the VSTOXX index to 23.9% from 31.1%. Credit spreads tightened with the itraxx crossover index at 438bps ( 84bps). Volatility strategies * The total value of the investments of BGHL is based on the final NAV for the euro and sterling shares and the currency exchange rate for the Sterling vs. Euro. This paragraph was updated in June

2 Convertible bond arbitrage Convertible bonds (excl. mandatories) contributed positively to the performance of the Fund in December. Our gains came primarily from our trades in our balanced convertibles, which continued to benefit from the strong support of long only funds, the tightening in corporate credit across the board this month, a benign market environment towards the end of the year, as well as from our high delta / low premium names. One noticeable event in the European convertibles market this month was the (bullish) purchase by ArcelorMittal of call options to hedge the dilution of its two outstanding convertible bonds: in two separate transactions, they purchased 61.7 million call options at a strike of corresponding to the number of shares (and the strike) at which the 1,250m 7.25% 2014 convertible bond could be converted into, and 26.5 million call options at a strike of US$ to cover the potential conversion of its US$ 800m 5.0% 2014 convertible bond. They sold treasury shares against the calls, although for a lower amount than the theoretical delta. Both convertibles richened as a result upon investor buying interest in anticipation of the hedging of those derivatives transactions in the market. Convertibles performed reasonably well in Europe this year on an arbitrage basis, as outright buying interest pushed valuations higher, especially for investment grade issuers or non rated issuers perceived as such. The calendar provided actually limited gains on an arbitrage basis as issuers took advantage of the thirst for new deals from long only funds. This resulted in many new issues being priced at the expensive end of terms and underperforming in the aftermarket (on an arbitrage basis). Yet some convertibles, such as the recently issued Technip 0.5% 2016, richened significantly post issue even though they were already priced aggressively as long only funds chased this rare French BBB+ rated issue. Whilst a key theme amongst market participants was M&A activity which was expected to result in additional performance thanks to the convertibles' change of control protections (the 'ratchets'), only one transaction in Europe actually triggered such ratchet with the acquisition of Dana Petroleum by Korea National Oil Corp. Othertransactions disappointed as the ratchets were not triggered (e.g. Subsea, International Power). Despite interest rates at record low levels, the European convertibles market actually achieved positive net supply in Primary issuance was relatively modest with approx. 15bn (through around 40 new issues priced in Europe this year) compared to redemptions of around 13bn. For comparison, new issuance amounted to around 23bn in Europe in 2009, up from around 11bn in December new issuance amounted to 1.7bn with 4 new deals: French nursing home operator Orpea issued 180m in 6 year convertibles (3.875% coupon, 27.5% conversion premium); Finnish mining company Talvivaara returned to the CB market with a 200m 5 year issue priced with 6.5% coupon and 30% premium; there was also a repeat issue from Kloeckner, which raised 186m with a 7 year convertible paying 2.5% coupon and a 35% premium; and last but not least, we were involved in the new issue and pricing of a rare deal from Lukoil which issued US$ 1.5bn in 5 year convertibles (2.625% coupon, 30% premium). This last deal in particular attracted very strong demand and traded up significantly in the aftermarket. In 2011 the European convertibles market is expected to have fairly limited redemptions of approx 10bn which , approx. 10bn, should ensure some growth in the size of the European market, even assuming limited (as per past standards) primary issuance. As was already seen in 2

3 2010, we also expect the gradual shift in the profile of European CB issuers towards non investment grade companies to continue. This is in part driven by the dramatic trend in disintermediation (shift from loans to bonds financing), which may boost issuance volumes in the coming years, with many non investment grade corporates seeking to refinance relatively cheap (for covenanted) funds with low coupon bonds (compared to straight debt, to which many do not have access anyway). In 2011 we also expect very interesting developments in the Contingent Conversion feature which was first introduced by Lloyds at the end of 2009 (the so called 'Cocos'). There are currently numerous markets talks and workshops on the Coco structure, which is also the subject of lively debate and discussion with banking regulators. We do not expect such Cocos to be issued in size before the second half of 2011, as we believe most potential issuers will want to wait for the release of final guidelines and regulations by the Basel Committee on Banking Supervision, as well as for regulations to be enacted by local bodies. Credit Suisse has already announced its intention to issue up to USD 30bn in such Cocos to replace hybrid capital after Switzerland's 'Commission of Expert' recommended that UBS and Credit Suisse needs to have a total capital ratio of 19% which needs to include 10% common equity and could include up to 9% Cocos. Along with other European banks, they may as a result create a market much larger in size than the European (classic) convertibles market. Mandatory convertible bond arbitrage After the gain in November, mandatory convertibles posted a further positive return for the Fund in December. UBS BBVA continued to perform well, despite the rise in BBVA's underlying and options implied volatilities, as we saw buyers of the paper after the Spanish bank closed its 5.0bn rights issue last month. There was no new mandatory convertible bond issue in Europe this month. Gamma trading Gamma trading posted negative return this month. December was a short month as in spite of the quarterly expiry, interest was low and volumes putting rolls aside were pretty thin. Leading market topics were as usual driven by China (luxury, cars, capital goods, commodities) and German names perceived as a safe haven on back of the European sovereign debt weakness. Both realized and implied volatilities drifted lower during the month, with very few prints and low activity due to the holiday season. Anticipating this typical trend, which occurred earlier than usual this year, we kept our long gamma bias to a minimal. Equity Strategies Equities strategies returned positively in December. After last month s stress on peripheral European sovereign risk, the market rallied in December following the resolution of the Irish debt crisis. This rally was driven by the continuation of the trends witnessed earlier in the year: luxury companies, German auto and more generally cyclicals focusing on emerging markets did very well whilst utilities performed poorly. In this context, we continued to ride along these trends in December whilst special situations were much lighter than previous months. Activity abated starting mid month with a lot of market 3

4 participants being away for year end and the market suffering from a small sell off in the last 2 days of December due to window dressing. During this month, we kept limited risk in the equity book. With the trends mostly driven by the macro and sector views, we found it occasionally difficult to have appropriate hedges for our positions with comparables in each sector and therefore decided to use more options to take directional bets. We expect the stress on the sovereign risk to continue into the beginning of However, in a context of low interest rates and tight credit spreads, we also anticipate a renewed interest in the equity markets, especially the European market, which has been massively neglected in the recent inflows received by emerging and American equity markets. Until the macro environment stabilizes somewhat, we will continue to use options in order have more flexibility on the one hand and to protect the book when needed on the other. Credit strategies Credit strategies returned positively in December. Our capital structure book was the sole contributor to this performance. Our long/short strategies ended the month flat, as we monetized some core long positions, but kept several shorts, as we think the beginning of 2011 could not be as rosy as the majority of market participants expect it to be. The credit market hence underperformed the market in the last weeks of the year, as the itraxx Crossover index tightened as much as 84bps in December (cash indices returned 2%~). Debt/equity trades behaved well, as we benefited from a flattening of the long term volatility skews we had sold in September/December in several investment grade companies, whereas their CDS remained more or less flat. We monetized this phenomenon, and booked some profit by selling back CDS vs. unwinding equity options strategies (e.g. on Carrefour). We monetized two of our core long credit positions through CDS: BP and KDG (we have kept our exposure to KDG PIKs). Having widened to 585bps in the spring on the back of the Macondo Oil spill, BP s 5 year CDS tightened to 85bps in December, a level at which we do not see much more upside for us. As for KDG, they announced the full reimbursement of their 2014 senior unsecured bonds (in EUR and in USD), thus leaving no deliverable outstanding for the Reference Entity Kabel Deutschland GmbH, at this stage. This operation was in part financed by the underwriting of a new Tranche D of Senior Secured Debt (which came at a spread of Euribor +400bps; and which is issued from the same entity as the existing senior debt; KDVS), and in part financed by seasonal working capital inflow. Thanks to amendments granted by senior lenders, KDG benefits by incurring senior secured debt of up to 3.5x. We expect the company to opportunistically refinance in a timely manner its junior PIK debt, and have kept our exposure to this instrument. As far as KDG CDS was concerned, we felt it had benefited in full from supportive technical factors, and was now facing two distinct issues: (i) KDG has now the ability to merge its bank borrower (KDVS) into its HY issuer (Kabel Deutschland GmbH). This could mean that only secured debt would become deliverable in the CDS. Under such a scenario, we believe that KDG CDS, which would then reflect senior secured 4

5 debt with a net leverage of 3.5x maximum, could settle at best in the low 300bps (which would mean tighter than Telenet 2020 Senior Secured Bonds trading at Z+350bps~, with a senior secured leverage incurrence test of 4.5x). (ii) There is an equal risk that the CDS could become orphaned (à la Ray Acquisitions with regards to Rexel SA), as the company has not yet decided on a possible merger between KDVS and Kabel Deutschland GmbH. They indicated that all options are open in terms of capital structure rationalization (not to mention that tax optimization issues are clearly in play). Either way, we believed that KDG 5y CDS, around 260bps, reflected a good level to monetize our position, vs. our probability weighted outcome of (i) or (ii). Trading Trading contributed positively this month. B. PRIVATE EQUITY INVESTMENTS On top of its investment in the Sark Fund, BGHL may enter into private equity investments. BGHL has two investments in the portfolio. Rasaland BGHL entered into Rasaland in June 2008 for $10 million. Rasaland is a Maltese company structured as a private equity fund in terms of fees and organisation and dedicated to invest in land, land development and high end resort developments in Mexico. The EUR/USD exposure is hedged by an FX forward which is rolled on a 3 month basis. DSO Interactive On 9 December 2009 and 19 February 2010, BGHL acquired a minority stake in DSO Interactive for a total consideration of 1.7 million (6.18% of the share capital and 5.33% on a fully diluted basis). DSO Interactive is a private company incorporated in France and Head quartered in Paris, where it employs over 122 people. DSO Interactive provides bad debt collection services to consumer creditors such as telecom operators, banks and specialised credit institutions. At the end of December 2010, both investments, which represent slightly more than 1% of the net asset value of BGHL, were marked at cost. C. BOUSSARD & GAVAUDAN ASSET MANAGEMENT UPDATE As of 1 January 2011, BG Fund assets under management were approximately 1.3bn. Staff organisation We are sorry to announce that Sébastien Demole and Christoph Seeger have left BG. We thank Sébastien and Christoph for their contribution and wish them luck for the future. On behalf of all BG, we would like to wish you a happy and successful new year. 5

6 Transaction in the Company s securities Please note that transactions in the Company's securities that have been performed by officers, directors and persons referred to in the section 5:60 of the Financial Supervision Act ("Wft") are reported: - directly on the AFM website: (public database > notification > insidertransactions 5:60 wft); - on the Company s website through a link to the AFM notification: (Investment Manager > Regulatory information). Transactions in the Company s own securities are also reported on: - the AFM website: (public database > notification > price sensitive press releases); - the Company s website: (Investor Relations > Financial announcements). Sincerely, E. Boussard & E. Gavaudan Contact information Investors Boussard & Gavaudan Asset Management, LP 1 Dover Street London W1S 4L Media Financial Dynamics Holborn Gate 26 Southampton Buildings London WC2A 1PB Disclaimer The Company is established as a closed ended investment company domiciled in Guernsey. The Company has received the necessary approval of the Guernsey Financial Services Commission and the States of Guernsey Policy Council. The Company is registered with the Dutch Authority for the Financial Markets as a collective investment scheme pursuant to article 2:73 in conjunction with 2:66 of the Dutch Financial Supervision Act (Wet op het financieel toezicht). The shares of the Company (the "Shares") are listed on Euronext Amsterdam. The Shares are also listed on the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange plc's main market for listed securities. This is not an offer to sell or a solicitation of any offer to buy any securities in the United States or in any other jurisdiction. This announcement is not intended to and does not constitute, or form part of, any offer or invitation to purchase any securities or the solicitation of any vote or approval 6

7 in any jurisdiction, nor shall there be any sale, issuance or transfer of the securities referred to in this announcement in any jurisdiction in contravention of applicable law. Neither the Company nor Boussard & Gavaudan Fund Plc has been, and neither will be, registered under the US Investment Company Act of 1940, as amended (the "Investment Company Act"). In addition the securities referenced in this announcement have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"). Consequently any such securities may not be offered, sold or otherwise transferred within the United States or to, or for the account or benefit of, US persons except in accordance with the Securities Act or an exemption therefrom and under circumstances which will not require the issuer of such securities to register under the Investment Company Act. No public offering of any securities will be made in the United States. You should always bear in mind that: all investment is subject to risk; results in the past are no guarantee of future results; the investment performance of BGHL may go down as well as up. You may not get back all of your original investment; and if you are in any doubt about the contents of this communication or if you consider making an investment decision, you are advised to seek expert financial advice. This communication is for information purposes only and the information contained in this communication should not be relied upon as a substitute for financial or other professional advice. VC

BOUSSARD & GAVAUDAN HOLDING LIMITED

BOUSSARD & GAVAUDAN HOLDING LIMITED a closed-ended investment company incorporated with limited liability under the laws of Guernsey with registration number 45582 AUGUST 2010 STATEMENT Total value of