Professional Documents
Culture Documents
www.divasynergy.com Bernheim, Dreyfus & Co. SAS 151 boulevard Haussmann 75008 Paris France Tel: +33 (0)1 72 25 66 22
Disclaimer
The information set forth herein has been obtained or derived from sources believed by Bernheim, Dreyfus & Co to be reliable. However, Bernheim, Dreyfus & Co does not make any representation or warranty, express or implied, as to the informations accuracy or completeness, nor can it accept any responsibility for errors appearing in this presentation. No liability whatsoever is accepted by Bernheim, Dreyfus & Co, its officers, employees or agents for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. The information contained in this presentation shall not be considered as legal, tax or other advise nor does Bernheim, Dreyfus & Co recommend that the attached serve as the basis of any investment decision. This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer, or any advice or recommendation, to purchase any securities or other financial instruments, and may not be construed as such. Any recipients of this presentation who intend to apply to shares are reminded that any such application may be made solely on the basis of the information contained in the offering memorandum (OM) of the relevant fund, which may be different from the information contained in this presentation. This document is being circulated by Bernheim, Dreyfus & Co on a confidential basis and is intended exclusively for the use of the person to whom it has been delivered by Bernheim, Dreyfus & Co and it is not to be copied, reproduced or redistributed, under any circumstances, to any other person in whole or in part. This document is subject to further review and revision. This document is for information purposes only and the provisions of the OM of the Funds are the only binding documents In the event of any inconsistency, between the descriptions or terms in this presentation and the OM the provisions of the OM shall prevail. All information in this presentation is subject to change without notice. The copyrights of this Presentation belongs to Bernheim, Dreyfus & Co.
Organization Chart
DIVA SYNERGY
Investment Committee
Lionel MELKA Amit SHABI Sebastien DETTMAR
Buy backs M&As and LBOs Didivend hikes Operational and financial gearing Cap. Ex. cuts Corporate restructurings Rights issues Asset sales / Spin-offs Operational and financial gearing Minority squeez-outs Panic Selling IPOs Distressed debt LBOs M&A
IPOs
The climate for IPOs, M&A and LBOs gets even stronger throughout 2011
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Feb-11
Aug-11
Feb-12
DRIVERS / CATALYSTS
CONSTRAINTS
CONSEQUENCES
Due to lower equity market ratings and the constraints on credit greater proportion of stock to be used for M&A rather than cash in 2010 Need for a crystal clear strategic rationale More hostile bids Buyers with strong balance sheets likely to take advantage to snap up rivals at bargain prices Corporate activity will be focused on cost-cutting rather than the bull-market justification of buying growth Bad M&A is over: less leverage, fewer LBOs Creativity in sourcing cash and managing volatility in stock deals will be key differentiating factors
Strategy Guidelines
DIVA SYNERGY FUND
PRE-EVENT
Identification of targets Quantitative screening Fundamental experience Hedged through short positions in index futures to get a zero adjusted beta
MERGER ARBITRAGE
Announced deals Focus on high quality deals Hedged through short positions in the acquirer in stock-for-stock deals
Portfolio of 35/50 liquid equities Europe and North America Market Neutral
The aim is to identify market movements in price worthy companies with a strong business model.
Target Universe
Hot Sectors
100 potential targets within the Pharmaceutical, Energy and Technology industries which are hot sectors with great M&A characteristics
Identifying Buyers
Portfolio
Identification of interested buyers with cash and a need for external growth
Positions
Hedging
Liquidity
80% invested in companies with market cap. of at least $500 million 80% should not exceed 20% of its average trading volume
Risk Controls
Stop-losses at 10% downside of the traded pair; long equity short index
10
11
Big Pharma facing patent expiration and looking to plug their pipeline holes
12
Key Figures
Valuation
Potential Acquirers
Catalysts / Upside
13
Key Figures
Valuation
Potential Acquirers
Catalysts / Upside
14
Key Figures
Valuation
Potential Acquirers
Catalysts / Upside
15
Sure Thing
Transactions where the market has reached a consensus for the value and the risk Very low risk
High Quality
Good transactions with clear synergies but with contrarian views by market players of value and risk
Chinese Deals
High risk transactions with regulatory uncertainties and/or questionable synergies
16
Trading Policy
Positions
Hedging
Hedging is used in stock transactions by short selling the amount of the acquirers shares we will receive when deal close
Liquidity
80% invested in companies with market cap. of at least $500 million 80% of the portfolio positions should not exceed 20% of its average trading volume
17
Ten complex trades and 20 rate-of-return trades - if probabilities are mispriced Keep track of portfolio events Frequent use of trading limits Continuous review the investment thesis
18
Rationals
Risks
Performance / Timetable
19
Rationals
Risks
Performance / Timetable
20
Rationals
Risks
Performance / Timetable
21
Our Edge
Understanding Complex Transactions
Corriente Resources Apache/Mariner Hospira/Javelin Oracle/Sun Microsystems Intel/McAfee Tom Tom/Tele Atlas Nokia/Navteq Kraft/Cadbury Sanofi/Genzyme
22
Portfolio Allocation
The structure of the portfolio and the allocation between the two strategies Pre-Event Driven and Merger Arbitrage depends mainly on the level of volatility in the market. Higher market volatility results in higher risks which gives larger spreads and therefore makes the Merger Arbitrage strategy more profitable than the Event Driven. As visualized below there is a clear correlation between the structure of our portfolio and the market volatility. In the end of 2008 when volatility in terms of the VIX index was above 40 more than 90% of our portfolio was invested in the Merger Arbitrage strategy.
Pre-Event Driven Portfolio 100% 90% Structure of Portfolio 80% 70% 60% 50% 40% 30% 20% 10% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 0 23 20 10 30 50 40 Market Volatility Merger Arbitrage Portfolio VIX 60
Risk Management
Regulatory Framework
Authorized and regulated by the AMF (Autorit des marchs financiers) Outsourced compliance review by 2AM
Position Sizing
Sizing is determined by liquidity, the ability to hedge undesired risks and the downside risk High conviction trades are typically 3%-5% of NAV Most other positions are around 1%-2% We aim to avoid crowded trades with no hard event The team has real time access to exposures by sub-strategy, geography, currency and other exogenous or macro factors often difficult to predict Crowded, illiquid or high-risk trades, when available, are segregated and very closely monitored, and they tend to have very tight market and single stock related stop loss
Stress-Testing
Risk manager frequently runs stress scenarios on the portfolio and its sub-books and also ensures that our strict guidelines are respected Monthly Risk Committee meetings address potential risk areas and raise early warning signals
Frequent Reporting
24
Front Tool
Real time position keeping and exposure updates Real time profit and loss calculation Cross asset class risk consolidation What-if analysis Scenario analysis
25
Appendix
I
Fund Performance
II
Summary of Terms
III
IV
Contact Information
1,255.97 1,115.09
935.48
Diva Synergy
$ Class 2006 2007 2008 2009 2010 2011 Class 2007 2008 2009 2010 2011 Jan 2.43% (1.62%) (3.76%) 1.29% (0.19%) Feb (1.80%) 1.64% (0.40%) 0.12% 0.12% Mar 2.47% (3.75%) 3.16% 0.27% (0.15%) Apr 1.85% 1.38% 3.04% 0.53% 1.29% Jan 2.60% (1.51%) (3.87%) 1.28% (0.25%) Feb (1.68%) 1.77% (0.48%) 0.11% 0.07% Mar 2.79% (3.88%) 3.10% 0.26% (0.21%) Apr 0.91% 1.25% 3.00% 0.52% 1.20%
EURIBOR 3 Months
May 0.47% 2.15% 1.46% (0.86%) Jun (1.07%) (0.63%) (0.41%) 2.04% Jul 2.80% (2.24%) 1.01% 1.38%
1,370.76
1,055.15
924.11
EURIBOR 3 Months
Fund Terms
Fund Style Investment universe Management Fee Performance Fee Base Curreny Liquidity Redemption Notice Minimum Subscription NAV Valuation Domicilie Fund Administration Prime Broker Auditor Minimum Managed Account UCITS3 Daily Event Driven Europe and North America 2% per annum 20% subject to high water mark USD for class B and C, Euro for class A and D Monthly with 30 days notice Each month, until 10 business days before the end of the month. $100.000 / 100.000 Monthly (calculated by the Fund Administrator) British Virgin Islands International Fund Administration (IFA) Newedge Baker Tilly $10,000,000 Will be launched in May 2011
29
Contact Information
Contact Person Address Telephone Fax Email
Amit Shabi Investment Manager
Bernheim, Dreyfus & Co. SAS 151 boulevard Haussmann, 75008 Paris
+33-1-72-25-66-22
+33-1-76-73-28-10
diva@b-dreyfus.com EURO CLASS A / VGG2890W1196 USD CLASS B / VGG2890W1014 USD CLASS C (3x leveraged) / VGG 2890W1279 EURO CLASS D (3x leveraged) / VGG2890W1352
ISIN
Bloomberg
www.b-dreyfus.com Bernheim, Dreyfus & Co. SAS 45 rue de Courcelles 75008 Paris France Tel: +33 (0)1 72 25 66 22
Disclaimer
The information set forth herein has been obtained or derived from sources believed by Bernheim, Dreyfus & Co to be reliable. However, Bernheim, Dreyfus & Co does not make any representation or warranty, express or implied, as to the informations accuracy or completeness, nor can it accept any responsibility for errors appearing in this presentation. No liability whatsoever is accepted by Bernheim, Dreyfus & Co, its officers, employees or agents for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. The information contained in this presentation shall not be considered as legal, tax or other advise nor does Bernheim, Dreyfus & Co recommend that the attached serve as the basis of any investment decision. This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer, or any advice or recommendation, to purchase any securities or other financial instruments, and may not be construed as such. Any recipients of this presentation who intend to apply to shares are reminded that any such application may be made solely on the basis of the information contained in the offering memorandum (OM) of the relevant fund, which may be different from the information contained in this presentation. This document is being circulated by Bernheim, Dreyfus & Co on a confidential basis and is intended exclusively for the use of the person to whom it has been delivered by Bernheim, Dreyfus & Co and it is not to be copied, reproduced or redistributed, under any circumstances, to any other person in whole or in part. This document is subject to further review and revision. This document is for information purposes only and the provisions of the OM of the Funds are the only binding documents. In the event of any inconsistency, between the descriptions or terms in this presentation and the OM the provisions of the OM shall prevail. All information in this presentation is subject to change without notice. The copyrights of this Presentation belongs to Bernheim, Dreyfus & Co. Warning: Past performances are not a guarantee of future performances. The value of the units may decrease as well as increase. Any investment may generate losses or gains.
Table of Contents
Appendices
M&A Market in 2011 Merger Arbitrage Portfolio Case Studies Pre-Event Driven Portfolio Case Studies Fund Terms and Conditions Portfolio Managers Contact 10 11 12 13 14 15
Strategy
Portfolio Composition
Bernheim, Dreyfus & Co.s capital being wholly owned by its founders ensures independence.
Preference: Strategic deals with clear synergies, low financing and regulatory risks, where both target and acquirer have strong business models and with contrarian views by market players of value and risk
PORTFOLIO CONSTRUCTION
Trading Policy: Usually we increase positions when spreads widen assuming our analysis has not changed Hedging: Hedging is used in stock transactions by short selling the amount of the acquirers shares we will receive when deal close
Liquidity: Over 80% of the portfolio is invested in companies with a market capitalization of at least $500 million.
Tests: Reward/risk ratio Focus on high reward/risk ratio deals. Overlapping deal closure dates to optimize the portfolios events calendar Monitoring : Keep track of portfolio events Frequent use of trading limits Continuous review the investment thesis 2
Comments
Investment criteria: Companies listed in Western Europe and North America, usually with a $1 to $10 billions market capitalization The selection criteria are both fundamental (consolidation within an industry, strategic or regulatory pressure, similar to a target of recent mergers and acquisitions ...) and technical (abnormal returns, unusual volume / volatility) Currently we anticipate strong M&A in the pharmaceutical, energy and technology industries among others, Identification of potential buyers is based on criteria such as: Level of cash on balance sheet, need for external strategic growth, etc. Companies that could generate synergies and cost savings and/or unlock other value
Hot Sectors
100 potential targets within the sectors identified for a potentially high degree of M&A activity
Identifying Buyers
Identification of interested buyers with cash and a need for external growth
Portfolio
Hedged against market risk Mainly companies whose market capitalization is between 1 and 10 billion euros
Trading Policy: the size of the position normally starts small and is built up when the stock price increases, which we consider as an indication that the market aligns with our scenario. Hedging: the positions are covered by short selling index futures to obtain a zero beta adjustment (ie, "market neutral"). Liquidity: over 80% of the portfolio is invested in companies with a market capitalization of at least $500 million. Risk Controls: stop-losses at 10% downside of the traded pair (long equity short index)
Big Pharma facing patent expiration and looking to plug their pipeline holes
Investment Strategy
The investment strategy revolves around two pillars: Announced Merger Arbitrage (announced deals) and Pre-Event Merger Arbitrage (anticipated deals)
Portfolio Structure
1. Announced Merger Arbitrage
Announced M&A Deals
Portfolio Allocation
2. Pre-Event Merger Arbitrage
Identify potential M&A targets
To achieve the target return and volatility, the allocation between the two strategies is adjusted depending on the economic cycle and market conditions 40 to 50 stocks listed in Western Europe and North America Market fluctuations systematically covered (Market-Neutral)
The structure of the portfolio and the allocation between the two strategies Pre-Event Merger Arbitrage and Announced Merger Arbitrage depends mainly on the level of volatility in the market. Higher market volatility results in higher risks which gives larger spreads and therefore makes the Announced Merger Arbitrage strategy more profitable than the Pre-Event Merger Arbitrage . As illustrated below there is a clear correlation between the structure of our portfolio and the market volatility. At the end of 2008 when volatility in terms of the VIX (1) index was above 40 more than 90% of the portfolio (managed by the same team, applying the same strategy) was invested in the Merger Arbitrage strategy.
Historical Portfolio Allocation - (managed by the same team, applying the same strategy)
Market Volatility Pre-Event Driven Portfolio 100% 80% 60% 40% 20% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011
(1) An indicator of U.S. financial markets volatility. The index is calculated by averaging the volatilities on put and call options on the S&P500.
VIX 60 40 20 0
Structure of Portfolio
Risk Management
A Robust Risk Management System
Regulatory environment The Fund is under French law and complies with the European UCITS III regulations The Fund is eligible for life insurance
Position Sizing
Sizing is determined by liquidity, the downside risk and the ability to hedge undesired risks We aim to avoid crowded trades We systematically cover all risks (currency, interest rate, ...) other than those inherent to the strategy (mainly the nonoccurrence of an anticipated event)
The team has real time access to exposures by sub-strategy, geography, currency and other exogenous or macro factors often difficult to predict Crowded, illiquid or high-risk trades (when any), are segregated and very closely monitored Strict stop-loss policy
Stress-Tests
Risk manager frequently runs stress scenarios on the portfolio and its sub-books and also ensures that our strict guidelines are respected Monthly Risk Committee meetings address potential risk areas and raise early warning signals
Frequent Reporting
Risk Management
FRONT TOOL
Bloomberg: - Yield curves - Market prices - Currency rates - Data and other statistics Fimatrix: - Value at risk - Stress testing
Real time position tracking and exposure updates Real time profit and loss calculation Cross asset class risk consolidation What-if analysis Scenario analysis
Fimatrix
In house reports
Competitive Advantage
Unique Portfolio Construction Experienced Management Team A Focus on Discipline Tactical Flexibility
Dynamic optimization of the portfolio allocation between the two strategies (Merger Arbitrage and Pre-Event Driven) to achieve the target return and volatility regardless of the business cycle and market conditions
Complementary profiles in mergers and acquisitions, trading and asset management A thorough knowledge of several industries An extensive network of contacts established over the years A rigorous investment process Strict buying and selling policies Ongoing monitoring of performance indicators and portfolio risk The team's expertise in fundamental analysis, trading and investment behavior, allows it to make a quick reading of the market and adjust the portfolio accordingly A good understanding of complex transactions Corriente/Resources; Apache/Mariner; Hospira/Javelin An indepth understanding of the EU Antitrust process Oracle/Sun Microsystems; Intel/McAfee; Tom Tom/Tele Atlas; Nokia/Navteq A good understanding of the dynamics of hostile transactions Kraft/Cadbury; Sanofi/Genzyme A solid track-record of identifying potential M&A targets Solvay/Rhodia; International Power/GDF Suez; Rio Tinto/Alcan Nimble Approach to Risk BHP Billiton/Potash; BASF/CIBA
Proven experience
Appendices
DRIVERS / CATALYSTS
Savage cost cutting, capital raising and debt refinancing , strong balance sheets to be opportunistic if a deal is presented Attractive price of assets Buying growth through acquisition may be more attractive than organic growth - given concerns about the pace of recovery of Europe and the United States Growing pressure on firms to focus on core activities and spin off the rest Low interest rates Access to credit Market volatility Antitrust Due to lower equity market ratings and the constraints on credit greater proportion of stock to be used for M&A rather than cash Need for a crystal clear strategic rationale More hostile bids Buyers with strong balance sheets likely to take advantage to snap up rivals at bargain prices Corporate activity will be focused on cost-cutting rather than the bull-market justification of buying growth Creativity in structuring transactions and managing volatility in stock deals will be key differentiating factors 10
CONSTRAINTS
CONSEQUENCES
Rationals Strengthening the market for medical applications Should benefit from Obama s reform of the health system Single asset in deep drilling Geographical complementarities
Funding: No risk (Oracle has $13 billion in cash) Antitrust: The deal is passed May 27 in second request to the United States. The risk focuses on the timing of review (the market is quite fragmented and dominated by Medidata) Shareholder vote (June 22): low risk (friendly deal with a 30% premium) Late of August 2010 Discount to offer price: 2.5% Return: 10% annualised
Funding: $ 800 million (Apache has 2 billion on its BS) Antitrust: HSR received May 3 Shareholder vote Mariner: very low risk given the premium (45%) and recent events MAC clause: very restrictive definition, excludes any particular event or change in legislation affecting the industry Late of August 2010 Discount to offer price: 6% Annualized return: 25%
11
Activity
Key Figures
Valuation
Potential Acquirers
GDF Suez: Discussions late 2010 that were stalled after: (1) price (2) operational structure Strong geographical completion to other players, IPR is present in UK and Middle East E.ON, Enel or Gas Natural
The company represents a prime target in a deregulated country without protectionist barriers Complex decision process in France given the ownership of GDF (State, Albert Frre, ...) Very low valuation (plant replacement cost estimated to 380p) Return on Investment: 25%
France Telecom: the new management (Stphane Richard) is conducting a strategic review of investments The group suffered setbacks after M&A: Teliasonera, Egypt, Switzerland, ... Mobistar is a simple operation, readable, accretive and synergistic.
Nestle (just to collect $ 28 billion from the sale of Alcon) Danone (turned down talks in 2009 - ideal for Numico) Unilever (diversification into higher-growth segment such as personal care) Heinz
The stock has doubled since the IPO (results, growth) Unquestionably the finest assets in the industry with consumer exposure / fertility in developing countries Significant potential synergies for the purchaser (distribution networks, R & D, ...) Target price: $ 85/share (upside: 30%)
Catalysts
Mature market for 3 operators Only mobile operator Limited capex costs High Yield pending buyout of minority
Upside
12
Classification ISIN Code Inception Date Type Investment universe Minimum Subscription Subscription Fee Redemption Fee Management Fee Performance Fee
UCITS III compliant fund Class A (EUR) : FR0011042514; Class E (EUR) : FR0011042472 Class B (USD) : FR0011042316; Class M (USD) : FR0011042498 1/06/2011 Event Driven Europe and North America Classes A (EUR) , B (USD) : 100 k / 100 k$ Classes E (EUR) , M (USD) : 100 / 100$ 2% maximum 0% Classes A (EUR), B (USD) : 2.0% Classes E (EUR), M (USD) : 2.5% 20% above capitalized (EONIA)
Liquidity
Recommended Investment Horizon Life Insurance eligibility Custodian Auditor
Daily
3 years Yes RBC Dexia Investor Services Bank France KPMG
13
Lionel started his career in 1998 with Lazard Frres, where he undertook numerous M&A advisory engagements for blue chip clients (LVMH, Saint-Gobain, Casino, France Telecom, Thomson, Air Liquide, Kingfisher) in a large scope of situations: privatizations, friendly and hostile takeover bids, LBOs, asset disposals and IPOs Then he joined the M&A Department of Calyon, where he worked on various advisory assignments in the TMT-Defence team and LCF Rothschild in 2005 where he led many M&A cross-border assignments in various industry sectors. Lionel is also a teacher at the University of Paris Dauphine, one of the leading academic institutions in Europe, in the fields of corporate finance, asset allocation and alternative investments.
Amit is an ex-commander of an analyst team in a military intelligence unit of the Israel Defense Forces. After completing 3 years of army service, Amit moved to Paris to pursue his studies and obtained a Masters degree in Finance from Sorbonne University. Amit Started his career in the strategy department of LCF Rothschild Asset Management. After this experience in traditional asset management, Amit worked in the Capital Markets divisions of MAN Group and Cantor Fitzgerald as a sales of sophisticated financial instruments for hedge funds, institutional and HNWI investors.
Sebastien started his career as research assistant in the Algebraic Geometry Laboratory of the Montpellier University of Science. He developed several models on the resolution of the singularities based on the works of Alexander Grothendieck. In 2001, Sebastien joined LCF Rothschild Asset Management as Risk Manager (15bn AuM) where he established the strategic direction, risk tolerance standards, and ethical culture for the asset management activities. After three years spent as Risk Manager of the company, Sebastien became Head of Quantitative Research.
www.b-dreyfus.com
14
Contact
Contact Amit Shabi Bernheim, Dreyfus & Co. SAS 45 rue de Courcelles 75008 Paris Tel: +33-1-72-25-66-22 Fax: +33-1-76-73-28-10 Email: diva@b-dreyfus.com
ISIN
Class A (EUR) : FR0011042514 Class E (EUR) : FR0011042472 Class B (USD) : FR0011042316 Class M (USD) : FR0011042498
Bloomberg
Class A (EUR) : DIVASYA FP Class E (EUR) : DIVASYBE FP Class B (USD) : DIVASYB FP Class M (USD) : DIVASYM FP
15
www.b-dreyfus.com Bernheim, Dreyfus & Co. SAS 45 rue de Courcelles 75008 Paris France Tel: +33 (0)1 72 25 66 22
Disclaimer
The information set forth herein has been obtained or derived from sources believed by Bernheim, Dreyfus & Co to be reliable. However, Bernheim, Dreyfus & Co does not make any representation or warranty, express or implied, as to the informations accuracy or completeness, nor can it accept any responsibility for errors appearing in this presentation. No liability whatsoever is accepted by Bernheim, Dreyfus & Co, its officers, employees or agents for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. The information contained in this presentation shall not be considered as legal, tax or other advise nor does Bernheim, Dreyfus & Co recommend that the attached serve as the basis of any investment decision. This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer, or any advice or recommendation, to purchase any securities or other financial instruments, and may not be construed as such. Any recipients of this presentation who intend to apply to shares are reminded that any such application may be made solely on the basis of the information contained in the offering memorandum (OM) of the relevant fund, which may be different from the information contained in this presentation. This document is being circulated by Bernheim, Dreyfus & Co on a confidential basis and is intended exclusively for the use of the person to whom it has been delivered by Bernheim, Dreyfus & Co and it is not to be copied, reproduced or redistributed, under any circumstances, to any other person in whole or in part. This document is subject to further review and revision. This document is for information purposes only and the provisions of the OM of the Funds are the only binding documents. In the event of any inconsistency, between the descriptions or terms in this presentation and the OM the provisions of the OM shall prevail. All information in this presentation is subject to change without notice. The copyrights of this Presentation belongs to Bernheim, Dreyfus & Co. Warning: Past performances are not a guarantee of future performances. The value of the units may decrease as well as increase. Any investment may generate losses or gains.
Strategy
Partners
Lionel Melka, Portfolio Manager Former investment banker (Lazard, Calyon, LCF Rothschild) specialized in mergers and acquisitions. Advised numerous corporates on a large scope of situations: M&A, privatizations, IPOs Amit Shabi, Portfolio Manager Previously worked in sales at LCF Rothschild and as an OTC derivatives sales at MAN Group and BGC Cantor Fitzgerald. Sebastien Dettmar, COO Former Risk Manager and Head of Quantitative Research at LCF Rothschild Asset Management. 1
Portfolio Composition
Target Return
Target Volatility
3 5 % annually
Regulator
Fundamental Research
Compliance
Legal
DIVA SYNERGY
Administrator / Custodian
Auditor
Prime Brokers
Distribution Europe
Investment Strategy
The investment strategy revolves around two pillars: Announced Merger Arbitrage (announced deals) and Pre-Event Merger Arbitrage (anticipated deals)
Portfolio Structure
1. Announced Merger Arbitrage Announced M&A Deals 2. Pre-Event Merger Arbitrage Identify potential M&A targets
Portfolio Allocation
The structure of the portfolio and the allocation between the two strategies Pre-Event Merger Arbitrage and Announced Merger Arbitrage depends mainly on the level of volatility in the market. Higher market volatility results in higher risks which gives larger spreads and therefore makes the Announced Merger Arbitrage strategy more profitable than the Pre-Event Merger Arbitrage . As illustrated below there is a clear correlation between the structure of our portfolio and the market volatility. At the end of 2008 when volatility in terms of the VIX index was above 40 more than 90% of the portfolio (managed by the same team, applying the same strategy) was invested in the Merger Arbitrage strategy.
To achieve the target return and volatility, the allocation between the two strategies is adjusted depending on the economic cycle and market conditions 40 to 50 stocks listed in Western Europe and North America Market fluctuations systematically covered (Market-Neutral)
Structure of Portfolio
50 40 30 20 10 0
Market Volatility
100%
60
Nominated for the Best new Alternative Ucits Fund & Best Nondirectional Hedge Fund over 3 years.
2 ,4 3 % (1 ,8 0%) 2 ,4 7 % (1 ,6 2 %)
(1 ,4 1 %) 2 ,6 0%
1 ,6 4 % (3 ,7 5 %) 1 ,3 8 % 3 ,04 %
The performance figures contained in the previous table and graph are those of the Diva Synergy UCITS A-Class EUR. If necessary, missing figures are based on performances of another fund (Diva Synergy) managed by Bernheim, Dreyfus & Co. with the same performance objectives and the same investment process, or a combination of the two funds. Diva Synergy UCITS fund launch date: June 1, 2011.
Preference: Strategic deals with clear synergies, low financing and regulatory risks, where both target and acquirer have strong business models and with contrarian views by market players of value and risk
PORTFOLIO CONSTRUCTION
Trading Policy: Usually we increase positions when spreads widen assuming our analysis has not changed Hedging: Hedging is used in stock transactions by short selling the amount of the acquirers shares we will receive when deal close Liquidity: Over 80% of the portfolio is invested in companies with a market capitalization of at least $500 million. Tests: Reward/risk ratio Focus on high reward/risk ratio deals. Overlapping deal closure dates to optimize the portfolios events calendar Monitoring : Keep track of portfolio events Frequent use of trading limits Continuous review the investment thesis 5
S p r e a d
S p r e a d
S p r e a d
Many opportunities to trade around and add/remove to position. Enhance 10% annualized spread into 12% annualized.
6
Spread Evolution
21/09/2011 21/11/2011 21/01/2012 21/03/2012
Deal Rationale
The logic behind the transaction was the realization of significant cost savings and synergies, greater efficiency in the supply chain and optimizing the response to the changing healthcare environment. Shareholders approval was never an issue as it would benefit both companies.
Trading Strategy
Xs on the graph represent moments where we added to our long/shot position. We initiated a very small position soon after the announcement of the transaction. We then added to our position: In August 2011: spread widening due to market volatility Late september: after reception of HSR 2nd request We regularly added to the long/short position afterwards, as market confirmed our thesis and the spread tightened. The position gained approx. 15% or above 20% annualized.
Comments
Investment criteria: Companies listed in Western Europe and North America, usually with a $1 to $10 billions market capitalization The selection criteria are both fundamental (consolidation within an industry, strategic or regulatory pressure, similar to a target of recent mergers and acquisitions ...) and technical (abnormal returns, unusual volume / volatility) Currently we anticipate strong M&A in the pharmaceutical, energy and technology industries among others, Identification of potential buyers is based on criteria such as: Level of cash on balance sheet, need for external strategic growth, etc. Companies that could generate synergies and cost savings and/or unlock other value
Hot Sectors
100 potential targets within the sectors identified for a potentially high degree of M&A activity
Identifying Buyers
Identification of interested buyers with cash and a need for external growth
Portfolio
Hedged against market risk Mainly companies whose market capitalization is between 1 and 10 billion euros
Trading Policy: the size of the position normally starts small and is built up when the stock price increases, which we consider as an indication that the market aligns with our scenario. Hedging: the positions are covered by short selling index futures to obtain a zero beta adjustment (ie, "market neutral"). Liquidity: over 80% of the portfolio is invested in companies with a market capitalization of at least $500 million. Risk Controls: stop-losses at 10% downside of the traded pair (long equity short index)
SonoSite
40
35 30 25 20 03/10/2011
position construction
SonoSite
Offer
03/11/2011
03/12/2011
03/01/2012
03/02/2012
03/03/2012
On December 15th, the Japanese FUJIFILM announced a $54 per share offer for SonoSite (at the middle of our expected range). With the subsequent arbitrage (very tight spread due to the premium and the quality of the buyer), the position generated a 30%+ return over 4 months.
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Risk Management
Position Sizing Sizing is determined by liquidity, the downside risk and the ability to hedge undesired risks We aim to avoid crowded trades We systematically cover all risks (currency, interest rate, ...) other than those inherent to the strategy (mainly the nonoccurrence of an anticipated event) The team has real time access to exposures by sub-strategy, geography, currency and other exogenous or macro factors often difficult to predict Crowded, illiquid or high-risk trades (when any), are segregated and very closely monitored Strict stop-loss policy Bloomberg, Finmatrix Robust proprietary risk management tools (real time position tracking management tools, real-time profit and loss calculation, cross asset class risk consolidation, scenario analysis, etc.)
Complete suite of proprietary tools (positions, internal limits, regulatory ratios, reconciliation, expositions, etc.):
Ratio d'engagement
Ratio d'engagement limit 100% 45,6%
Ratio d'exposition
Ratio d'exposition limit 200% 91,5%
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Competitive Advantage
Unique Portfolio Construction Experienced Management Team A Focus on Discipline Tactical Flexibility Dynamic optimization of the portfolio allocation between the two strategies (Merger Arbitrage and Pre-Event Driven) to achieve the target return and volatility regardless of the business cycle and market conditions Complementary profiles in mergers and acquisitions, trading and asset management A thorough knowledge of several industries An extensive network of contacts established over the years A rigorous investment process Strict buying and selling policies Ongoing monitoring of performance indicators and portfolio risk The team's expertise in fundamental analysis, trading and investment behavior, allows it to make a quick reading of the market and adjust the portfolio accordingly A good understanding of complex transactions Corriente/Resources; Apache/Mariner; Hospira/Javelin An in-depth understanding of the EU Antitrust process Oracle/Sun Microsystems; Intel/McAfee; Tom Tom/Tele Atlas; Nokia/Navteq A good understanding of the dynamics of hostile transactions Kraft/Cadbury; Sanofi/Genzyme A solid track-record of identifying potential M&A targets Solvay/Rhodia; International Power/GDF Suez; Rio Tinto/Alcan Nimble Approach to Risk BHP Billiton/Potash; BASF/CIBA Corporate balance sheets are flushed with cash (approx. $2.2 trillion in the U.S. and $1.1 trillion in Europe) Private Equity is sitting on massive amounts of capital ready to be deployed and levered multiple times (about $500bn) Interest rates remain low and friendly as to M&A transactions financing Public companies valuations are reasonable across the markets, the European situation is providing plenty of opportunities for interested acquirers Companies ability to grow organically remain challenged and external growth in the current environment is cheaper and faster The macroeconomic uncertainties remain the last hurdle for a pick-up in M&A activity. However, the new class of leaders in Europe and the rest of the world seem now committed to finding a quick solution. 11
Proven experience
Performance Fee
Liquidity
3 years
Yes RBC Dexia Investor Services Bank France
Auditor
Prime Brokers Contact Information
KPMG
Newedge / Bank of America Merrill Lynch Bernheim, Dreyfus & Co | 45, rue de Courcelles, 75008 Paris, France Tel: +33-1-72-25-66-22 | Email: diva@b-dreyfus.com 12