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All notes are the speakers, except words in the brackets which are mine.
Alexander Roepers is the President of Atlantic Investment Management, Inc., which he founded in 1988, a $1.5 billion global equity hedge fund firm, with offices in New York and Tokyo. Mr. Roepers holds an MBA from Harvard University.
In 1993, Roepers founded AJR International, an offshore hedge fund. In 1996, he launched a second fund, Cambrian Fund Ltd. and Cambrian Partners LP. Until 2002 (last data available), AJR has 22.2 % since per annum and the Cambrian strategy 33.2% per annum.
We are very bottom up concentrated, value and private equity oriented.
The current enviroment:
Valuations are very attractive due to the worst crash in a while.
Balance sheets are very strong, due to downturn of 2008.
Interest rates are low.
The mega deals starting in 1988 have gone down. But we do not need to get back to those very high levels to get some high M&A activity.
The VIX is pretty high right now. When it gets below a sustained level of below 25 we should see some significant M&A activity.
I like EBIT much better than EBITDA, I agree with EBITDA
ITT is a big conglomerate, we bought 3-4% of the company. The company went to 64 and we sold old.
We were in Lubrizol when Warren Buffett’s Berkshire Hathaway bought it.
How we find investments:
$1-$10billion. Above $10billion there is much less M&A. Above $1billion is important because it needs to be liquid enough for us.
Also we need a company which is big enough to move the needle.
We own Energizer (ENR)-50/50 batteries and personal care products. It is like a small version of P&G. It is good to be number two sometimes. They have taken share away from Gilette and P&G.
They are becoming more shareholder friendly, and have been doing some share buybacks.
Earnings growth is nice and we are look at $100 a share without accounting for much growth.
The battery business is not growing that much, as less people are using batteries. There are only two big players; Duracell and Energizer. A breakup would be hard, but it is a potential buy-out or is attractive as stand alone with consumer goods for growth.
Ashland (ASH)-it has transformed itself into a higher margin chemicals company. Has been cutting back on low margin products like Valvoline.
It is trading at 5x EBITDA 2012. It has 70% of cash flow coming from water chemicals business.
Flowserve Corporation (FLS)-engineered products, flow control and industrial products.
Trades at 5,7x EBITDA 2012.
Solid balance sheet, debt free.
MTU Aero Engines
A former KKR LBO
They are making essential elements for planes.
Atos is a french company which provides core IT services and hi tech transactional services.
They can take on more debt and buy back some shares. They announced a very large transaction with Siemens. The stock shot up on the deal.
The target price is 50 euros, compared to current price of 32 euros.
The CEO is a former finance minister for France. He is well connected and is trying to build some shareholder value and then sell out.
I think this is a possible takeover target.
Q&A:
I think you will see more spin-offs like ITT, which will unlock the value. The most attractive business in ITT is the water business. If you can buy that at 8x EBIT post split, someone will probably buy it out for 12x EBIT.
You liked Xerox in the past? We were a temporary fan of Xerox. We got into Xerox when they were bought by ACS. As time went on we sold below our target, because of the resignation of the CFO, they met numbers or exceeded earnings for 3-4 quarters, and we also found better investments. We might buy it again one day.
