Institutional Investor's Alpha Magazine - July/August 2008 - (Page 29)

more pros lean on: EV/ebitda. That alphabetic jumble is Wall Street lingo for enterprise value — the sum of a company’s capitalization and its debt — divided by its earnings before interest, taxes, depreciation and amortization. Investment bankers and corporate ﬁnance types use this “enterprise multiple” to evaluate acquisition candidates. Unlike the more familiar and commonly used price-earnings ratio, it focuses on cash ﬂow and is not subject to the devices used by managements to inﬂ ate earnings. When the shares of a company Roepers favors can be had for an enterprise multiple of five to seven times, he is a buyer. In 2004, Roepers turned his attention to TNT, which in addition to its express mail business has a home mail delivery service and whose bright-orange logo adorns mailboxes, vehicles and planes in Australia, Brazil, China, Europe and India. TNT came into being when the Netherlands’ national postal service was privatized in 1995. Roepers began buying its stock at about Ð20 (then worth $25.89) a share in November 2004, and by the following year, Atlantic Investment was TNT’s second-largest shareholder. After a year of watching the stock price go nowhere, Roepers got in touch with TNT CEO Bakker and recommended that he take advantage of the company’s weak stock price and buy back Ð1 billion in shares. When rumors surfaced that a private equity ﬁrm wanted to buy TNT, a worried Roepers contacted Bakker again to suggest that he increase the buyback program to Ð3.5 billion. “I based my argument on a clear and present danger: ‘There are people looking to buy your company at what I would consider to be a ridiculously low price. Why don’t you start buying back your own shares and keep the upside embedded in the company for existing shareholders?’” In December 2005, TNT initiated a share buyback plan. Since then it has spent Ð3.5 billion on the repurchase and on dividend increases. Bakker says enhancing shareholder value has long been a priority at the company but credits Roepers with being his most vocal investor. Because of wage demands in Germany and issues relating to Dutch postal laws, TNT’s stock, which accounts for 15 percent of Rodinia and 24 percent of Cambrian Europe, has drifted back to less than Ð25 a share from its peak of Ð36 in 2006, weighing down Atlantic Investment’s performance. Still, Roepers expects FedEx or United Parcel Service to make a bid for TNT by next year. There’s no better tribute to the effectiveness of Roepers’s activist strategy than that a surprising number of the CEOs he has nudged over the years have nice things to say about him. Precision Castparts’ chief executive, Mark Donegan, is one of them. In the aftermath of the September 11 terrorist attacks, airline travel plummeted and the stock prices of aerospace suppliers nose-dived. When Precision Castparts’ shares lost some 30 percent of their value virtually overnight, Roepers was an eager buyer. “After 9/11 nothing had changed in terms of who we were as a company, but we got clocked along with the rest of the industry,” recalls Donegan, who had just settled in as CEO when Roepers contacted him. “Alex and his team were very astute and very thorough.” Roepers initially thought that Precision Castparts should put itself up for sale, but he eventually came around to Donegan’s view that the company should do the acquiring. A year later operations were on the rebound, the stock price had doubled and Roepers sold. In March of this year, when Precision Castparts fell below $100 a share, down from $155 ﬁve months earlier, Roepers snapped it up again as one of his core holdings. ALEX ROEPERS’S singleminded approach to business is rooted in his childhood. He and his brother, Jack, grew up in The Hague, the sons of a Dutch father and a German mother who as a teenager during World War II left the border city of Aachen. Roepers’s father and uncle bought a failing printing business and produced children’s games, political mailers and advertising — JOHN STEFFENS, FOUNDER, inserts for Sunday newspapers. SPRING MOUNTAIN CAPITAL Dinner conversation at the Roepers house often focused on his father’s frustration over trying to compete with 15 printing companies that routinely won government contracts by promising to keep employees on their payrolls. “All the healthy companies would get in trouble because of the unfair competitive landscape that the government was creating,” Roepers recalls. “It was not fair. I saw it clearly in a household where it was a struggle every day just to get the business in.” His father and uncle sold the company in the early 1980s, and his parents moved to southern France, where they live today. But those discussions, and the fact that most of the other Dutch printing companies eventually failed, stayed with Roepers. As a hedge fund manager responsible for billions of dollars, Roepers’s ﬁrst priority is to make money for his clients. But the route he has chosen — investing in companies and acting as if he were a member of their management teams — seems tied to a desire to correct the inefﬁciencies he heard about as a child. No surprise, perhaps, that he is deeply involved with printing companies like R.R. Donnelley in the U.S. and Japan’s Dai Nippon. “He is a bit of a coach,” afﬁrms his friend and fellow shareholder activist Richard Grubman, co-manager of Highﬁelds Capital Management in Boston. Growing up, Roepers skied, sailed, played tennis and competed in ﬁeld hockey, the second-most-popular sport in the Netherlands after soccer. Following his 1980 graduation from Nijenrode University, the country’s top business college, Roepers won admission to Harvard Business School with the stipulation that he defer his acceptance for two years to work in the corporate world. He took a job JULY/AUGUST 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 29 “There are a lot of people who think they can do what Alex does — it doesn’t look very complicated — but it’s not that easy.”

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - July/August 2008

Institutional Investor's Alpha Magazine - July/August 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Mr. Big Goes Small The Good Guys: Adopt This School! Interview: Man's Great Hope Cover Story: The Gentleman Activist Strategies: The New Bankers Profile: Staying Alive Research Center: The Best of the East The Asian Sensations Alpha Bytes: Into the Light Unhedged: Commentary: Speculating on Washington

Institutional Investor's Alpha Magazine - July/August 2008

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