45 slides from Transocean Ltd (switzerland)'s proxy contest presentation, May 2, 2013
Slide 1: Schedule 14A Proxy Statement
SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. __) Filed by the Registrant [ ] Filed by a Party other than the Registrant [X] Check the appropriate box: [] Preliminary Proxy Statement [] Confidential, for Use of the Commission Only (as pe
Slide 2: Notice to Investors
On May 2, 2013, Carl C. Icahn and affiliated entities updated and replaced the presentation filed by Icahn on April 23, 2013. A copy of the revised presentation is filed herewith as Exhibit 1. NOTICE TO INVESTORS SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT, DATED APRIL 17, 2013, AND OTH
Slide 3: Icahn Proposal to Shareholders May 2013
EXHIBIT 1 Transocean Ltd. ICAHN PROPOSAL TO SHAREHOLDERS MAY 2013
Slide 4: Special note regarding this presentation
Special note regarding this presentation THIS PRESENTATION INCLUDES INFORMATION BASED ON DATA FOUND IN FILINGS WITH THE SEC, INDEPENDENT INDUSTRY PUBLICATIONS AND OTHER SOURCES. ALTHOUGH WE BELIEVE THAT THE DATA IS RELIABLE, WE HAVE NOT SOUGHT, NOR HAVE WE RECEIVED, PERMISSION FROM ANY THIRD-PARTY T
Slide 5: Contents
Contents 3 Section Page Executive Summary 4 Transocean Performance - Value destruction over the 6 past five years Historical Capital Allocation - The GSF legacy and 11 resultant poor returns Operational Underperformance - Deteriorating trends 21 Transocean’s Capital Plans -Continuing the trends 25 I
Slide 6: Executive Summary
Executive Summary 4 — Transocean has generated poor shareholder returns and underperformed peers — We believe this underperformance was caused by poor capital allocation, ill- advised M&A activity, and poor execution on costs and integration ¡ Macondo was negative for shareholders but, in our view,
Slide 7: Executive Summary
Executive Summary 5 — Icahn has presented shareholders with a tangible solution to Transocean’s longstanding ineffective capital allocation and poor accountability — A $4 dividend, which we believe is sustainable and fiscally responsible, will deliver cash to shareholders during the current phase of
Slide 8: Transocean Performance: Value Destruction Over the Past Five Years
Transocean Inc. 6 TRANSOCEAN PERFORMANCE VALUE DESTRUCTION OVER THE PAST FIVE YEARS
Slide 9: Transocean's "History of Achievement"
Transocean’s “History of Achievement” 7 — Transocean claims that their directors have a “History of Achievement” — Returns for the last five years have been dramatic and disastrous ¡ 1,3,5 year returns through the first quarter have been negative and substantially lagged peers — This underperformanc
Slide 10: Transocean's "History of Achievement"
Transocean’s “History of Achievement” 8 — In the pre-Macondo period Transocean returns substantially lagged peers ¡ Clearly demonstrating that Macondo is not the sole driver of Transocean’s underperformance — Negative returns occurred despite substantial cash flow - Transocean generated $17.5 billio
Slide 11: Transocean's "History of Achievement"
Transocean’s “History of Achievement” 9 — Share price underperformance has led to a major gap in earnings multiples — We believe operational underperformance has led to lower EBITDA - if Transocean performed in line with peers, EBITDA would increase and the multiple gap would be even greater Total E
Slide 12: Driving Underperformance
Driving Underperformance 10 — Our view is that relative underperformance at Transocean has been driven by two major factors — Board level capital allocation ¡ From 2005-2008 the board failed to capitalize on industry growth and attractive new build economics ¡ We believe the board supported value de
Slide 13: Historical Capital Allocation: The GSF Legacy
Transocean Inc. 11 HISTORICAL CAPITAL ALLOCATION THE GSF LEGACY AND RESULTANT POOR RETURNS
Slide 14: Capital Allocation History
Capital Allocation History 12 History of value destructive transactions at Transocean — 2007 - Global Santa Fe (“GSF”) ¡ Transocean paid over $18 billion for GSF in 2007 ¡ Transformative acquisition from a balance sheet and asset base perspective, saddling the company with billions of debt and the o
Slide 15: Capital Allocation History
Capital Allocation History 13 History of value destructive transactions at Transocean — 2011 - Aker ¡ Transocean purchased four drilling units at above NAV- paying peak prices ¡ To fund the acquisition the board sold 30 million shares at $40.50 which was approaching the five year low and represented
Slide 16: Global Santa Fe History
Global Santa Fe History 14 — GSF is a useful case study as it is the largest allocation of capital made by the board in the last 10 years and in our view, indicative of a philosophy that has led to value destruction and share underperformance — The early part of a major bull cycle for offshore rigs
Slide 17: A Tale of Two Strategies
A Tale of Two Strategies 15 — While Transocean was buying old assets at a premium, Seadrill was buying new assets at construction costs - the results could not be more clear — The board has taken credit for “advis[ing] management’s decisions through various oil and gas cycles” Transocean Seadrill Ca
Slide 18: Global Santa Fe History
Global Santa Fe History 16 — By the time the GSF acquisition closed at the end of 2007, Seadrill, Esnco and Noble had 21 ultra deep water units under construction, Transocean had only four, this market share trend has continued into 2013 — We believe the impact of this “buy old instead of build new”
Slide 19: Global Santa Fe History
Global Santa Fe History 17 — The GSF transaction has been portrayed as a stock merger with a special dividend - in fact the board has taken credit for returning $10 per share to shareholders ¡ The company did not pay a dividend, but actually “reclassified” each RIG share into .6996 RIG shares and $3
Slide 20: Understanding NAV dilution
Understanding NAV dilution 18 — NAV is a useful tool to determine the accretive/dilutive impact of investments ¡ Similar to book value concept, but NAV is designed to replicate the market value of the assets as opposed to the fully depreciated cost basis ¡ Price/NAV is therefore the market value of
Slide 21: Understanding NAV Dilution
Understanding NAV Dilution 19 — We believe that Transocean will not consistently trade at or above NAV until Transocean can fundamentally reposition itself and convince shareholders that earnings will be distributed or invested prudently — As long as the share price is below NAV every dollar investe
Slide 22: A Better Way than GSF
A Better Way than GSF 20 — We believe that the Transocean board should have ¡ Built new assets in the early to middle stages of the bull market ¡ Returned capital to shareholders in middle to end stages of a bull market ¡ Purchased assets (Aker) using cash on hand, or perhaps debt, but not via low p
Slide 23: Operational Underperformance: Deteriorating Trends
Transocean Inc. 21 OPERATIONAL UNDERPERFORMANCE DETERIORATING TRENDS
Slide 24: Operating Costs
Operating Costs 22 — Transocean has cited strong operating performance in 2012 as a major accomplishment, yet under the watch of this board performance deteriorated far in excess of peers between 2009-2011 — We believe operating cost issues are primarily related to a failure to integrate previous ac
Slide 25: Operating Costs
Operating Costs 23 — Transocean EBITDA margins have gone from average to the worst in the industry over the last five years EBITDA Margins Seadrill Diamond Offshore Ensco Noble Atwood Oceanic Rowan Industry Average Underperformance 2.0% -3.0% -4.8% -15.8% -10.0% Data from JP Morgan and Capital IQ.
Slide 26: Operating Costs
Operating Costs While not conclusive, we believe that Transocean’s apparently bloated footprint may be contributing to cost and accountability i issues Transocean Office Locations Angola Houston Australia Cameroon Canada India Indonesia Cairo Cayman Islands Balikpapan Gabon Barbados Indonesia Jakart
Slide 27: Transocean's Capital Plans: Continuing the Trends
Transocean Inc. 25 TRANSOCEAN’S CAPITAL PLANS CONTINUING THE TRENDS
Slide 28: The Existing Plan
The Existing Plan 26 — We believe the current capital plan is ineffective and contributing to share underperformance “Transocean has tried a balanced approach since 2006 with share buybacks, debt paydown, and some newbuild rigs, but investors have been frustrated as the stock has traded at a discoun
Slide 29: The Existing Plan
The Existing Plan 27 — In 2012 Transocean announced the construction of four drill ships with 10 year contracts from Shell at a cost of over $3 billion ¡ Day rates for these ships were substantially below market rates for drill-ships, but were longer in tenor ÷ In April 2013 Transocean signed a 3 ye
Slide 30: The Existing Plan
The Existing Plan 28 — Transocean’s strategy is in stark contract to competitors, such as Noble, who are building lower cost drill ships and signing higher contract rates ¡ The company is not getting paid a premium for the higher cost ships ¡ Accepting lower return, longer dated generates a positive
Slide 31: The Existing Plan
The Existing Plan 29 — The company has also said they will pay down gross debt to $7-9 billion ¡ Appears to use $5.5 billion capital ¡ In combination with up to $2 billion of already scheduled liability reduction regarding legal settlements — Transocean has an extremely low cost of debt ¡ Even if th
Slide 32: The Existing Plan
The Existing Plan 30 — In our view, the company has failed through this cycle to make the right investments at the right time Investing through the cycle Ideal Transocean Early Borrow to fund growth via new build Borrowed to repurchase stock and assets purchase old assets Mid Split operating cash fl
Slide 33: Capital Allocation
Capital Allocation 31 — Transocean long term contracts have presented a lose/lose situation for shareholders Market Turns Bull market continues Balance Debt pay down will shore up Debt pay down will shore Sheet balance sheet up balance sheet, though benefit is minimal Growth 10 year contracts will l
Slide 34: Icahn's Capital Plans: Driving Long Term Returns
Transocean Inc. 32 ICAHN’S CAPITAL PLANS DRIVING LONG TERM RETURNS
Slide 35: Crafting a Workable Strategy
Crafting a Workable Strategy 33 — Our view is that a successful capital allocation strategy for cyclical businesses must take into consideration several factors ¡ The company’s position in the business cycle ¡ The current set of investment opportunities available ¡ The impact capital allocation has
Slide 36: Is $4 Sustainable and Fiscally Responsible?
Is $4 Sustainable and Fiscally Responsible? 34 The first question is can RIG pay out this size of a dividend…the answer is yes. The second question is should they pay out this size of a dividend…as a shareholder we would also vote yes… - David Anderson, JPMorgan 2/21/13 — Over the current new build
Slide 37: 2013-2017 Capital Allocation
2013-2017 Capital Allocation 35 Board Plan Icahn Plan Operating Cash Flow $20 billion + cost savings + $3.5 billion excess cash Cash to Shareholders $4 billion $7-9+ billion Liability Reduction $5-7 billion $4-7 billion Capex $12.5-14.5+ billion $10 billion Dividend $2.24 per share $4-5 per share av
Slide 38: Focus on Execution
Focus on Execution 36 — The management team has acknowledged there is a substantial cost cutting opportunity — The board cannot cut costs and restructure operations on its own — We believe the board MUST ¡ Communicate aggressive expectations to both shareholders and management for lean operations ¡
Slide 39: Downgrade Risk
Downgrade Risk 37 — We believe that Transocean can pay a $4 dividend and maintain investment grade credit metrics through the cycle — The board has espoused concern that a downgrade would limit Transocean's access to the capital markets ¡ We believe that the company will continue to have substantial
Slide 40: Board Slate & Biographies
Transocean Inc. 38 BOARD SLATE & BIOGRAPHIES
Slide 41: The Old Directors
The Old Directors 39 — The three directors that we are seeking to replace were carefully chosen based on the role they played in the most damaging transactions to Transocean shareholders — Talbert, Sprague, and Cason have been on this board through all of the value destructive transactions we have d
Slide 42: The Icahn Slate
The Icahn Slate 40 Director Jose Maria Alapont Former CEO of Federal Mogul, a $7 billion revenue Tier 1 automotive supplier. Formerly CEO of Iveco a $12 billion revenue European commercial, specialty and defense vehicle manufacturer. Mr. Alapont has spent his career running cyclical, global industri
Slide 43: The Icahn Slate
The Icahn Slate 41 Mr. José Maria Alapont Mr. Alapont will bring to the board unmatched experience managing cyclical, international industrial corporations. With a keen focus on lean operations, cost containment and operations in emerging markets. Mr. Alapont was President, Chief Executive Officer a
Slide 44: The Icahn Slate
The Icahn Slate 42 Mr. John “Jack” J. Lipinski Mr. Lipinski serves as Chief Executive Officer, President and a Director of CVR Energy, Inc. (NYSE:CVI), as well as Chief Executive Officer, President and a Director of CVR Refining GP, LLC, the general partner of CVR Refining, LP (NYSE: CVRR) and Execu
Slide 45: The Icahn Slate
The Icahn Slate 43 Mr. Samuel Merksamer Mr. Merksamer brings skills that will be helpful to the company in building management teams, developing value additive M&A strategies and identifying undervalued companies including financially distressed businesses. Mr. Merksamer is currently a Managing Dire