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Investing in
Corporate Change

We believe that companies undergoing some form of dramatic “corporate change” have the potential for significant transformation in financial performance and how the company is perceived and valued by the market.

PHILOSOPHY

Investing in “corporate change” is the cornerstone of Iridian's mid-cap investment philosophy. We believe that while markets are generally efficient in determining value, they regularly fail to discount the long-term strategic and investment implications of dramatic structural change in a company or industry. This process of change can result not only in a significant transformation in the financial performance of a company, but also in the way a company is perceived and hence valued by the market. Our goal is to tap into “corporate change” opportunities before they are fully recognized or valued by the market.

PROCESS

Our two-step stock selection process is disciplined, bottom-up, and value-based, and uses mostly in-house generated fundamental research to identify companies undergoing “corporate change” and generating large amounts of free cash flow. We do not rely on the quantitative screens used by most conventional equity managers to develop a universe of potential stock candidates; rather “corporate change” is our screen and the two steps we use to identify and value potential investment opportunities are as follows:

Step 1: Establish An Investment Premise

The first step in our process is identifying companies undergoing corporate change. We research a company when an investment premise or event indicates that a catalyst exists that could create investment value. Examples of catalysts are: management change, acquisition/consolidation, divestiture/spin-off, unrecognized or non-performing assets, changing industry conditions, strategy to enhance shareholder value, and significant stock repurchase.

Step 2: Establish An Economic Valuation

Our valuation process emphasizes two key factors. First, we focus on free cash flow generation. Second, we value a company as if we were acquiring the entire business.

The valuation techniques we use are truly traditional; they are grounded in long-standing corporate finance principles that are more often used by private equity and M&A professionals when evaluating a company. Our research is based primarily on the review of publicly available documents filed with the SEC and interviews with management, competitors and customers. Numerous meetings with its principal officers are an integral part of our review of the company's operating and financial conditions.

Reflecting our bottom-up fundamental analysis of companies, the sector and industry weightings of our portfolios are exclusively a by-product of our stock selection process and the conviction of our portfolio managers. Ultimately, stock selection is the investment decision that adds the most value to clients' portfolios.