Exhibit 1
The following is an excerpted transcript of the Investor Forum regarding the
proposed MONY/AXA merger which was hosted by Institutional Shareholder Services
Inc. ("ISS") on February 4, 2004.
* * *
Staley Cates Thank you, Pat. I'm with Southeastern Asset Management,
and we're the advisor to the Longleaf Partners Funds,
and specifically the Longleaf Partner Small-Cap Fund, as
a holder of 4.1% of MONY at this point. We're glad to be
here today at the invitation of ISS, and we welcome the
opportunity to discuss this MONY/AXA transaction.
We will be mailing out a letter to all MONY shareholders
in the next couple of days, which will therefore also be
publicly filed with the SEC, outlining our logic in
opposing this deal, and then suggesting to the board
that they replace Michael Roth with Bob Devlin. I'm
going to use that letter as an outline and briefly touch
on the points that we have made there. After that, I'll
let our legal counsel, Andy McCarroll, briefly discuss
the restraining order that MONY won against us
concerning our dastardly deed of mailing out proxy
cards. MONY's management team, after running earnings
into the ground, hiding behind New York State's 4.9%
ownership limitation, badly overpaying for Advest,
selling us up the river for less than three-fourths of
book, and getting $90 million for all their trouble has
now added a few other governance stars to their crown.
They muted all dissidents on their last quarterly
earnings call. They're spending millions of dollars of
shareholder money on proxy solicitation, and now they've
gone to court to hinder our ability to have shareholders
return copies of MONY's proxy cards, their proxy cards.
I'm sorry.
This feels a whole lot more like the Soviet Union than a
shareholder vote, and I guess we shouldn't be too
surprised if next the company reports that they've won
the deal proxy with 100% of the vote.
There are three headlines here we'd like to emphasize.
The first is that the deal price stinks. The second is
that management has done a terrible job by any objective
metric, and yet is poised to take out over $90 million.
The third is that in the spirit of not making a
complaint without offering a solution, we have a much
better solution. If this deal is voted down, then the
annual meeting vote turns to our recommendation to the
board to appoint Bob Devlin as CEO. We believe that MONY
would be a much better investment if allowed to heal
under Bob, and proceed as an independent company for
now.
Finally, we want to address two points, which management
continues to pound as basically their whole case. First,
if the deal price is so low, then why hasn't another
offer appeared? Second, if we don't do a deal, then the
company will just implode because of credit ratings and
balance sheet issues.
First, on deal pricing, the MONY brand name is still
valuable, but it's carried in book value at zero. The
distribution for us is also certainly valuable, and it
also is carried in book value at zero. When announcing the
MONY acquisition, AXA's CEO spoke extensively about the
value of MONY's distribution network, stating that, "The
transaction will increase our retail insurance and annuity
distribution reach by almost 25%." If AXA paid even book
value, we believe they'd be getting what they consider to
be a very valuable asset, MONY's distribution network, for
free.
A more technical valuation detail concerns the closed
block of insurance policies, which were set aside upon
demutualization. The closed block is carried within MONY's
book value at a negative $21.93 per share, yet produced
$34 million of operating income and $67 million of
operating cash flow in the first nine months of 2003. This
implies a positive net present value for the closed block,
which is intentionally designed that way to accrue to the
benefit of the closed block policyholders. If that's the
case, then the closed block has a value of zero to MONY,
which would mean that our assessment of the real book
value is over $60 per share.
A final point on valuation concerns deferred policy
acquisition costs or DPAC. Management, after putting most
of these on the books themselves since IPO, and certifying
them to the SEC in their financial statements, now acts as
if they are a worthless intangible, like their Advest
goodwill. Yet we and the company's GAAP accountants
assigned DPAC a much higher value; in other words, GAAP
book value, as opposed to statutory book value, without
the Advest goodwill, is more accurate than management
would have you believe.
The investment banking appraisals that are in the proxy
statement, which by the way earn millions of dollars of
fees for the investment banks making those appraisals,
show that the AXA offer is way below the norm when
multiples of book value are compared to other
transactions, so the rationale that the company's bankers
have to use is that the multiple on earnings is high
compared to other transactions. All this really does is
indict management for not being able to generate any
earnings. Just because they can't generate earnings
doesn't mean that their book value is impaired.
This leads into management's compensation. Taking out the
closed block, they're doing basically a zero percent ROE
right now, if you just take Wall Street estimates on 2004
earnings. They claim that they've taken out $100 million
of costs. In their last conference call, while
congratulating themselves on achieving $40 million of that
this year, they stated that, "Unfortunately, these have
been absorbed by increased pension, insurance, and health
and welfare costs." In other words, we've really cut our
costs, and total costs are up. Against their fantastic $40
million of cost cuts this year, actual costs through the
nine months were up $92 million. All we as shareholders
can say to that is, "Please don't cut any more costs."
As mentioned before, they overpaid for Advest based on a
$307 million purchase price, and a current bull market run
rate of $11 million of operating income in Advest, which
is a 3.6% peak pre-tax return on that investment.
Finally, on the valuation, they're selling for 72% of book
value. Taking out the Advest goodwill, it's probably more
like 80%. Is it a coincidence that this is one of the
worst outcomes on book value for life insurance
shareholders in the past decade, and at the same time that
management's 6% take of the proceeds is the highest ever
that we can find? Because we believe that there could be
some value in the MONY brand if run correctly, we have
proposed that Bob Devlin be chosen as CEO by the board.
Bob ran American General for years, and did a wonderful
job for shareholders. He is well-regarded in the industry
and trusted by any who know him. Bob can improve the
company's ROE as a standalone entity, and be a trustworthy
person to evaluate any M&A activity in the future, if
appropriate.
Now to management's broken record arguments: If the offer
is so low, why hasn't a better one emerged? Their second
argument is, if the deal is not approved, then the stock
price will tank. On the first issue, we believe that it's
very logical that no one else has approached based on
management's actions. We know of companies who would be
logical buyers that were not contacted about MONY until
after the AXA deal was announced. We also note that in the
proxy, by MONY's own admission, most inquiries about a
possible transaction never progressed beyond the first
meeting.
We wish the company was here today on the call because
we'd ask them how many parties signed confidentiality
agreements and how many had access to the same non-public
information as AXA. No potential buyer would consider
paying $2 billion for a property without being able to
access these numbers, and doing so always necessitates
signing a confidentiality agreement. The proxy doesn't
allude to any of this activity with other interested
parties, which leads us to the conclusion that there
wasn't any.
Secondly, the company argues out of both sides of their
mouth about the balance sheet. On the one hand, they use
being overcapitalized as an excuse for a pathetically
low ROE. On the other hand, they say that the balance
sheet is too undercapitalized to stand alone. Bob Devlin
could fix either problem. If there isn't enough capital
for the rating agencies, we can speak only for ourselves
in saying that we would be very interested in adding
capital to MONY under the leadership of someone we
trust. We would bet that others would be as well, but
under no circumstances would we add capital when we
believe that the entity is currently so mismanaged.
Here are the risks to the approach that we've discussed.
If we vote the deal down, before we hopefully elect Bob
Devlin, the stock price would most likely drop, as ...
(inaudible) dumped it. For long-term investors, that
wouldn't mean much because, long-term, we could end up
with a great CEO and an eventual valuation above book
value, and hopefully far above $31, but for investors
with a short-term horizon or for holders with no ability
to ride out the volatility, that might be untenable. In
that context, selling today above $31 would make more
sense for someone who can't afford to see the stock drop
into the $20s in the short-term.
One final note, our company has never been in this
situation before. In 28 years of owning hundreds of
stocks, we've never seen anything like this, nor ever had
to hire a proxy solicitor. We don't like doing it, and
we're probably not very good at it, but the whole thrust
of corporate governance in our country today is trying to
have shareholders be more active when they see something
wrong. We're trying to do just that, which leads
management to call us "reckless" and to get court
injunctions. We simply ask everybody to vote based on the
facts.
With that, I will be quiet, and I'm going to turn it over
to Andy McCarroll briefly to explain this injunction.
Andy McCarroll This is Andy McCarroll with Southeastern. Yesterday
afternoon, I got a call from our outside counsel,
Skadden Arps in New York, indicating that they'd
received a call that MONY lawyers were going into
federal court to seek a temporary restraining order, or
TRO, against Southeastern Asset Management and Longleaf.
The reason for going was that Southeastern and Longleaf
had been preparing a letter similar to the one each of
you received by e-mail or I believe that ISS
distributed before the meeting. The first version of
that letter contains language about a duplicate copy of
MONY's proxy card, and we were going to be including a
copy of the company's card. That's the reason that MONY
went to court to stop us from using their card.
Prior to pursuing that approach, Southeastern had spoken
with its outside counsel, who in turn had spoken to the
SEC, to confirm that it was legitimate to use a copy of
the company's card. With several specific requirements,
which we carefully followed, the SEC said that that was
permissible. The judge that the MONY lawyers spoke to
yesterday afternoon disagreed.
While we respectfully continue to disagree, and believe
that our position can be supported, there are other ways
that the company's shareholders can express their vote,
and revoke their vote if they've already made a vote.
The letter that we're going to send out indicates how
you can do that, but briefly, if you send in writing to
the corporate secretary revoking your prior vote, if you
voted for the deal, that would be effective.
Also, if you've not yet voted, you still have an
opportunity to vote however you choose on the company's
card that you've received, but when the press release
came out this morning, it sounded as if MONY had stopped
us in our tracks from doing what we're doing, and really
all they did was prevent us from sending a duplicate
copy of the company's card. I would emphasize that we
were not seeking proxy-voting authority or doing
anything that we had heard via our outside counsel was
permitted under SEC guidelines. If you have questions on
that, we can talk about it, but that's the short version
on the TRO.
Staley Cates Pat, that's all we have.
* * *
Pat McGurn Thanks, Mike. We have a number of questions, I'm
going to try and direct them towards the appropriate
person. Don't forget, we can continue to receive questions
during this period as well. First of all, it's probably
more appropriate for Staley Cates at Southeastern. What
specific steps has Bob Devlin committed to take to improve
this company? What is the outlook? How do we attain better
value?
Staley Cates I wish I could answer that in more detail, but we're just
not far enough down that road. In the first place, we
would not ever pretend to speak for Bob. I think that
that question should be directed at him. Secondly, I
think the first order of business is getting Bob in the
door in the first place. Maybe that seems like a leap of
faith to not get a specific plan before he's voted for,
but in our opinion, his multi-decade track record is
what gives him the creditability to put him in there and
then he'd figure out the best plan.
Pat McGurn Just to follow up that a number of different questions
asked, what process do you see happening basically that
would end up with Bob Devlin in that position? Would
there be a proxy fight, some other sort of challenge?
What is the actual process that you envision as far as
changing management?
Staley Cates If it's okay, I'm going to hand that over to our legal
council, Andy McCarroll.
Andy McCarroll The way it would happen, if shareholders vote against this
transaction, at MONY's annual meeting back in December,
Longleaf Partners Small-Cap Fund submitted a shareholder
proposal requesting that MONY's board of directors take
a hard look at replacing senior management. It was
really with an anticipation. It was after the AXA deal
had been announced. We felt that a better alternative to
the $31 price was a change of management and we
initiated discussions with Bob Devlin to see if he would
be willing to do it. After we had basically come up with
that plan, we submitted that proposal so that
shareholders would have an opportunity at the annual
meeting to vote on that proposal.
Now, it's not binding on the board. Shareholders can't
bind the board to do anything, but it is a recommendation
that they consider it in light of the failed AXA
transaction and the shareholders' rejection of that, in
support of the resolution. So, it really amounts to a
referendum on management, and we would hope at the annual
meeting that shareholders would support that if they have
an opportunity, and that that would give the board of
directors reason to take a very hard look at replacing
senior management.
Pat McGurn The next question involves a similar theme, and just to
preface it, it starts off by saying, "I need to
understand a probability-weighted plan for the
dissenters that would allow them to gain control of the
company, effect change, and how I, pursuant to such
plans, do better than the certainty of $31 cash today."
In other words, the question reads, how do the
dissenters propose to effect change and create value?
Staley Cates Andy has just described the process we'd be looking
to. There's no way I could begin to try to put a
probability on it. I don't know if the other dissenters
want to address that one.
* * *
Pat McGurn Great. Thanks. The next question concerns actually the
potential downside. It says, "MONY management makes the
assertion that its credit rating might ... (inaudible)
transaction with AXA not be consummated. Do you agree
with this assertion?" Another question asks similarly,
"Aside from a drop in stock price and a ratings
downgrade, do potential negative ramifications possibly
suggest insolvency?"
* * *
Staley Cates Maybe all three of us can give it a stab and I'll be
happy to start out. I think, the balance sheet, in our
opinion, does not offer the way we look at the public
filings, an immediate risk of insolvency if this deal
does not happen. When you talk about exact degrees of
that, it's hard to sort out management scare tactics
with what is any kind of genuine weakness, but
especially when you separate out the closed block, we
don't see that kind of weakness in the GAAP financial
statements, and so we attribute those kind of comments
more to kind of the management scare tactics. To the
first part of the question, I would reiterate what we
said at the outset, which is if the answer is that more
capital is needed by the rating agencies, we believe and
we would back this up with our own money. We believe
that fresh capital would line up behind a good
management team based on a strong starting point of book
value and brand name and distribution. If you have good
management running that, then additional capital would
be there if that was needed for the rating agencies.
* * *
Pat McGurn A couple of the questions revolve around, again,
trying to find some mechanism to lead to a significant
rise in ROE. Does anybody want to offer up some
suggestions in changes in business strategy that could
again increase that important metric?
* * *
Staley Cates I would agree with everything Richard just said.
[Referring to an answer given by Richard Grubman of
Highfields Capital Management.] As you run back through
the math on getting to that ROE number, we would just
submit that revenues are not at all optimized based on
informal research, surveys of sales people and
distribution network and everything else that seems
unhappy with the current situation. We think, with the
right leadership and the morale that would follow from
that, that the top line could be a lot better with the
existing sales force. Then, as we mentioned in our
prepared remarks, the expenses leave a lot of room for
improvement as well, so it becomes less a structural
issue, as Richard said, and more one of execution.
* * *
Pat McGurn Great. We're going to take one last question. I do
apologize. There's a number we won't be able to get to
today, but there's a number of questions that address
the issue that management's raised of scale. Are the
fundamentals of the industry such that again MONY simply
can't compete at its current size level? I don't know
whether either Staley or Richard would like to address
that issue.
* * *
Staley Cates I couldn't agree more. [Referring to an answer given
by Richard Grubman of Highfields Capital Management.]
Since day one of the IPO, and Michael talked about this as
well, for over 20 quarters now we didn't hear a whole lot
about the scale problem, and how that made it impossible
to exist out there, so it's hard to believe that all of a
sudden that that's the case.
* * *