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Fortune Brands (FO) - Post Spin (BEAM) and (FBHS)

52-Week Range $46.58 - $65.48 g Mkt. Cap./Shares $8,555m/156.6m (2/3 BEAM & 1/3 FBHS) Golf Business sold - $1.1b used to pay down debt BEAM maintains $0.76/share dividend FBHS to be spun off tax free to shareholders (1 for 1) tax-free $500m tax-free dividend to BEAM to pay down debt Record Date October 20th Begin Trading October 4th Recommend Buying Prior to Spin ($54) - upside from the mid $ y g p ($ ) p $60s to around $ $80

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A Word on Special Situations - Spinoffs

Apply Joel Greenblatt frame work Insiders Bill Ackman Activist Track Record Bit off more than he could chew ala Target? Management h b M has been cooperative i Understandable Businesses 79% Institutionally owned - selling pressure on FBHS Spinoffs in General Beat the Market - Pick Your Spots BEAM is a high margin, recession resistant business with a moat margin (brand appeal/pricing power) and is being unyoked from a low margin, low moat, downtrodden & housing dependent more capital intensive business FBHS Entrepreneurial Forces & Management Incentives more positively aligned (Generally) Acquisitions good for CEOs Divestitures good for shareholders Rumor Mill - Takeover interest in BEAM & Private Equity Interest in FBHS Can be great benefit to Value Investor Portfolio Catalyst/Event Driven likely to see play out in shorter time frame than other value positions Time Arbitrage

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BEAM Pure-Play Spirits Industry Leader

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BEAM
2nd Largest U.S. spirits company behind Diageo 4th Largest spirits company globally Multiple market leading brands including Jim Beam & Maker s Mark Makers A word on moral dilemma
Valid arguments by some - I wont quarrel with that Not illegal to be stupid, ultimately more the person than the product

Spirits - Coke brand intangible & Sees Candies pricing power Coke See s Candies Certain Brand, Expectation, Experience - not just cheapest People will continue to drink & tech wont change it Bill Ackman is smarter than me Wildcard Attractive takeover target (Diageo needs a good bourbon)

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BEAM
Freed from lower margin spinoff

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BEAM
Growing Market and Market Share

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FBHS Fortune Brands Home & Security

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FBHS Fortune Brands Home & Security

Fortunes intimately linked to the housing market & cycles Not a commodity like oil, but also less likely to brag about your new Therma-Tru Therma Tru Door or Ariskocraft Cabinets from Lowes on the golf course. course Can streamline & align incentives at end of day still squeezed by competition headwinds How to kill the business been playing out in real time Still around, worst is over, likely slow drawn out recovery Leader in many of its products Established distribution channels

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FBHS Fortune Brands Home & Security

This too shall pass

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FBHS Fortune Brands Home & Security

Ah h b bl d h h horse that can count i a smart h is horse, b probably not a good math teacher but Having said that, they have a good position in their industry.

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FBHS Fortune Brands Home & Security

Ah h b bl d h h horse that can count i a smart h is horse, b probably not a good math teacher but Having said that, they have a good position in their industry.

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So How do you play it?

Post Spin Buy BEAM immediately and wait for target range or takeover p y y g g Buy FBHS if indiscriminate selling drives artificially low Pre Spin Buy FO Bill Ackman smarter than me track record Bought B ht more recently tl Parent is attractive ride out forced selling in spin - wait for normal Management is cooperative history of spin offs

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Valuation

BEAM after tax EBIT $544.3m EBIT growth 11.2% FV 5yr = $642m Discount Rate 6% PV 5yr = $479m 14x multiple = $6,706m /156.9m shares = $43 (Note: $0.76 dividend) ( $ di id d) Takeover multiple 18-20 = $55 FBHS after tax EBIT $155.4m Assume growth = Discount rate 7x multiple = $1,088m /156.9m shares = $7 EBITDA =$291.9m 9 9x = $2,627m $ ,6 7 /156.9m shares = $17 Golf $1,100m/156.9 shares = $7 Current Low L Mid High $54-$55 $57 B k even not much d Break h downside id $67 $79 Includes Takeover of BEAM

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SC S DISCLAIMERS NotanOffer Confidential

Thisdocumentisconfidentialandmaynotbedistributedwithouttheconsent oftheInvestmentManageranddoesnotconstituteanoffertosellorthe of the Investment Manager and does not constitute an offer to sell or the solicitationofanoffertopurchaseanysecurityorinvestmentproduct.Past resultsarenoguaranteeoffutureresultsandnorepresentationismadethat aninvestorwillorislikelytoachieveresultssimilartothoseshown.All investmentsinvolveriskincludingthelossofprincipal.

ForwardLookingStatements
Theinformationcontainedhereisprovidedsolelyforinformationpurposes. Thismaterialmayincludeforwardlookingstatements,whicharebasedupon This material may include forward looking statements which are based upon expectations,estimates,opinions,andassumptionsofthemanagerthatare subjecttouncertaintyandshouldnotbeconsideredapromiseorguaranty regardingfutureeventsorfutureperformance.

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