SDSU “Intervention in the Boardroom” Lessons Learned from Relational Investors Founder David...

SDSU “Intervention in the Boardroom”Lessons Learned from Relational

Investors Founder David Batchelder

June 27, 2013

Relational does not seek to obtain material non-public information from our communications with the company. Representatives of the company are obligated to comply with Regulation FD and, in the event material non-public information is disclosed to us, the company shall make the necessary disclosures and filings.

Introduction

Relational formed in 1996

First activist investor with institutional monies Started with $200 Million – now $5 Billion

Over 100 Projects

Principals have been on 24 public company boards including Home Depot, Waste Management, Mattel, HP and Intuit

When not on the board, working behind the scenes with management and the board at companies like Pepsi, ITW, Deere and SPX

Introduction con’t.

Clients are large public pension funds – generally indexed

Historically passive 1996 – KKR founded, leading to an era of LBO’s Sell low/buy high

Institutional S/H’s – Largely passive, largely indexed needed a way to “fix” companies while remaining public

1987 – CalPERS starts focus list 1994 – CalPERS effect shows outperformance 1996 – CalPERS funds first activist fund – Relational

Investors

Characteristics of an Active Investor

Concentrated portfolio – generally less than 20 stocks

Invests with an agenda designed to correct undervaluation

Galvanizes support of institutional shareholder base around agenda

Prepared to seek board representation using short slate rule (1992) if necessary

3 Most Common Failures of Public Company Boards

Capital allocation – balancing growth versus returns

Compensation structure

Succession planning

Valuation vs. Growth

Note: Assumes 9% cost of equity and 20% ROE.

Temptation to Chase Growth

0

10x

20x

30x

40x

50x

60x

.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5

Perpetual Growth Rate (%)

P/E

Mu

ltip

le

Valuation vs. Returns

Note: Assumes 9% cost of equity and 5% growth.

Growth at Lower Returns Will Be Value Destructive

0x

5x

10x

15x

20x

25x

30 28 26 24 22 20 18 16 14 12 10 8 6 4 2

Return on Equity (%)

P/E

Mu

ltip

le

Home Depot Chases Growth

Opened another 500 stores – most with returns below their cost of capital

Expanded into the wholesale business, acquiring their way in with returns of about 8%. Again, below their cost of capital

Squeezed profitability from their retail stores by – Reducing staffing Under – investing in distribution and IT


Note: Assumes 9% cost of equity and 3% growth.

Growth at Lower Returns Will be Value Destructive

Core Retail Business

HD Supply Business

0

2x

4x

6x

8x

10x

12x

14x

16x

25 23 21 19 17 15 13 11 9 7 5 3 1

Return on Equity (%)

Imp

lied

P/E

Mu

ltip

le

New Stores

Capital Allocation Best Practice

Allocate capital to the most accretive alternative using share repurchase as a benchmark

Organic Growth

Initiatives

Increase Regular

Dividend or Pay Special

Acquisitions

Repurchase Shares

Establish Credit Characteristics and Liquidity Objectives, and Adjust

Debt/Cash as Indicated

F

Allocate Excess Capital to Highest Risk-adjusted Return Alternative that

Exceeds WACC

Forecast Long-term Growth and Return Targets

Establish Valuation Based on Business Plan

STEP 1

STEP 2

STEP 3 Fund Maintenance Capex, Pension and Benefit Plans, and Regular Dividend

STEP 4

STEP 5

Components of Executive Compensation

Base salary

Annual cash bonus – short-term (1 year) metrics Long-term incentive plan –

• Stock options – time vested • Restricted stock – effectively time vested Performance units – payable in cash and/or

restricted stock – metrics range from 1 to 3 years; performance measured by growth in revenue, operating income, EPS, ROIC and/or TSR.

Intuit Example Before Relational After RelationalBase Salary Yes SameAnnual Bonus Yes Same

Metrics: Revenue Same

Non GAAP Operating

Income Same Long-Term Incentive Plans

Stock Options-time vested 40% 15%Restricted stock-time vested 30% 15%Time Based 70% 30%Performance Units 30% 70%

MetricsRevenue Growth over 1

yearRevenue growth over 3 years* (35%).

TSR over 3 years* (35%) *Based upon rolling 3 year

business plan

Home Depot Example

CEO Before Relational CEO After RelationalBase Salary $2,200,000 $1,000,000Bonus $7,000,000 $500,000

Metrics Annual Revenue Growth Annual Revenue Growth Annual EPS Growth Annual EPS GrowthRestricted Stock -

Time Vested $14,700,000Performance

Vested $3,000,000Metric 3 Year TSR

Stock Options - Time Vested $8,100,000 Performance

Vested $2,000,000Performance Units $2,400,000 $1,300,000

Metric EPS Growth over 3 yearsEPS & ROIC Growth over 3

yearsOther $3,500,000 $500,000Total $37,900,000 $8,300,000 Severance Package $210,000,000 $15,000,000

Conference Board Succession Plan Recommendations

Assign responsibility to a standing board committee of independent directors

Make succession planning continuous and integral to business strategy and culture

Integrate succession planning into the top-executive compensation policy

Integrate succession planning into risk management

Make succession planning transparent, internally and externally

Your Responsibility As Managers

Capital allocation

Compensation structure

Succession planning

SPX Corporation (SPW)

Meeting with

Christopher J. KearneyChairman, President, and Chief Executive Officer

J. Kermit CampbellLead Director and Chairman of Compensation Committee

Emerson U. FullwoodChairman of Governance Committee

Michael J. ManuscoChairman of Audit Committee

May 14, 2013Relational does not seek to obtain material non-public information from our communications with the company. Representatives of the company are obligated to comply with Regulation FD and, in the event material non-public information is disclosed to us, the company shall make the necessary disclosures and filings.

Relational Investors: Overview

Privately owned asset manager

Founded in 1996

$5 billion in assets under management

Registered investment adviser, regulated by the SEC

Ninety-nine percent of our assets under management are from large public and corporate pension funds

Manage a concentrated portfolio

Major projects involve a 2-5 year investment horizon

Relational Investors: Experience

Advised boards and executives and/or served as principals of 120 investments involving strategic planning, capital allocation, business solution optimization and/or corporate governance challenges

Served on boards of 24 public companies

Served as Chairman of four public companies, including one Fortune 100 and two Fortune 500 companies

Chaired and served on all major committees

Chaired and/or served on multiple special committees involving change of control, executive searches, internal investigations

Relational Investors: Areas of Expertise

Focus Objectives

Business Strategy Focused on increasing long-term shareholder value

Business Operations Profit margins and asset turns

Capital Allocation Maximize return on invested capital

Capital Structure Optimal use of cash, debt, and equity

Governance Transparent, responsive, and accountable

Compensation Aligned with shareholders

Communication Timely, accurate, consistent, and realistic

Why We Invested in SPX

Leader in high value-added flow equipment for oil & gas, industrial, and food & beverage sectors

Considerable operational and share price underperformance

Trades at a discount to fair value based on sum-of-the-parts and free cash flow generation

Opportunity to create significant shareholder value by:

Improving margins in flow and transformers businesses through restructuring, improved execution, aftermarket penetration, and end market demand

Divesting thermal and non-transformers industrial businesses

Implementing capital allocation discipline and ensuring effective deployment of excess cash

Aligning management compensation to improvements in profitability and proper capital allocation

Communicating to the Street that SPX will continue to rationalize its portfolio around flow business and improve margins

1-Year Share Price Underperformance of 54%

SPW(26%)

S&P MidCap 400 Industrials

3%

Proxy Peers28%

(40%)

(30%)

(20%)

(10%)

--

10%

20%

30%

40%

TS

R R

ela

tive

to S

&P

Mid

Ca

p 4

00

Note: Peer group is based on companies specified in 2013 proxy: ITT, ROK, CMI, CR, TKR, FLS, PH, DOV, TXT, IR, CSL, DHR, ROP, HSC, PNR, PLL, SNA, ETN, and GLW.


SPW(40%)


16%

Proxy Peers7%

(50%)

(40%)

(30%)

(20%)

(10%)

--

10%

20%

30%

TS

R R

ela

tive

to S

&P

Mid

Ca

p 4

00



SPW(83%)


2%

Proxy Peers2%

(100%)

(80%)

(60%)

(40%)

(20%)

--

20%

40%

TS

R R

ela

tive

to S

&P

Mid

Ca

p 4

00


Chasing Growth at the Expense of Returns

5.8%

13.0%

5.5%

6.1%

0%

5%

10%

15%

20%

25%

30%

35%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

20

12

Re

turn

on

As

se

ts

% of Identifiable Assets

Thermal Equipment6.7%

Flow Technology11.6%

Industrial Products Ex. Transformers

31.7%

Transformers14.9%

Note: Return on Assets = Operating Income*(1-Tax Rate)/Segment Assets adjusted for goodwill & intangibles Total Segment ROA = Segment Operating Income*(1-Tax Rate)/ Segment Assets

Total Segment ROA: 6.4%

Cost of Capital: 9.3%

Dotted line represents ROA before adjusting for goodwill & intangibles

Over 90% of SPX’s portfolio is generating returns below its cost of capital

Even if Thermal Equipment achieves Management’s long-term margin targets, it will still earn a below cost of capital return

Thermal ROA Management Long Term Target = 8.5%

~$2B Spent on Acquisitions

25%

18% 17% 17% 16%

16% 14% 14% 14%

13% 13% 12% 12%

11% 11% 10% 9% 8%

6%

4%

Median13%

0%

5%

10%

15%

20%

25%

30%

ROP GLW DHR PLL ROK DOV TKR FLS SNA CMI PH CR CSL PNR IR ITT ETN TXT SPW HSC

2012

Op

erat

ing

Mar

gin

SPX’s Returns and Margins are Significantly Below Peers

39%

30%

24% 23%22% 21%

20%18%

13% 13% 12%11% 11% 10%

7% 6% 6%4% 4%

Median13%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

ROK CMI CR PLL TKR PH FLS TXT DOV IR CSL SNA DHR ROP SPW GLW ETN PNR HSC

2012

Ret

urn

on

In

vest

ed C

apit

al

Note: Peer group is based on companies specified in 2013 proxy. Operating Income is adjusted for nonrecurring impairment charges Return on Invested Capital (ROIC) = Operating Income*(1-Tax Rate)/(Equity + Net Debt)

2012 Return on Invested Capital

2012 Operating Margin

Returns explain ~70% of SPX’s

valuation

Margin improvement is

5x more valuable than revenue

growth

SPX’s Flow Operating Metrics are Well Below Peers

21% 20% 20% 20%

18%17%

16%15% 15%

13% 13% 13%11% 11% 10% 10%

9%

5%

0%

5%

10%

15%

20%

25%

IEX EMR Weir CAM FLS 2015

Target

Alfa Laval

FLS SPX High

Target

XYL CR GEA SPX Low

Target

RBN SPX PNR ITT Sulzer KSB

Flow Margin and Asset Turns Improvement Will Drive Returns and Multiple

19%

16%14% 14%

12% 12% 12% 11% 10% 10% 10%

8% 8% 7% 7%6% 6%

3%

0%

5%

10%

15%

20%

25%

CAM EMR Alfa Laval

FLS 2015

Target

FLS IEX CR Weir GEA XYL Sulzer SPX High

Target

RBN SPX Low

Target

ITT SPX KSB PNR

1.5x

1.3x 1.2x 1.2x 1.2x

1.1x 1.0x

0.9x 0.9x 0.9x 0.8x 0.8x 0.8x 0.7x

0.4x

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

Sulzer CR CAM Alfa Laval

EMR FLS RBN XYL GEA ITT IEX KSB Weir SPX PNR

2012 Operating Margin

2012 Return on Assets

2012 Asset Turns

Note: Peer operating metrics use Flow segment operating income, identifiable assets, and sales as provided in 2012 Annual Filings Return on Assets = Segment Operating Income*(1-Tax Rate)/Segment Assets. See Appendix A for detailed comparison of SPX with specific Flow Peers

Clyde Union Performance Has Been Significantly Below Management

Expectations

$72

$27

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Promised Delivered

20

12

Op

era

tin

g P

rofi

t ($

m) 10%

Margin

5% Margin

$715

$571

$0

$100

$200

$300

$400

$500

$600

$700

$800

Promised Delivered

20

12

Re

ve

nu

e ($

m)

$0.35

$0.0 $0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

Promised Delivered

20

12

EP

S A

cc

reti

on

Note: Estimates of Clyde Union performance are based on public filings and transcripts of SPX earnings calls and investor presentations.

Failed Execution on Clyde Union

This year [2011], Clyde Union is expecting revenue to grow about 50% to approximately $650 million, primarily driven by organic volume growth. Next year…we are projecting revenue to grow by at least 10% or more on an organic basis… Clyde Union’s 2011 operating margin is expected to be between 10% and 11%.”

“We expect this acquisition to be accretive to earnings per share by $0.30 to $0.40 next year.”

“Clyde Union is a well-managed organization with an outstanding leadership team and employee base. As such, we do not expect to incur any meaningful restructuring charges or working capital investments.”

“The difference here is that this business is very well-established and run, and has really an outstanding management team with a great track record…this doesn't require the kind of heavy lifting that we've had to do in the past in terms of some of the acquisitions that we've done.”

“For the full year [2012], Clyde Union reported $571 million of revenue at a 5% margin.”

-4Q12 Earnings Call

“And for the full year, we now expect Clyde Union's aggregate impact to be neutral to earnings per share.”

-3Q12 Earnings Call

“We took aggressive actions to address the operational execution challenges that ClydeUnion faced prior to our acquisition of this business...As part of this process, we made a significant working capital investment in the business to accelerate component supply.”

-1Q12 Earnings Call

“In Q1, we recorded $5 million of incremental charges on legacy contracts that were part of the acquired backlog.”

-1Q13 Earnings Call

We are on track, it's never easy; it's a lot of hard work. But I think the things that we're doing are the right things and I think the business [Clyde Union] is showing very steady sequential improvement and we expect that to carry into 2013…I guess the people who are actually doing it…would not like me to characterize things as heavy lifting being over. They view that as a challenge every day.

-3Q12 Earnings Call

“What we anticipated with respect to Clyde Union is what we got.” – Chris Kearney, 1Q12 Earnings CallWhat SPX Management

AnticipatedWhat SPX Management

Got

Achieving Management’s Long-term Margin Targets Creates Significant Value

A 20% improvement in returns creates 5.6x more value than a 20% improvement in growth

Corresponding 2012-2017 Growth CAGR2.3% 2.7% 3.2% 3.6% 4.1% 4.5% 5.0% 5.4% 5.9% 6.3% 6.8%

% Change in Growth(50%) (40%) (30%) (20%) (10%) -- 10% 20% 30% 40% 50%

6.2% (40%) $74 $75 $76 $78 $79 $80 $81 $82 $83 $84 $85 7.3% (30%) $85 $86 $88 $89 $90 $92 $93 $94 $96 $97 $99 8.3% (20%) $96 $97 $99 $100 $102 $103 $105 $107 $108 $110 $112 9.3% (10%) $106 $108 $110 $112 $113 $115 $117 $119 $121 $123 $125

10.4% -- $117 $119 $121 $123 $125 $127 $129 $131 $133 $136 $138 11.4% 10% $128 $130 $132 $134 $137 $139 $141 $144 $146 $148 $151 12.4% 20% $138 $141 $143 $146 $148 $151 $153 $156 $158 $161 $164 13.5% 30% $149 $152 $154 $157 $160 $162 $165 $168 $171 $174 $177 14.5% 40% $160 $162 $165 $168 $171 $174 $177 $180 $184 $187 $190

Pe

rce

nt

Ch

an

ge

in

Ma

rgin

Co

rre

sp

on

din

g 2

01

5E

M

arg

in

With no margin improvement, SPX stock is fairly valued in the $80’s

Hitting the midpoint of management’s margin targets by 2015 drives 50% increase in value

Significant Improvement in Returns Implied by SPX’s Long-term Operating Targets

0%

5%

10%

15%

20%

25%

RO

IC (

%)

Return on Invested Capital

Margin and Asset Turn Improvements Drive Return on Invested Capital From 9% to 22%

Note: Pre-Tax ROIC is calculated as Operating Income/(Equity + Net Debt). Operating income excludes one-time impairment charges.

SPX performance vs. proxy peers is for the following periods – 9/8/2004 to 6/13/2008 and 6/13/2008 to 12/13/2012

150 % Improvement

SPX outperformed proxy peers by 222%

SPX underperformed proxy peers by 77%

SPX Will Generate Significant Discretionary Cash Flow

Projected Discretionary Cash Flow*

SPX will generate 51% of its market cap over next 5 years* Discretionary cash flow defined as operating cash flow before changes in working capital less capex. Projections assume SPX returns $200m to shareholders through repurchases during 2013 and grow its dividends at 7%.

$254

$333

$422

$450$477

$0

$100

$200

$300

$400

$500

$600

2013E 2014E 2015E 2016E 2017E

Fre

e C

as

h F

low

($

mil)

Unallocated Cash Flow Dividends Share Repurchases

Returns Drive Valuation

R² = 70%

(2.0x)

--

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

(20.0%) (10.0%) -- 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

EV

/ To

tal I

nv

es

ted

Ca

pit

al

CFROI Spread = CFROI - Cost of Capital

S&P 500 ex Financials

Source: Credit Suisse HOLT.

(1) Cash ROI spread is the difference between a company’s projected Cash ROI in the next fiscal year based on consensus EPS forecasts and the company’s specific discount rate. A spread of > 0.0% implies that the company is expected to create economic profits in excess of required returns on capital

(2) Enterprise Value to Total Invested Capital is defined as economic value divided by inflation adjusted net assets and is similar to a “real” market-to-book ratio. An EV / Invested Capital ratio >1.0x implies that the market is expecting future profitable growth from the company.

Growth at Lower Returns is Value Destructive

0.0x

3.0x

6.0x

9.0x

12.0x

15.0x

18.0x

21.0x

30.0% 28.5% 27.0% 25.5% 24.0% 22.5% 21.0% 19.5% 18.0% 16.5% 15.0% 13.5% 12.0% 10.5% 9.0% 7.5% 6.0% 4.5% 3.0%

Return on Equity

Impl

ied

P/E

Mul

tipl

e


Investing Here Destroys Value

2017E ROE

2012 ROE

Note: Assumes 9% cost of equity and 5% growth. 2017 ROE assumes margin improvement and repurchases shown in Appendix C. Return on Equity (ROE) = Net Income/Average Equity. 2012 Net Income is adjusted for non-recurring items.

SPX’s Capital Allocation Strategy Creates Low Hurdle for Acquisitions

SPX’s current level of return on assets implies that acquisition returns are well below the cost of capital

Note: Slide is from 2013 SPX Analyst Day.

Capital Allocation Best Practice

Allocate capital to the most accretive alternative using share repurchase as a benchmark

Organic Growth

Initiatives

Increase Regular

Dividend or Pay Special

Acquisitions

Repurchase Shares

Establish Credit Characteristics and Liquidity Objectives, and Adjust

Debt/Cash as Indicated

F

Allocate Excess Capital to Highest Risk-adjusted Return Alternative that

Exceeds WACC

Forecast Long-term Growth and Return Targets

Establish Valuation Based on Business Plan

STEP 1

STEP 2

STEP 3 Fund Maintenance Capex, Pension and Benefit Plans, and Regular Dividend

STEP 4

STEP 5

Share Repurchases Represent High Hurdle for Acquisitions

Note: All scenarios assume SPX achieves mid-point of management margin targets by 2015 and P/E multiple remains constant over time. See Appendix B for repurchase details.

Acquisitions must exceed high risk-adjusted hurdle

$75

$95

$115

$135

$155

$175

$195

$215

$235

$255

Today 2013 2014 2015 2016

Fu

ture

Va

lue

of

SP

X S

toc

kEffect of Repurchases on Stock Price

No Repurchase $200m per year $500m per year

Repurchase Per Year ($m) $ -- $200 $500 IRR 21.4% 25.0% 31.0% 2016 Net Debt/EBITDA (0.2x) 0.7x 2.1x

Selling Thermal Now at a Low Price Will Benefit SPX’s Stock Price

($3.50)

$10.62 $7.12

($6)

($4)

($2)

$ --

$2

$4

$6

$8

Loss on Sale of Thermal Multiple Re-rating Net Gain

Note: “Loss on Sale of Thermal” is calculated as the difference in value of 1) selling Thermal today for 4.0x 2014E EBITDA and 2) the present value of selling Note: Thermal on 12/31/2014 for 6.0x 2015E EBITDA assuming 9% 2015E EBIT margin. Both scenarios assume $400m tax basis and 35% tax rate. “Multiple Re-rating” assumes a 1.0x increase in EV/EBITDA multiple for the remaining businesses and assumes 2015E segment margins at the mid-point Note: of management targets.

Impact on Stock Price of Selling Thermal Now at 4x 2014 EV/EBITDA

Recommendations

Focus on improving returns and margins to peer levels

Communicate SPX’s discipline for allocating approximately $1.9 billion of discretionary cash flow through 2017 (51% of current market cap)

Benchmark all acquisitions to share repurchases No large deals

Ensure that compensation plans support management program to improve operating profitability and proper capital allocation

Continue to divest assets and focus on core businesses

Divest Thermal segment given inability to achieve cost of capital returns Divest Industrial businesses other than Transformers

Recommendations on Executive

Compensation

SPX’s Share Price Has Underperformed by 56% During CEO’s Tenure

SPW4%


30%

Proxy Peers60%

(20%)

--

20%

40%

60%

80%

100%

TS

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Mid

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History of CEO Compensation

Total Compensation ($m)2012 $13,2672011 $12,6622010 $10,7032009 $13,2672008 $16,9702007 $10,8602006 $8,1662005 $5,695Total $91,591

SPX’s CEO Compensation as % of Market Capitalization is in the 90th Percentile of Proxy Peers While Total Return to Shareholders is in the 33rd Percentile

Compensation Plan for NEOs Eliminate executive annual bonus plan (the 162 (m) plan) and use executive plan as SPX

did for 2012 Thresholds for Operating Margin and Operating Income should not be set below prior year actual results

Equity-based awards should be based (i) 50% on performance versus a rolling 3-year business plan with multiple metrics (margin, operating profit, and ROIC) and (ii) 50% on TSR over a rolling three year period

TSR should be measured against the S&P MidCap 400 Industrials Index

Threshold, target, and maximum payouts should be based on 3-year TSR percentile ranking Payouts capped at 100% if absolute TSR is negative

Other benefits and perquisites Eliminate relocation loans for NEOs Eliminate “single-trigger” treatment following change-of-control Eliminate 280G tax “gross-ups” Eliminate incremental match ($30,000) of contribution for NEOs Eliminate post-retirement key manager life insurance benefit Eliminate executive retiree medical benefit Eliminate car allowance, country club dues, financial planning, executive physical, and long-term executive

disability plan Add supplemental executive choice plan to cover miscellaneous perks up to $100,000 for CEO and $75,000

for other NEOs

MidCap 400 Industrials

Composite 1500 Industrials

Number of companies

67 212

Mean Market Cap $3.7B $8.6B

SPX Market Cap $3.5B $3.5B

Employment Agreement With Christopher Kearney

Effective Date - 11/20/2008

Two Year Evergreen

Cap base salary at $1 million (section 162 (m) deductible amount)

In 4(e), eliminate the second and third sentences restricting reductions in perquisites and providing a special tax and financial planning reimbursement of up to $40,000 per year

Eliminate retiree medical benefits

Eliminate 5(e)(v) in definition of good reason regarding reduction of compensation plans and programs

Change-of-Control Agreement With Christopher Kearney

Commencement Date - 3/10/1999

Next Expiration - 3/10/2014

Notice Date - 9/10/2013

Eliminate 280G tax gross-up and cap payments at 280G amount

Eliminate forgiveness of relocation loan and related tax gross-up

Eliminate key manager life insurance program and related tax gross-up

Eliminate additional benefits

Revise definition of “Change-of-Control”

Eliminate 3(d)(v), (vi), and (ix) in definition of “good reason”. This includes single trigger on change-of-control

Proposed Change-of-Control Agreement

Change in Control. For purposes of this agreement, “Change in Control” shall mean the occurrence of a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A under the Securities Exchange Act of 1934 (“1934 Act”) as in effect at the time of such change in control, provided that such a change in control shall be deemed to have occurred at such time as (i) any “person” (as that term is used in Sections 13(d) and 14(d) (2) of the 1934 Act), is or becomes the “beneficial owner,” directly or indirectly, of securities representing 50% or more of the combined voting power for election of directors of the then outstanding securities of the Company or any successor of the Company; (ii) during any period of two (2) consecutive years or less, individuals who at the beginning of such period constituted the Board cease, for any reason, to constitute at least a majority of the Board, unless the election or nomination for election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period or whose election or nomination for election was so approved; (iii) the consummation of any merger or consolidation, approved by the stockholders of the Company, as a result of which the common stock of the Company shall be changed, converted or exchanged (other than a merger with a wholly owned subsidiary of the Company) or of any sale or other disposition in one or a series of related transactions of 50% or more of the assets or earning power of the Company, or the approval by stockholders of any liquidation of the Company; or (iv) the consummation of any merger or consolidation, approved by the stockholders of the Company, to which the Company is a party as a result of which the persons who were stockholders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of directors of the surviving corporation following the effective date of such merger or consolidation.

Source: Home Depot 8-K filed 3-6-2013

APPENDIX

Appendix A: SPX’s Margin Targets Appear Conservative

Alfa Laval FLS GEA SPX

% Aftermarket 28% 42% 20% 28%

End MarketsEnergy 36% 55% 4% 33%Food & Beverage 21% -- 74% 35%Chemical 42% 19% 8% 6%General Industrial/Other -- 26% 13% 26%

Europe (% of Revenue) 31% 21% 34% 26%

Current Operating MetricsEBIT Margin 17% 16% 13% 11%Return on Assets 14% 12% 10% 6%Asset Turns 1.2x 1.1x 0.9x 0.7x

2015 Targets* 18% 18% 13% 13%-15%

SPX’s margin targets are below peers even after accounting for variance in end market exposures and revenues from aftermarket

Note: *2015 Targets are based on management guidance. If management targets are not available, 2015 targets reflect consensus estimates.

Appendix B: Repurchase Valuation Details

SPX has the balance sheet capacity to repurchase $500m of shares per year

2012 2013 2014 2015 2016Revenue $5,218 $5,529 $5,861 $6,215 EBIT $376 $489 $612 $658 Margin 7.2% 8.8% 10.4% 10.6%

Net Income $225 $311 $404 $438 Shares 41.8 38.4 35.7 33.3 EPS $5.39 $8.10 $11.33 $13.13

Free Cash Flow $121 $316 $404 $431

Beginning Basic Shares Out 47.0 41.8 38.4 35.7 Repurchase ($500) ($500) ($500) ($500)

Share Price $96 $147 $185 $213 Shares repurchased (5.2) (3.4) (2.7) (2.3)

Basic shares out - period end 41.8 38.4 35.7 33.3

Forward EPS $5.39 $8.10 $11.33 $13.13 $15.06 Multiple 15.1x 15.1x 15.1x 15.1x 15.1x

Ending Price $70 $123 $171 $199 $228 Price for Repo (average over year) $96 $147 $185 $213

Net Debt to Forward EBITDA 1.3x 2.0x 2.0x 2.0x 2.1xGross Debt to Forward EBITDA 3.1x 2.5x 2.2x 2.2x 2.2x

Note: Assumes P/E multiple remains constant and SPX hits mid-point of management long-term margin targets by 2015.

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