Third Point Q4 Letter

8/14/2019 Third Point Q4 Letter

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FourthQuarter2009InvestorLetter

March 1st, 2010

Dear Investor:

During the Fourth Quarter of 2009 and for the year, Third Point produced the following netreturns:

ThirdPoint

OffshoreFund,Ltd. S&PTR CSEventDriven2009 Annual Performance 38.6% 26.5% 20.4%

2009 Fourth Quarter 8.0% 6.0% 4.9%

Annual Standard Deviation 13.7% 16.4% 6.4%Monthly Correlation to S&P 0.4 1.00 0.6The top winners for the quarter were Delphi Corp, Dana Holding, Chrysler, Health Net Inc.,and General Growth Properties. The top losers for the quarter were Barclays, PHH, Fortis,Short Financial A, and Punch Taverns.

Firm assets under management at January 1, 2010 were $2.5 billion.

QuarterlyResults

Performance for the quarter was driven primarily by gains in postreorganization equities,distressed credit, mortgage bonds, and equity investments in health care companies.

The following is a brief discussion of selected positions that impacted the portfolio duringthe fourth quarter.

CreditInvestments/Post

-Reorganization

Equities

CIT Group Inc. filed a prearranged Chapter 11 reorganization plan on November 1, 2009after several months of planning and negotiations with key creditor constituents. Thebankruptcy filing was necessitated by CITs inability to fund significant debt maturities dueto the dislocation in the credit markets and the lack of government support via TLGP, whichthe company had hoped in vain would be forthcoming in July 2009. We had beenmonitoring the situation, and the Chapter 11 filing provided us with an opportunity to


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purchase senior unsecured debt at what we believed to be a 25%+ discount to the assetvalues that could be realized in an orderly winddown.

A restructuring of a $53B nonbank financial completed within six weeks (planconfirmation was December 8, 2009) was virtually unprecedented. Through our initial

sizeable November debt investment in senior unsecured bonds, we received asconsideration $0.70 of a strip of 7% Second Lien Notes (20132017), and our prorataownership of 77% of the new common equity of the company via the December emergence.We created our equity position at approximately 0.4x plan book value (~$3B), whichquickly traded up to 0.7x plan book value upon listing on the NYSE.

CIT is currently one of our largest positions because we believe it presents a compellingoption on the potential revitalization of one of the countrys largest middlemarket lendersas it transitions (according to our thesis) to a lending institution which will be fundedeventually via a retail deposit base. This path will require regulatory approvals, but thecompany has already reduced debt by some $10B and has extended maturities so that it

has time to attempt this transition to a bankcentric model while optimizing the value of itsnonbank eligible businesses (e.g. transportation finance) as the economy stabilizes andasset values recover.

Since the beginning of the year, CIT shares have appreciated approximately 32%,significantly exceeding the results of the S&P 500 (flat) and the BKX KBW bank index(+10.5%).

Mortgage Securities

Mortgage securities contributed significantly to our returns during the fourth quarter, and

have also performed strongly so far in 2010, both in terms of bond appreciation and prepayments.

Most of our current portfolio is composed of singlename, senior RMBS positions with anaverage size of $10M. However, we have invested opportunistically in mortgage indices aseventdriven trades from time to time, starting with a short of the ABX in the spring of2007.

Late in the third quarter, we entered the CMBX index of commercial mortgages as a meansof expressing our conviction that the governments PublicPrivate Investment Partnership(first announced in the fall of 2008) would in fact be funded during the fourth quarter of

2009. The Legacy Securities component of the PublicPrivate Investment Program (aka PPIP) is a joint initiative between Treasury, the Fed, and the FDIC that was developed toreturn liquidity to markets for previously issued CMBS and nonagency RMBS by providinggovernment equity coinvestment and favorable debt financing. As mentioned in previousletters, we were not interested in participating in PPIP, but saw the opportunity to tradearound it as enticing.


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As the manger selection and subsequent private capital fundraising process wore on, themarket pulled back its conviction that PPIP would be funded, giving us the opportunity tobuy the CMBX at a price that translated to a 1718% levered return for eventual PPIPparticipants. The bonds we purchased were the top 70% of the capital structure and webelieved that they were covered by their underlying asset values and that, over time, they

would return par. Based on the low risk nature of the asset and our conviction that thegovernment partnership was imminent, we thought these securities would tighten. Ourthesis proved correct, and we profited in the fourth quarter as PPIP starting buying bondsand they tightened, though not as quickly as we had anticipated.

EquityInvestments

Health Net

In the midst of the chaos during last summers healthcare debate, we established a positionin Health Net common equity when the stock sold off following the announcement of the

companys loss of its Tricare contract with the US Department of Defense and the sale of itsNortheast assets to United Health. We believed this contract loss was not a faitaccompliand that the prevailing price did not reflect the residual value in the business. We also feltthat the resolution of healthcare reform legislation would remove the current valuationoverhang across the managed care space. Health Nets high quality management team isfocused on maximizing shareholder value, and CEO Jay Gellert is a significant shareholderin the company.

We expect Health Net will increase profitability over the next several quarters asmanagement focuses on reducing costs. Post health care reform, the benefits of scale willbecome increasingly important as the industry focuses on wringing costs out of the system.

The Company has significant cost reduction opportunities and is well positioned to takeadvantage of consolidation in the healthcare industry once the regulatory environmentstabilizes.

RiskArbitrageInvestments

Mead Johnson Nutrition

As we mentioned in our Third Quarter 2009 letter, we primarily focus on mergers andacquisitions as fertile ground for compelling fundamental investment opportunities asmore often than not, we find unlevered arbitrage spreads uninteresting.

A few investments made during the Fourth Quarter highlighted the value in this approach,one of which was a new long position in the shares of Mead Johnson Nutrition (MJN). MJNis a global leader in infant formula and pediatric nutrition and is most wellknown for itsflagship product, Enfamil.

We like the MJN story for two reasons. First, the company has a highly attractive earningsgrowth profile. It generates almost 60% of its sales from emerging markets in Asia and


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Latin America, where structural tailwinds like increasing middle class births, greater levelsof consumer education, and higher female participation in the workforce are drivingsustainable doubledigit sales growth. Once birth rates normalize in the developed world,the company will generate one of the fastest longterm sales and profit growth rates in thelarge cap consumer staples universe.

Second, we believe the company represents a compelling acquisition target for multipleparties following its complete separation from BristolMyers Squibb in December 2009.MJNs geographic footprint (high market share in North America and key emerging marketsaround the world and low market share in Europe) is highly complementary to that ofNestle or Danone. Additionally, both companies are focused on health and wellness, haveacquired infant nutrition assets in the past (Nestle paid 15.7x EBITDA for Gerber andDanone paid 21.7x EBITDA for Numico), and are currently large enough to swallow MJN.Now that MJN is fully independent, BristolMyers Squibbs low tax basis in the asset nolonger complicates a potential transaction. Though the timing of such an event is of coursedifficult to predict, and several tax, legal and regulatory hurdles may first need to be

overcome, we are content to wait for a buyer to emerge, knowing we paid a fair price for atruly bestinclass asset with a long runway of emerging marketsled growth.

InvestmentOutlook

We are relatively constructive about markets generally in light of modest valuations,accommodating monetary policy and economic data which suggest growth from the precrisis lows. However, against this backdrop remain numerous issues that weigh onsentiment, creating opportunities for investors, but presenting real risks to robusteconomic recovery. Among the issues we track that have the potential to create marketdislocations are:

US government deficits at the municipal, state and federal levels, includingentitlement liabilities, and their impact on inflation, interest rates, and growth

Unwise US regulatory intervention European sovereign default risk weighing on the Euro Middle Eastern defaults Japanese fiscal/demographic crisis Chinese economic growth, credit quality and currency volatility Peak Oil impact on geopolitical stability and economic welfare Climate change

Accordingly, since it is difficult to predict which of these "monsters in the closet" will revealthemselves and when (just as it was difficult to predict when the subprime crisis wouldcome home to roost), it is important to continually monitor each of these risks, even aseventdriven, bottomup investors. Unlike the subprime debacle, where it was possible toset up bearish bets even after the market started to fail, I am concerned that many of theissues we monitor today could unravel quickly in a step function. We have begun to set upvarious trades to hedge against "fat tail risk", as we did early in 2009. While we have only a


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small percentage of capital at risk in such protective trades, we expect to increase theamount of protection purchased to about 2% per annum over the coming weeks andmonths capital we would be very pleased to lose should such protection proveunnecessary.

Notwithstanding a challenging start to the year, with markets flat as of this writing, wehave found ample opportunity within our investment framework to exceed market returnsand to meet our partners capital gains needs. In particular, distressed credits and postreorganization equities, special situations and certain short positions are doing well. Wehave also avoided many consensus trades, including cyclical and commodity stocks, gold,Chinese and other emerging markets, all of which were terrific performers for other fundslast year but do not meet our framework or qualify as part of the knitting we do best and towhich we are sticking.

While immediate opportunities in corporate performing credit have waned, we are seeing astrong surge in corporate M&A activity, which produces investment possibilities directly in

risk arbitrage investments and sometimes around the fringes, as noted above. While wehave taken down our exposures since their peak in midJanuary, we like our portfolio andremain excited by the new eventdriven situations we are seeing every day. Capital inflowsto the funds suggest that our existing and new investors share these sentiments, and we areever grateful for the votes of confidence that so many of you have shown.

Please feel free to contact Investor Relations or me directly with questions or thoughts.

Sincerely,

Daniel S. Loeb

_____________________

The performance data presented represents that of Third Point Offshore Ltd. All P&L or performance resultsare based on the net asset value of feepaying investors only and are presented net of management fees,brokerage commissions, administrative expenses, and accrued performance allocation, if any, and include thereinvestment of all dividends, interest, and capital gains. The performance above represents fundlevelreturns, and is not an estimate of any specific investors actual performance, which may be materiallydifferent from such performance depending on numerous factors. All performance results are estimates and

should not be regarded as final until audited financial statements are issued.

While the performances of the Funds have been compared here with the performance of a wellknown andwidely recognized index, the index has not been selected to represent an appropriate benchmark for theFunds whose holdings, performance and volatility may differ significantly from the securities that comprisethe index.

Past performance is not necessarily indicative of future results. All information provided herein is forinformational purposes only and should not be deemed as a recommendation to buy or sell securities. All


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investments involve risk including the loss of principal. This transmission is confidential and may not beredistributed without the express written consent of Third Point LLC and does not constitute an offer to sellor the solicitation of an offer to purchase any security or investment product. Any such offer or solicitationmay only be made by means of delivery of an approved confidential offering memorandum.

Information provided herein, or otherwise provided with respect to a potential investment in the Funds, may

constitute nonpublic information regarding Third Point Offshore Investors Limited, a feeder fund listed onthe London Stock Exchange, and accordingly dealing or trading in the shares of that fund on the basis of suchinformation may violate securities laws in the United Kingdom and elsewhere._____________________

Documents

Third Point Q4 Letter