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Pennant Capital Management LLC Sends Letter to the Board Members of Securitas Direct: Objects to Sale.

CHATHAM, N.J., Nov. 21 /PRNewswire/ -- Pennant Capital Management, LLC sent a letter to the Members of the Independent Committee of the Board of Securitas Direct, the full text of which is set forth below.

Dear Members of the Independent Committee of the Board,

Pennant Capital Management is writing this letter to urge you to 1) reject the ESML Intressenter offer, 2) pursue an optimal capital structure independent of a sale of the Company and 3) dismiss your conflicted advisors Skandinaviska Enskilda Banken AB ("SEB"). Pennant Capital currently holds approximately 23.9m shares, representing approximately 6.5% of the issued and outstanding class A and class B shares of Securitas Direct AB.

We consider the offer to buy out class B shareholders at SEK 26 per share to be grossly inadequate. We believe a fair valuation of Securitas Direct is easily above SEK 40 per share. This valuation reflects the cash flow power of the existing customer portfolio, the prospects for many years of strong growth at attractive returns and the predictable, recurring nature of the Company's business and its ability to carry debt.

Pennant Capital believes the bidders are opportunistic in trying to exploit investor confusion about the difference between current accounting earnings and the fundamental cash flow power of the customer base. Securitas Direct's accounting is unusually conservative in expensing most of the expenditures related to acquiring new customers and installing alarm systems. By choosing not to capitalize these outlays, Securitas Direct pushes out accounting profits into the future. As the Company grows strongly, these customer acquisitions costs overwhelm the income statement and understate the steady state cash flow power of the customer portfolio. In effect, the faster the growth, the worse the earnings appear in the short-term.

For the purpose of illustration, if Securitas Direct only added enough customers to replace the churn in the existing customer base and therefore maintained the portfolio at its current size, the cash flows inherent in this steady state portfolio would be worth around SEK 32 per share. However, Securitas Direct has a tremendous opportunity for many years of continued strong growth. Only 4% of European homes use a monitored alarm system as compared to about 20% in the US. The Company's strong growth outlook is echoed in the bidding consortium's stated plan to "accelerate the Company's growth". Importantly, cash flows from the existing customers are supporting portfolio growth at the current mid to high teens percentage rate on a cash neutral basis. In other words, the current SEK 32 per share value of the customer portfolio will grow by 15-19% per year. Even with just a few years of growth, the present value of the future portfolio easily exceeds SEK 40 per share.

We believe the bidders are highly disingenuous in praising the advantages of private ownership during a growth investment phase for Securitas Direct, while simultaneously planning to add SEK 5.5 billion in debt to the capital structure. With this proposal, directors Gustav Douglas and Ulrik Svensson have shamelessly put their own interests before those of the public shareholders. If these directors considered a leveraged capital structure to be preferable, then why didn't they pursue this strategy for the benefit of all shareholders? We are open to the idea of some financial leverage in combination with a share buy-back. This would provide all shareholders an option to increase their percentage ownership of the equity and amplify future returns without additional cash investment. We encourage you to determine the optimal capital structure for Securitas Direct independent of a sale of the Company, and to share this analysis with the public through the advisors' fairness opinion(s) as part of the evaluation of the offer.

The bidding consortium ESML includes current class A shareholders and their representatives on the Board. Since the class A holders are not selling their shares, they have an incentive to effect a transaction at the lowest possible price in order to maximize their percentage ownership in the recapitalized Company. The consortium also includes EQT, the Wallenberg family's private equity fund. Members of that same family are also Chairman and Deputy Chairman of SEB, which is not only providing debt financing for the proposed transaction but is also advising you, the independent directors, on the opposite end of the transaction. We are deeply concerned that you have agreed to receive conflicted advice from a bank, whose senior executives are directly related to the buyer, and we do not believe that retaining SEB as your advisor is in accordance with the Swedish Code for Corporate Governance. We welcome your recent addition of JP Morgan as independent advisors but further encourage you to drop SEB as your advisor altogether.

In summary, we object to a takeout of the class B shareholders at SEK 26 per share. To be clear, we are not after a bump in the offer price of a few kronor. We believe the present value of Securitas Direct's shares is in excess of SEK 40 per share, far more than the offer price, and we expect to realize this valuation by holding the shares over a number of years. We encourage the committee and its advisors to expose the offer for what it is: a blatant attempt by insiders to take advantage of investors focused on inapplicable valuation metrics. We do not believe that this is best achieved by hiring a conflicted bank, which is bound to profit immensely from a transaction. We urge you to dismiss SEB as your advisor.

 Alan P. Fournier,
 Managing Member
 Pennant Capital Management, LLC

 About Pennant Capital Management, LLC

Pennant Capital Management, LLC is an investment advisor founded by Alan Fournier in January 2001 and currently manages over $2.2 billion in investor capital.

While Pennant Capital currently holds a position in Securitas Direct, nothing in this letter is intended to restrict in any way Pennant Capital's ability to add to, hold or sell that position.

CONTACT: Keith Richardson, Chief Financial Officer, Pennant Capital Management, LLC, +1-973-701-1100
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Publication:PR Newswire
Date:Nov 21, 2007
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