Author 2 Presentation

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Global Mergers Acquisitions
8th October, 2005
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Why Global MA.
What Motivates Companies ?

• The need for faster growth which arises out of
  increasing competition.
• Access to large capital funds and brand
  equity.
• Gaining complementary strengths.
• Expanding Customer Base.
• The need to enhance technological skill sets.
• Expand into new areas to foster growth.
• Widen the portfolio of addressable markets.
• Meet end to end solution needs.
• Opportunity for Growth Given domestic
  limitations and challenges companies worldwide
  have undertaken global MA activities to grow in
  size by adding manpower, access resources
  unavailable in domestic regions and facilitate
  overall expansion.

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Reasons for Increasing Global MA Activity

• Global MA And World Economy
• In the past 25 years, there have been two major
  waves of surging cross-border MA transactions.
  The first wave was in the late 1980s, and the
  second big cross-border buying spree was in the
  latter half of the 1990s. During both of these
  periods, the global economy experienced
  relatively high economic growth and there was
  widespread industrial restructuring, according to
  the United Nations Conference on Trade and
  Development.

• The reasons for these cross-border takeovers
  vary, but their increasing numbers suggest that
  conditions are ripe for a wave of such deals as
  global competitive pressures intensify.
• Much of the increased cross-border MA activity
  this year has involved companies from the US and
  Europe who are in a major consolidation process.
• Such deals are also becoming more common in
  developing countries, which are beginning to
  liberalize their trade and investment markets.
• A pick-up in the global economy is the main
  reason for this year's rebound in cross-border
  MA.
• One factor that is contributing to increased MA
  activity is the increasing importance of private
  equity deals.
• The current wave of cross-border MA deals is not
  only being driven predominantly by transatlantic
  activity, as were the two previous periods of
  frenzied buying in the late 1980s and 1990s. This
  increase is more geographically distributed and
  includes China, India and Latin America
• The growing proportion of MA deals that are
  settled in cash makes it easier to buy outside of
  a region.
• Companies around the world have fixed their
  balance sheets and are generating excess cash.
  Flush with cash, they are more eager to consider
  acquisitions.
• As globalization continues, and multinational
  companies seek to increase market share,
  eliminate competitors, or gain control of
  suppliers the stage is set for a third wave of
  rising cross-border MA.

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Phases of a Global MA Process

• Formulation of the Vision
• GROWTH - The vision for an organization defines
  its purpose, where it is heading, and what it
  intends to do once it gets there. The vision
  includes a well-defined set of core values and
  beliefs that define a companys culture and
  purpose.
• COMPETITION - The vision should identify the
  distinct set of competencies that will enable the
  organization to deliver the unique value required
  to remain competitive as it moves forward. It
  should describe clearly the expectations for what
  the company will look like and how it will
  operate over time. Targets should be identified
  and evaluated in a manner consistent with the
  companys vision.
• Pre-Merger planning
• A coherent pre-merger planning process should
  target companies with the desired capabilities,
  get the deal done, and lay the groundwork for a
  successful integration through rigorous planning
  and building of trust among the players.
• Post-Merger Process
• The post-merger process should be focused on
  cultural integration, retention of key people,
  and capturing well defined sources of value as
  quickly and efficiently as possible.

• 3 Distinct Phases of the MA Process
• Formulation of the Vision
• Pre-Merger planning
• Post-Merger Process
• Successful execution of all phases relies upon
  clearly defined roles and responsibilities and
  effective channels of communication

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K\Utkarsh\GLOBAL MA\GLOBAL MA.ppt\A2XP\03 OCT
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The Strategic Rationale

• Given domestic challenges to achieving growth,
  many companies worldwide will now need
  to look outside their local
  boundaries for continued growth opportunities
• International operations can provide companies
  with new and diversified revenue sources and
  opportunities to leverage economies of scale
• Can also reduce operating costs by tapping into
  lower cost off-shore manufacturing and service
  operations in Eastern Europe and Asia
• Investors are expecting growth in developing
  economies such as India and China
• Europe is a particularly attractive region
• Many industry sectors are more fragmented and
  less efficient than their U.S. counterparts
• Time may be appropriate for select companies to
  pursue growth strategies in Europe
• Well-positioned U.S. companies enjoy a price to
  cash-earnings premium relative to their European
  peersparticularly in the materials, healthcare
  and industrials industries
• however, this window of opportunity is closing as
  U.S. multiples have contracted while European
  multiple have expanded YTD
• The U.S. dollar is currently strong relative to
  the Euro, however it is declining and thus the
  price of foreign assets will increase.
• Companies should act early as historical evidence
  suggests that participating later in the MA
  cycle, significantly decreases the value created
  by the merger or acquisitions

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K\Utkarsh\GLOBAL MA\GLOBAL MA.ppt\A2XP\03 OCT
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Global MA Environment
Announced Transactions Involving Global Targets
Dollar Volume Average Transaction Size Bn MM

Numbers below the
columns represent number of announced deals
(aggregate value of over US100MM) for that year
Actual
Annualized
Avg. Transaction Size
Notes 1. Includes announced transactions, each
with an aggregate value of 100MM or more.
Includes transactions with estimated values
Excludes terminated transactions. Future
terminations of pending transactions will reduce
totals shown 2. Includes transactions announced
as of 30 June 2005. 2005 Annualized
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Global MA Environment
Correlation With Broader Economy
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

• Notes
• Includes announced transactions, each with an
  aggregate value of 100MM or more. Includes
  transactions with estimated values. Excludes
  terminated transactions
• MSCI World Index indexed to 2.5 on start of
  period, 1st quarter 1996
• Percentage change on the same quarter of the
  previous year based on constant OECD GDP data 2Q
  2005 Illustrative GDP growth based on Morgan
  Stanley estimates

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K\Utkarsh\GLOBAL MA\GLOBAL MA.ppt\A2XP\03 OCT
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Global MA Environment
Growth in the Worldwide MA Markets
U.S. Targets
Non-U.S. Targets
Avg. Transaction Size

• Notes
• 1. Includes announced transactions, each with an
  aggregate value of 100MM or more. Includes
  transactions with estimated values
• Excludes terminated transactions. Future
  terminations of pending transactions will reduce
  totals shown
• Includes transactions announced as of 30 June
  2005. 2005 Annualized
• Percentage increase/decrease year over year

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K\Utkarsh\GLOBAL MA\GLOBAL MA.ppt\A2XP\03 OCT
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Global MA Environment
Announced Transactions By Value Range
100MM500MM
500MM1Bn
1Bn5Bn
5Bn

• Notes
• Includes announced transactions, each with an
  aggregate value of 100MM or more. Includes
  transactions with estimated values. Future
  terminations of pending transactions will reduce
  totals
• Includes transactions announced as of 30 June 2005

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Global MA Environment
Worldwide Target Transactions of 10 Billion or
More
Dollar Volume Bn

• Target/Acquiror Bn
• Gillette/Procter Gamble 57
• UFJ/Mitsubishi Tokyo Fin. Grp. 41
• MBNA/Bank of America 36
• ATT/SBC Communications 22
• Unocal/China Natl Offshore Oil 20
• Unocal/ChevronTexaco 19
• HVB/Unicredito Italiano 18

Target/Acquiror Bn VodafoneGMBH/Vodafone Group
PLC 185 Piezer/Warner Lambert Co 110 Vodafone
America Asia/Vodafone Group 57 Mediaone
Group/ATA Corp 55 ELF Aquitaine/Total SA 52
Target/Acquiror Bn Historic TW Inc/Time
Warner 186 Smithkline Beecham/Glaxosmithkline 72
SeagramCo/Vivendi Universal SA 43 Texaco
Inc/Chevron 42 Orange PLC/France Telecom 41
Notes 1. Includes announced transactions, each
with an aggregate value of 10Bn or more.
Includes transactions with estimated values.
Excludes terminated transactions. Future
terminations of pending transactions will reduce
totals. Seven largest transactions are detailed
for each of 2002, 2003, 2004, and
2005 2. Includes transactions announced as of 30
June 2005
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Global MA Environment
Announced Transactions by Region of Target
World Region of Target Billion
World Region of Target Bn

• Notes
• Includes announced transactions, each with an
  aggregate value of 100MM or more. Includes
  transactions with estimated values. Future
  terminations of pending transactions will reduce
  totals
• Includes transactions announced as of 30 June
  2005. 2005 Annualized

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Global MA Environment
Announced Transactions by Region of Acquirer
World Region of Acquiror Billion

• Notes
• Includes announced transactions, each with an
  aggregate value of 100MM or more. Includes
  transactions with estimated values. Future
  terminations of pending transactions will reduce
  totals
• Includes transactions announced as of 30 June
  2005. 2005 Annualized

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Global MA Environment
Announced Transactions by Target Industry

• Key Points Title
• First key point
• Sub point

Worldwide Targets (Bn)
Notes 1. Includes announced transactions, each
with an aggregate value of 100MM or more.
Includes transactions with estimated values.
Excludes terminated transactions. Future
terminations of pending transactions will reduce
totals shown 2. Includes transactions announced
as of 30 June 2005
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K\Utkarsh\GLOBAL MA\GLOBAL MA.ppt\A2XP\03 OCT
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Americas MA

• WORLD REVIEW MA
• The urge to merge remained strong in second
  quarter. For the first six months of 2005,
  worldwide merger volume climbed to over US1.2
  trillion, the best showing since the second half
  2000 when volume reached US1.49 trillion.
• US companies accounted for almost 43 of all MA
  targets. Europe comprised 36.3 of target
  activity while Japan accounted for 6 and ROW
  accounted for 3

In the first half of 2005, the three most active
industries were Energy and Power, Financials, and
Media and Entertainment. Several large deals
were announced in the second quarter US35.8
billion planned acquisition of MBNA by Bank of
America, US18.9 billion and US20.4 billion
competing bids for Unocal Corp by Chevron Corp
and China National Offshore Oil,
respectively. The planned acquisition of Adelphia
Communications Corp for US17.6 billion by Time
Warner Inc and Comcast Corp. The planned
acquisition by the Dolan Family of the remaining
77 interest in Cablevision Systems Corp for
US17.2 billion. The US57.2 billion Procter
Gamble mega-merger continued to drive the
Consumer Products and Services industry volume
and remains the highest value deal announced in
2005. US MA Totals more than 550 billion for
First Half 2005 The record-setting pace of 2005
continued through the second quarter. Since 2001,
the first half of 2005 was the most active
6-month period for announced US target
transactions of more than 550 billion in volume.
The number of deals announced decreased from last
year as the trend towards mega deal structures
continues.
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European - MA

• NOTEABLE DEALS
• Gas Naturals 51.7 billion unsolicited bid for
  rival Endesa in Spain.
• Italian Bank UniCreditos 18.6 billion
  acquisition of German rival HVB
• Pernods 17.7 billion deal to buy Britains
  Allied Domecq
• OAO Rosnefts US7.1 billion acquisition of OAO
  Gazprom
• Russia witnessed the US7.12 Billion
  Gaprom/Rozneft transaction
• These and other similar deals have led the way in
  Europe and have started to create a knock-on
  effect as deals that have been bubbling under the
  surface finally find their way onto the table

• Increasing Appetite for European Targets
• In the first six months of 2005, the number of
  announced deals with a European target decreased
  from 5,266 to 4,951transactions, while the
  overall volume level in the first half increased
  by 35 from 301.6 billion to 406.1billion.
• Sector Wise Break Up
• Financials, accounting for 19.2 of the market,
  was the most active sector in Europe.
• Transactions in the Energy and Power sector
  accounted for 9.6 which was the second most
  active sector of the market.
• UK Companies Account for 24 of European Targets
  and Italy ranks second with 17 of the market
  share
• The most active country at the half year stage
  was the UK. Compared to this time last year, the
  value of UK targets rose from US75.5 billion to
  US99.5 billion.
• Italy was the second most active country
  accounting for 17.1 of the market. The total
  rank value increase was largely due to Weathers
  US15.2 billion two-step acquisition of Wind and
  Electricite de Frances US9.8 billion takeover
  offer for Edison.
• Russia Czech Republic Rise to the Occasion
• Russian target announced MA transactions rose
  from US2.7 billion to US11.2 billion. Also of
  note was the volume of announced MA transactions
  involving Czech Republic targets which was fueld
  by Telefonicas US6.4 billion two-step
  acquisition of Cesky Telecom and Vodafones
  US4.4 billion acquisition of Oskar Mobil.

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Asia Pacific MA

• TOP DEALS
• China National Offshore Oil Corp's recently
  announced unsolicited challenging offer to
  acquire Unocal Corp, for US20.4 billion, topped
  all Asian ex-Japan transactions for this quarter
• Hite Brewery Co Ltds announced acquisition of
  Jinro Ltd for US3.4 billion, was the second
  largest transaction

Asia Pacific climbs more than 82 Overall
announced Asian (excluding Japan) MA Involvement
activity surged 82.9, amounting to US98.2
billion in the first half of 2005 compared to
US53.7 billion during the same period last
year. South Korea Region's Top Haven for
Investors (by dollar value) South Korea
continued to dominate the MA target nation list
for this quarter, garnering a total of US12.6
billion worth of transactions, with 84 deals.
China moved up one place to become the second
busiest nation, with a total of 804 transactions
amounting to US11.8 billion. Hong Kong has
overtaken Indonesia as the third busiest nation
with 386 transactions totaling US8.1
billion. Energy and Power as the most Active
Sector The most sought after industry for
dealmakers in Asia ex. Japan was the Energy
Power sector, with a market share of 32.3 for
the second quarter, representing a 125.9
increase, compared to 14.3, same period last
year. The top industry had 192 transactions worth
US31.7 billion. The Financials sector was the
second most active sector, accounting for 19.9
of the market, valued at US19.6 billion with 597
deals. .
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Client Name or Project Name
Japanese MA
With Record Deal Volume, Japan Outpaces UK A
record 1,196 Japanese target deals were announced
in the first half, reaching an aggregate value of
US108.85 billion, despite a typically slower
second quarter. The Japanese MA market, which
falls roughly between Australasia and the UK in
terms of dollar volume and deal count, surpassed
the UK for the first time on both counts in the
first half. Defensive Maneuvers A MITI study
group (Ministry of International Trade
Industry) released official guidelines for
corporate defense measures coinciding with a rush
of company announcements proposing the adoption
of poison pills, board reorganizations, and MA
transactions aimed at consolidating control over
listed subsidiaries. In May and June alone,
nearly 100 companies announced intentions to
introduce some manner of defense against hostile
takeovers. Cross Border Lost in
Transactions Cross-border MA investment into
Japan dropped nearly 90 in the first half to
US958.2 million from/to 47 deals. 87 deals,
totaling 8.19 billion were announced in the
comparable 2004 period.

• TOP DEALS
• Nomura topped the announcement-based tables with
  US72.21 billion in deals.
• Mitsubishi Tokyo Financial Group ranked second at
  US 51.2 billion in deals.

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MA Trends in India

• A predominant theme in todays MA market is
  the emergence of large volume transactions.
• And the growing capital markets will further
  help in increasing MA activities in India
• NOTEABLE DEALS IN 2005 (YTD)
• Hutchison Communication acquired BPL
  Communications forUS 1152.52 million
• Ambuja Cement India Ltd acquired Associated
  Cement Company for US 840.66 million
• The lowest deal in the current year was
  Beethoven Ltd acquiring Simplex Concrete Pile
  India for US 21.43

DATA IN COLUMS REPRESENT NUMBER OF DEALS
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Global Hostile Activity - Overview
Aggregate Hostile Activity (1) Bn

• A predominant theme in todays market is the
  emergence of the opportunistic/hostile suitor
• Comcasts 67Bn offer for Disney
• Sanofi-Synthelabos 66Bn offer for Aventis
• Gas Naturals 29Bn offer for Iberdrola
• Oracles 9Bn offer for PeopleSoft
• Harmonys 8Bn offer for Gold Fields
• Alcans 7Bn offer for Pechiney SA
• ArvinMeritors 5Bn offer for Dana Corp.
• Zimmers 4Bn offer for Centerpulse AG

American (North/South) Targets
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Hostile Activity Has Been Widespread Across
Industries
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Indian MA Regulatory Environment
Summary Comments

• The Indian MA environment is a strongly
  regulated by the following major pieces of
  legislation/bodies
• The Companies Act, 1956
• The Takeovers Code, 1997
• The Monopolies and Restrictive Trade Practices
  Act, 1969
• The Foreign Exchange Management Act, 1999
• The Foreign Investment Promotion Board (FIPB)
• The Reserve Bank of India
• The Income Tax Act, 1961
• Mergers, amalgamations, de-mergers, acquisitions
  of business units or divisions, are all governed
  by The Companies Act for all registered companies
• Acquisition of shares in listed Indian companies
  is governed by The Takeover Code, 1997.

• The Indian MA environment is a highly regulated
  one with several pieces of legislation as well as
  institutions exerting control over the process

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Why Global MAs Fail !!!

• Research has conclusively shown that most of the
  mergers fail to achieve their stated goals.
• Some of the reasons identified are
• Corporate Culture Clash
• Lack of Communication
• Loss of Key people and talent
• HR issues
• Lack of proper training
• Clashes between management
• Loss of customers due to apprehensions
• Failure to adhere to plans

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Why Global MAs Fail !!! (contd)

• Unsuccessful Deals due to lack of Effective
  Communication Strategy.
• Hewlett-Packard Co.'s acquisition of Compaq Corp.
• Conseco Inc.'s acquisition of Green Tree
  Financial Corp.
• Newell Co.'s takeover of Rubbermaid Inc. In
  contrast
• Successful Deals
• PepsiCo Inc.'s acquisition of The Quaker Oats Co.
  
• Reed Elsevier Plc's acquisition of Harcourt
  General Inc.
• These deals succeeded largely because, in each
  case, the acquirer explained to investors the
  rationale behind its respective deal - carefully,
  honestly and succinctly.

• Communications strategy can make the difference
  between success and failure of a Global MA
  transaction.
• Slick press releases and conference calls can't
  save a bad deal, but a poorly conceived
  communications strategy can - and usually will -
  kill one that may make good strategic sense.
• Over the last several years, many of the biggest
  unsuccessful deals, as measured by
  post-announcement return to shareholders, have
  performed poorly in large part because the
  acquirers didn't tell their story adequately
• If the deal is dilutive in the short term, but
  makes "strategic" sense long-term, there should
  be a compelling economics for profitable growth.
• For the transaction to be successful,
  Constituencies - particularly investors and
  employees - must be convinced that the company is
  capable of delivering on its promises and that
  they will be better off if the deal is completed.
  
• In short, An Effective Communication Strategy
  helps in securing everything from shareholder
  approval to meshing two organizational cultures.
• Lack of IT Integration Seen As One of the Key
  Reasons to MA Failure
• The lack of focus on IT integration during the
  "lifecycle" of a merger or acquisition inevitably
  can lead to a host of problems. For example,
  while many companies look to IT to help bring
  about a successful merger, many do not involve IT
  in the decision process before the deal is done.
  Frequently, the result is that companies are less
  able to recognize potential difficulties in
  uniting IT operations before the actual
  integration has taken place

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Why MAs Fail !!! (contd)
What is Cultural Integration ?

• Research indicates that senior executives who
  have personal experience with a merger or
  acquisition rate underestimating the importance
  and difficulty of integrating the two cultures as
  a major cause of MA failures.
• Organizational Culture Cultural Integration
• "How we get things done around here" is a short
  yet evocative definition of Organizational
  culture. It includes the emotional, cognitive and
  behavioral patterns among employees and how they
  interact with colleagues, customers, suppliers,
  and other stakeholders in their original firms.
• Organizational culture includes the informal
  practices and the implicit norms and values that,
  as much as the codified rules, silently guide the
  how of employees' daily work.
• Cultural Integration is the meshing of the two
  different Organizational Cultures. And when two
  firms combine, deal-makers and process managers
  always should be careful to integrate the formal
  rules and policies which previously governed each
  separate firm. 
• Failure of Cultural Integration can have adverse
  impacts on the MA transaction
• Clash between the two Managements and clash
  between Management Employees.
• Creates differences among employees which can
  result in operational inefficiencies.
• Negatively affects the value creation process
  after the transaction is complete
• Loss of Key employees
• Negatively affects the strategic communication
  process.

• It is well known that many MA efforts lack a
  critical success ingredient sustained attention
  to the Cultural Integration of the two sets of
  employees and their daily work processes.
• Research indicates that senior executives who
  have personal experience with a merger or
  acquisition rate underestimating the importance
  and difficulty of integrating the two cultures as
  a major cause of MA failures.

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