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Mergers and Acquisitions: an Introduction Discussion document January 14, 2010 CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited

PRA-ZXY050-20100114-21500P1E After a significant drop in M&A during 2008 and 2009 a revival is expected Value Number M&A is dead? of deals Announced deals 1 USD billion Number of deals 5,000 12,000 “M&A is and will continue to be a key pillar of our 10,000 4,000 investment strategy” – CFO of a leading 8,000 3,000 consumer goods player 6,000 2,000 4,000 1,000 2,000 “We continue our strategy by doing small 0 0 transactions as recent 2000 01 02 03 04 05 06 07 08 2009E business” annualized 2 – Head of M&A of a large multinational bank No, based on recent survey, 73% of participants 3 plan to increase M&A activities over the next 3 years 1 Includes deals of more than USD 25 million only 2 Based on same multiple of deal value for full year/deal value until March as 2008 3 Based on “Excellence in M&A” database | SOURCE: Dealogic; “Excellence in M&A” survey McKinsey & Company 1

PRA-ZXY050-20100114-21500P1E In its broadest sense, M&A refers to a change of ownership; the various types of M&A can be characterized on several dimensions Key dimensions Implications for deal process � � Friendly In a friendly deal, discussion with target management � Approach to target Hostile and (limited) exchange of data possible � In hostile bid, the target’s management actively opposes the transaction (while respecting their fiduciary duties) � � Public (listed) company For publicly held and state-owned targets process defined � Target ownership State-owned in takeover regulations � � Privately held Privately held target allows for more customized process � � Merger of equals Deal type has consequences for legal/structuring aspects Transaction � Acquisition of the deal structure � � Divestiture Implications for negotiation intensity and tightness of process � JV/Alliance � � Controlled auction Auction: deadlines set by seller Transaction � � Negotiated transaction Negotiated sale: process is mutually process agreed upon by both parties � � Cash only Acquirer must secure financing for cash consideration Type of � � Shares or cash and shares Dilution must be considered in shares considerations consideration � � (Partially) deferred Deferred consideration is effectively debt from seller Common types of transaction processes � Friendly private acquisition in controlled auction � Friendly public acquisition in a negotiated transaction � Friendly private divestiture in a negotiated transaction � Friendly public merger of equals in a negotiated transaction | McKinsey & Company 2

PRA-ZXY050-20100114-21500P1E M&A is frequently driven by differences between actual price M&A as enabler and potential value M&A a core lever Integrated value creation Capital market strategy diagnostics � Analyze interdependencies � Understand current among strategic Capital market value Integrated opportunities market � Identify key value drivers � Design most effective Actual strategy diagnostics � First estimates of total market price integrated strategy value creation for corporation (make opportunities iterations if needed) � Formulate integrated action Value with plan Value as-is financial Business strategies Financing strategies restructuring � Identify operating � Identify opportunities improvement for financial/capital Strategies Financing opportunities restructuring for perfor- � Identify growth � Estimate value creation strategies mance opportunities potential � Estimate value � Formulate action Value with Value with creation potential program operating ownership of business improvements restructuring Ownership strategies strategies � Identify opportunities � Formulate action for ownership restructuring plans of corporate portfolio Value with (acquisitions/divestments/ growth Strategies Ownership spin-offs etc) opportunities for growth strategies � Estimate value creation potential from ownership restructuring � Formulate action plan | McKinsey & Company 3

PRA-ZXY050-20100114-21500P1E Synergies: value created by the combination of two companies EXAMPLE above and beyond what each company could reach NOT EXHAUSTIVE on a standalone basis � � � Remove overlapping costs/assets Identify and aim for world-class skills Invest behind new business � Exploit cross-selling opportunities in (new hires, new processes) opportunities coming from the deal � overlapping franchises Manage performance for step- (e.g., new products, new � Protect key customers and top talent change improvements geographies) � � � Defend market share, support key Ensure real meritocracy to surface Exploit joint platforms to pursue new initiatives best people for each business line strategic options, e.g., � – Optimize cost of capital New growth markets � – Transfer management talent and Second-step acquisitions other skills between businesses Standalone value “Real” synergies Uplift in performance New strategic Total value and performance transformation options transformation Phase I – “Making Phase II – “Overall uplift the most of the for combined entity” target” | McKinsey & Company 4

PRA-ZXY050-20100114-21500P1E Transaction processes vary depending on the type of M&A and must be linked to merger management Announce Close M&A process (indicative for friendly private acquisition) Conduct Establish Develop “as-is” and Conduct due Negotiate Complete Define strategy contact and initial price/ synergy diligence agreement deal process proposal valuation � � � � � � � M&A linked to Target Started Non- Negotiations Negotiations Transaction � strategy evaluated negotiations binding bid In-depth target finalized closed: � � Clear M&A outside-in with target (if required) analysis All relevant ownership � � � targets Synergies/ Agreed developed and Final valuation approvals change � � Understood dissynergies transaction submitted Binding bid (e.g., antitrust) completed sources and identified and process details developed and obtained � size of value quantified submitted Financing creation secured � SPA 1 signed Merger management process Design new Launch Plan Implement company (NewCo) projects � � � Top-level targets defined Baseline developed Bottom-up synergy � � Senior managers actively engaged in this process Detailed top-down targets quantification (potentially constrained by (typically iterative announcement promise) with top-down � Potentially, more aggressive targets) � targets set internally to push All teams launched � integration team Plan for Day 1 � May use clean team to improve 1 Share purchase and sale agreement access to data | McKinsey & Company 5

PRA-ZXY050-20100114-21500P1E Excellent M&A players rely on 5 principles Tailored approach Strict M&A governance � Clear responsibilities � Transparent decision procedures and criteria � Controlling of M&A targets Indicators of Clear M&A processes successful M&A M&A linked to strategy � Proactive sourcing � Link to corporate � Stage-gate process � Grow faster strategy � “Learning” M&A function � Create more value � Clearly defined � Not too many M&A targets � Programmatic “misses” � No disasters M&A enablers in place M&A approach � Tailored playbook � Effective and � Deep understanding � “Best-in-class” toolbox efficient processes of value drivers � Management incentive schemes High-performing M&A organization � Integrated M&A function � Multifunctional deal team � People/capabilities | McKinsey & Company 6

PRA-ZXY050-20100114-21500P1E I Best-practice players have clear strategic guidelines PARTICIPANT EXAMPLE No M&A for this BU M&A limited possibility Frequency M&A part of strategy Right Required Number of deals Size to M&A capabilities in 3-5 years EUR million � R&D efficiency 1 >5,000 � Distribution Corporate 5-10 50-500 � M&A program derived from � R&D products 2-3 50-500 corporate and BU BU 1 and pipeline M&A planning � N/A 0 N/A � Prioritization of BU 2 targets done on corporate level � N/A 5 50-500 given strategic BU 3 Divest priorities and M&A capacity � R&D products (2-3) 5-20 BU 4 � Clear financial and pipeline � R&D skills (2-3) 5-20 criteria for M&A transactions � … … … BU … Total transactions 18-25 | McKinsey & Company 7