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Merger IntegrationIntellectual Capital Collection

Generic ProposalMarch 2006 ATKEARNEY

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Table of contents

Executive Summary Our Understanding of Your Situation A.T. Kearney’s Perspective on Merger Integration Proposed Overall Approach Realizing Integration Synergies Integration Management A.T. Kearney Qualifications

A.T. Kearney 4/1375C/Merger Integration

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Executive SummaryThis section is tailored to the client situation and summarizes the approach proposed in the document

A.T. Kearney 4/1375C/Merger Integration

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Our Understanding your SituationThis section is tailored to the client situation and summarizes the key drivers of the merger. It should highlight relevant quantitative and qualitative analysis that demonstrate our insight into the client’s particular challenges and drivers of success for the integration

A.T. Kearney 4/1375C/Merger Integration

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A.T. Kearney’s Perspective on Merger Integration

A.T. Kearney 4/1375C/Merger Integration

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The best value-builders combine organic growth with mergers and acquisitions

Value Growers Follow Conscious, Constant Process To GrowthGrowth Matrix (CAGR 1988-2000) Simple Growers13.8%-2.7%

Value Growers18.0% 21.5%

Revenue Growth

Revenue

Value

Revenue

Value

12.8%3.6% Revenue -3.6% Value

4.1% Revenue Value

Under performers Value Growth

Profit Seekers

Source:

A.T. Kearney Monograph on Value-Building Growth 2001

A.T. Kearney 4/1375C/Merger Integration

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Mergers and acquisitions are key growth drivers

40% of Growth Is From Acquisitions

Sources of Growth Value Growers Manage Both Well40%

60%

100%

External

Internal

Total Growth

What really matters in “acquisition for growth” strategies is execution

Source:

A.T. Kearney Monograph on Value-Building Growth 2001

A.T. Kearney 4/1375C/Merger Integration

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Few mergers actually create shareholder value

Acquirer's Value Growth Following a Merger Average: 2.8%49.5% 50.5%

Top-Performing Mergers 16%

8% 3%

10% 12% 27% 21% 3% Value growth

-100%

-60%

-30% -15%

0%

15%

30%

60% Overperformance compared to industry average

150%

Underperformance compared to industry average

Top performing mergers create significant shareholder valueSource: A.T. Kearney Analysis 2001, SDC database, Global WorldscopeA.T. Kearney 4/1375C/Merger Integration 8

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Business Integration issues require “usual” management decisions while four main factors add another level of considerable complexity…Time pressure All stakeholders expect rapid execution (shareholders, employees, management, regulation committees, government,…) Decisions need to be made without delay

"Usual" Management decisions

Strategy & IPO

Organisation Choose the best organisational model at the European management level Identify the central/local functions evolution schedule Defi

ne organisational charts and management nomination Define key decision processes (committees, procedures, …)

InfrastructureReduce total cost of external purchases through best price evaluation volume concentration, competitive bidding Share best practices …

Simultaneity Co-existence of strategic, tactic and operational decisions Strong inter-dependence of the decisions Short term and strategic decisions may seem incompatible

Define the scope of combined entity Confirm each country’s scope of activity for mobiles Design strategy leveraging on broader global presence Define financial and operational targets as well as timing of expected benefits Prepare the IPO

Human component High number of people potentially involved (operational, functional and executive people) Risk of cultural mismatch Scarce resources to bridge between merged companies

Support functions Rationalise shared supports ( Align and select Information Systems for the integration Align processes and share best practices

CommunicationDefine external communication strategy Define internal communication strategy Select communication rules and procedures Choose media (intranet, documents, speeches…)

Integration mgntIntegrate overall planning and milestones Detail planning by topic and country… Manage transition phase Track and execute financial synergies Manage risks

Scope High number of decisions to be made in all operational and functional areas Dozens of projects/initiatives and risks to be managedA.T. Kearney 4/1375C/Merger Integration 9

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… explaining why only few mergers and acquisitions succeed fully

Only 42% of Companies Outperform Their Peers in Shareholder Value(1)

Only 29% of Companies Realize an Increase in Aggregate Profitability100% = 230 companies

Number of companies

58%Industry average

42% HigherTop Performing Mergers

29%Lower No change

57%

23% -25%

17%

18%

21%

11% +15%

10%

-15%

+25%

Performance relative to industry average

14%

Under performance

Outperformance

Note: (1) Shareholder returns from buyer divided by shareholder returns (industry average) after the merger Sources : A.T. Kearney analysis, Global PMI Survey, 1998 ; Datastream

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Top performers across most industries can create significant shareholder value

Industry Specific Ranges of Value Creation(1)64.5% 62.5% 49.9% 44.2% 32.3% 34.2% 26.6% 26.6% 36.1% 25.1% 16.0% 26.0% 27.5% 17.2% 17.4% 31.9% 22.4% 18.0% 17.4% 14.8% 4.0% -6.5% 43.3% 40.4%

Creation of Shareholder Returns

Erosion of Shareholder Returns-31.5%

-10.8%

-11.0%

-9.7% -17.4% -20.3% -22.7% -24.9% -39.6% -46.8% -19.4% -24.1% -26.7% -26.5% -27.2% -24.1%

-25.9% -38.9%

-17.6% -18.0% -20.6% -28.8% -35.0%

-35.3%

Metal Products Manufacture

Metal Producers

Electronics

Machinery & Equipment

Recr

eation

Transportation

Drugs, Cosmetics & Health Care

Construction

Diversified

Automotive

Miscellaneous

Note:

(1) Total shareholder returns percentage over/under performance relative to industry index in the timeframe between 3 months before and 24 months after merger announcement; total shareholder returns defined as the tangible returns investors receive through dividends and stock price appreciations Sources: Datastream; A.T. Kearney Analysis 2001

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Oil, Gas, Coal & Related Services

Printing and Publishing

Aerospace

Chemicals

Beverages

Electrical

Food

Tobacco

Paper

Retailers

Financial

Textiles

Utilities

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Once the deal is closed, the principal problems relate almost entirely to failures in merger management, rather than to the underlying strategic rationale

Problems Identified in Merger Integration Under-communication Financial/synergy Expectations Unrealistic/Unclear New Org. Structure With Too Many Compromises “Master Plan” Missing Missing Momentum Missing Top Management Commitment Unclear Strategic Concept Missing Pace of Project IT Issues Addressed Too Late

Percent of Respondents

58% 47% 47% 37% 37% 32% 26% 26% 21%

Source: A.T. Kearney’s Global Merger Integration Survey 1998

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To manage inherent risks, “critical success factors” can be distilled from successful large-scale mergers to guide value creationCritical Success Factors from Large-Scale MergersSense of Urgency Top-Level Leadership Selected Quickly Clear Synergy Goals Manage Market Expectations Create a sense of urgency and reduce uncertainty through clear event milestones, and move quickly Select top-level leadership quickly and fairly; avoid “two-in-the-box” leadership for integration planning and execution unless absolutely necessary Set out synergy goals and objectives, to prioritize activities and provide a baseline for performance tracking Manage market expectations carefully. Set conservative dollar targets with a time frame that accommodates unforeseen circumstances Keep strong, explicit focus on key customer retention and service with teeth (i.e., measurement and tracking) Maintain open and timely communications with employees to ensure understanding and retention

Explicit Focus on Customers Open, Timely and Consistent Communications Decentralized Merger Integration

Conduct decentralized merger Integration guided forcibly via — Clear guiding principles — Overall framework and tools for integration — Reporting standards Establish a strong central Integration office and decentralized Integration teams with corporate-wide perspectives on — Results — Project status — Risk — Lead role on internal/external communications Instill robust, well-defined processes to ensure objective and timely risk and interdependency tracking

Strong Central Integration Office

Well-Defi

ned Processes

Source:

A.T. Kearney Merger Integration

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In our experience, the most critical element in achieving targeted benefits is speed

Value Capture of Top Performers Over Time

Timing of Synergy Realization Is Also Critical

15% 85% 6 4 2 Cumulative Value Capture After Two Years 0 Value Capture/Loss ($ MM) -2 -4 -6 -8 -10 1 Time Closing the Deal Year 1 Year 2 2 3 4 5 6 7 8 9 10 Year in Which Synergies Are Realized

Source: A.T. Kearney's global PMI survey '98

Source: Marl L Sirower : The Synergy Trap. Calculated based on a $10MM acquisition premium, representing 50% of market valueA.T. Kearney 4/1375C/Merger Integration 14

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Proposed Overall Approach

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A.T. Kearney has a flexible merger integration framework with a comprehensive toolkit to support planning and implementation throughout the merger process to ensure value captureA.T. Kearney’s Merger Integration FrameworkPhase 0 Phase I Establish Structure and PlanDay One

Phase II Integrated Planning and Initial Rollout

Phase III Full-Scale Rollout

Develop Strategy

Merger/Acquisition options Create/articulate/validate — Markets/customers — Competition — Resources — Sources of value Understand type of merger

Merger Establish the integration program Manage- Build integration capability ment

Create master plan and prioritize

Monitor progress and risk

Assess sources of value Sources Develop organization strategy & design of Value

Execute the plan Validate sources of value Realign the organization Implement quick hits

Multiple Tools Exist for All Cells

Merger Develop IT integration strategy Enablers Design/harmonize HR policies

Develop SOV IT enablers Implement HR plan

Implement IT integration plan

MOU

Shareholder Approval

Change of ControlA.T. Kearney 4/1375C/Merger Integration 16

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This allows merging entities to rapidly capture available sources of value by focusing on operational synergies, as well as seamlessly merging the organizationsMI Sources of Value Achieve Growth Synergy and Cost Synergy Targets as Quickly as Possible Merge the Organizations as Seamlessly as Possible

Achieve $ XX million (annual rate) of synergy savings within 12–18 months — Sales — Operations — Procurement — Corporate overlap and duplication — Cost of distribution — Technology/R&D — Others to be identified Eliminate/minimize sources of risk

Develop and communicate a shared strategic agenda Define — Organization structures/leadership — Key business processes — Technology platform/architecture — Change integration requirements Drive top line growth — New value propositions/products — Cross selling/sales pull through — Ensure customer focus/retention Integrate day-to-day operations Ensure sustain

able change Position for growthA.T. Kearney 4/1375C/Merger Integration 17

Drive the short-term value Exceed the market’s expectations

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The program structure supports focused value capture teams working across all SBU/Geographic teamsIllustrative Steering CommitteeMarket Facing Teams Value Capture Teams Enabler Teams

Set overall direction Make critical decisions Develop guiding principles Provide integration management leadership and support

Integration Office

Focused on value capture across the businessesBusiness Development Team Corporate Center Team Global Operations Team Global Sourcing Team Technology / R&D Team Human Resources Team Information Technology Team

Others

SBU A or N. America SBU B or Latin America

SBU C or Europe SBU D or Asia Pacific

BU driven integration to set priorities

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By launching the integration effort prior to change of control, significant progress is made in identifying sources of value, while also developing the high-level organization models to capture that valuePhase I (“Clean Team”) Establish Structure and Plan Integration ManagementData Repository Comm. Planning Oversight/ Visibility Rm Master Calendar Baseline Dev./Tracking

Integrated Planning and Initial Rollout

Full-Scale Rollout

Day/Week/Month 1 Plans Sources of Value IdentificationAnalysis Hypotheses 1 Hypothesis NData Collection/Analyses

Implementation

Opportunities PP 1 PP 2 PP 3 PP 4

Initial PrioritizationL M H H M L

Initial SequencingInit Q1 Q2 Q3 Q4PP1 PP2 PP3 PP4

Operations/ Asset ConsolidationDiagnostic Pack Data Collection/Analyses

Hypotheses 1 Hypothesis N

Business Unit (e.g., Services)Diagnostic Pack

CS 1 CS 2 CS 3 CS 4

L M H H M L

Init Q1 Q2 Q3 Q4CS1 CS2 CS3 CS4

…

…High-Level Organization IT Requirements/Alignment

…

…

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During the critical period prior to change of control, the engagement team assumes the role of a “clean team” to enable critical pre-merger integration“Clean Team” ProcessCompany A

Data Collection Organization assessment Hypotheses development Preliminary planning

Company B

Role of Clean Team Quantify savings generated from identified opportunities from teams of merged companies Act as a third party conduit for proprietary information of both companies (protection should merger be aborted) Validate and challenge initial assumptions of opportunities made by merging companies Highlight best practices in existing companies and external knowledge and recommend ongoing merged operating practices Determine risk factors in merger for ongoing risk management during implementation

A.T. Kearney “Clean Team”

Limited Joint Client Team Meetings

Pre-Change of ControlMerger Synergy Hypotheses

Post-Change of Control

Open Joint Cl

ient Team Meetings

Accelerate decision making by providing access to comprehensive databases and detailed analysis Share and validate findings with joint client teams Finalize initiatives based on validated hypotheses Develop implementation plans Assist in launching initiatives and provide continued implementation, risk and financial tracking support

Validated Initiatives

The up-front work efforts of the “clean team” enables accelerated launch of implementation activities and value captureA.T. Kearney 4/1375C/Merger Integration 20

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After change of control, the teams quickly finalize — not identify — synergy opportunities and gain consensusEstablish Structure and Plan Phase II Integrated Planning and Initial Rollout Full-Scale RolloutMaster Plan Detail

Day/Week/Month 1 ExecutionInitial Prioritization and Sequence Full Team Meetings Overall Prioritization/ Executive Committee Buy-In Master Plan Sequencing

Timing of Results Investment Requirements MD 1 WorkplanStep 1 2 3 4

Init Q1 Q2 Q3 Q4PP1

Disclose and ValidateL Init Q1 Q2 Q3 Q4ST3 Workplan

L M H H M L Init Q1 Q2 Q3 Q4PP1

Modify and Refine

M

MD 1 ST 3

H

SC 6 PP 4 H M LSC6 Workplan

L M H H M L

Finalize Savings Opportunities and Prioritization

Identify Interdependencies

IT Requirements/Enablers Communication Begin Implementation Results Tracking/Risk Assessment

Master Plan Detail

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