Mergers & Acquisitions in Chemicals and Materials - Light at the End of Tunnel is NOT that of the Approaching Train

Mergers & Acquisitions in Chemicals and Materials – Light at the End of Tunnel is NOT that of the Approaching Train Shrikanth S. Senior Research Analyst Business & Financial Services October 27, 2009

Focus Points Introduction to Mergers & Acquisitions Economic Indicators Industrial Production Federal Fund Rate Crude Oil Chemicals Index Analysis of Trends Analysis by Time Trend by Integration Analysis by Deal Volume & Average Deal Size Analysis by Acquirer Profile Analysis by Geography Analysis by Segments End Market Demand Conclusions N68F-F1 2

Economic Indicators Industrial Production & Baltic Dry Index Fed Fund Rate & LIBOR-OIS Spread Crude Oil Price & Stock Index 110 Indexed to Jan 2008 100 90 80 70 Chemical Products Chemical Materials Basic Chemicals Organic Chemicals Inorganic Chemicals Industrial Gases Synthetic Dyes & Pigments Paints Coatings & Adhesives 60 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Months 12,000 Baltic Dry Index (units) 10,000 8,000 6,000 Baltic Dry Index 4,000 2,000 Months 0 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 N68F-F1 4

Economic Indicators Industrial Production & Baltic Dry Index Fed Fund Rate & LIBOR-OIS Spread Crude Oil Price & Stock Index 3.5 3.0 Percentage (%) 2.5 2.0 Senior Bank Loan Survey 1.5 Months 1.0 7.0 0.5 LIBOR-OIS spread (%) 6.0 0.0 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Oct-09 5.0 Fund Rate (%) 4.0 3.0 Federal Funds Rate (%) 2.0 1.0 Months 0.0 May-09 Sep-09 May-05 Jan-09 May-01 May-03 Sep-03 May-04 Sep-04 Sep-05 May-06 May-07 Sep-07 May-08 Sep-08 May-00 Sep-00 May-02 Jan-04 Jan-05 Jan-06 Sep-06 Jan-07 Jan-08 Jan-00 Jan-01 Sep-01 Sep-02 Jan-03 Jan-02 N68F-F1 5

End Market Demand Industrial Production & Baltic Dry Index Fed Fund Rate & LIBOR-OIS Spread Crude Oil Price & Stock Index 130 120 110 100 90 $/barrel 80 70 60 50 Crude oil price (Refiners acquisition cost - composite) 40 30 20 10 0 Jan-07 Jan-02 Jan-03 Jul-03 Jan-04 Jan-05 Jan-06 Jan-08 Jan-09 Jan-00 Jan-01 Jul-02 Jul-04 Jul-05 Jul-06 Jul-09 Jul-00 Jul-01 Jul-07 Jul-08 300 Months Indexed to Jan 2005 250 200 150 100 50 S&P ASX 200 Materials Basic Materials S&P Chemicals Dow Jones US Chemicals Index FTSE 350 S&P 500 Days 0 Nov 08 Nov 05 Nov 06 Nov 07 May 09 May 05 May 08 May 06 May 07 Sep 08 Sep 09 Mar 09 Sep 05 Sep 07 Sep 06 Jan 09 Mar 06 Mar 07 Mar 05 Mar 08 Jan 05 Jan 06 Jan 07 Jan 08 Jul 09 Jul 05 Jul 07 Jul 08 Jul 06 N68F-F1 6

Analysis of Trends Time Integration Deal Volume & Size Acquirer Profile Geography Segment 180 1600.0 Maximum number of deals in recessionary period, though 160 of small average deal size. 1400.0 Deals by Quarter Year over Year by Quarters 140 1200.0 Average Deal Size ($ million) 120 1000.0 100 800.0 Deals (x) 80 600.0 60 400.0 40 20 200.0 0 0.0 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Quarter Source: Frost & Sullivan N68F-F1 8

Analysis of Trends Time Integration Deal Volume & Size Acquirer Profile Geography Segment 400 350 Acquisitions among companies to companies and distribution to 300 distribution has a 63.4% correlation 250 Deals 200 321 150 259 242 228 220 216 100 189 182 178 135 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 May 2009 Year Company Company Buyback Distribution Forward Integration Backward Integration Research & Development Source: Frost & Sullivan N68F-F1 9

Analysis of Trends Time Average Deal Size ($ million) Integration Deal Volume & Size Acquirer Profile Geography Segment 50.0 Average Deal Size ($ million) 45.0 300.0 40.0 250.0 35.0 30.0 200.0 25.0 150.0 20.0 15.0 100.0 10.0 50.0 5.0 0.0 0.0 2000 2000 2001 2002 2003 2003 2004 2005 2006 2006 2007 2008 2009 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Quarter <100 million 101-500 million Average Deal Size ($ million) 2500.0 20000.0 Average Deal Size ($ million) 2000.0 16000.0 1500.0 12000.0 1000.0 8000.0 500.0 4000.0 0.0 0.0 2000 2000 2001 2002 2003 2003 2004 2005 2006 2006 2007 2008 2009 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Quarter 501-2000 million >2000 million Source: Frost & Sullivan N68F-F1 10

Analysis of Trends - Analysis by Time Time Integration Deal Volume & Size Acquirer Profile Geography Segment 100.0 90.0 80.0 Acquirer Profile 70.0 60.0 Increase 50.0 in strategic 40.0 M&A 30.0 20.0 10.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 May 2009 Year Alternative Financial Investments Asset Management Banks Brokerage Insurance Other Financials Chemicals Construction Materials Containers & Packaging Metals & Mining Other Materials Paper & Forest Products Others Source: Frost & Sullivan N68F-F1 11

Analysis of Trends Time Integration Deal Volume & Size Acquirer Profile Geography Segment Regions 2000 2001 2002 2003 2004 2005 2006 2007 2008 May 2009 Acquiring Regions Acquisitions in Percent (%) North America 0.6 1.0 1.4 1.0 2.4 5.4 3.6 1.8 20.3 26.2 BRICS 4.2 3.5 4.7 3.0 2.8 3.3 5.2 5.7 12.7 20.5 Asia Pacific 0.3 0.3 0.0 0.0 0.0 0.4 0.4 0.4 3.8 9.2 Northern Europe 22.3 23.2 23.6 24.0 26.0 26.6 22.7 26.9 19.6 11.3 Western Europe 38.4 43.6 46.2 41.0 48.8 41.1 42.2 43.7 25.9 13.3 Eastern Europe 14.2 9.7 7.1 8.0 6.8 8.3 9.6 5.0 3.8 1.0 Southern Europe 18.4 16.6 14.2 20.5 10.8 10.8 14.7 15.4 9.5 9.2 Rest-of-World 1.7 2.1 2.8 2.5 2.4 4.1 1.6 1.1 4.4 9.2 Target Regions Acquisitions in Percent (%) North America 14.7 10.0 16.7 17.1 13.8 16.4 14.1 11.5 29.6 30.3 BRICS 3.9 4.8 4.8 4.5 2.0 7.4 7.3 5.8 7.5 20.5 Asia Pacific 1.7 1.0 1.9 3.5 2.0 2.5 2.8 1.4 8.8 8.7 Northern Europe 21.4 25.6 21.9 21.1 26.0 24.6 22.2 21.2 14.5 8.7 Western Europe 36.4 39.4 36.7 33.2 39.8 36.9 36.7 39.2 28.9 10.8 Eastern Europe 7.2 4.8 4.3 4.0 2.4 2.9 4.0 5.4 1.9 1.5 Southern Europe 13.3 11.8 11.4 15.1 10.6 8.6 9.7 12.2 5.0 11.3 Rest-of-World 1.4 2.4 2.4 1.5 3.3 0.8 3.2 3.2 3.8 8.2 N68F-F1 12

Analysis of Trends Time Integration Deal Volume & Size Acquirer Profile Geography Segment 300 288 283 253 250 Commodity polymers, paints and coatings, 240 and pharmaceutical fine chemicals saw the maximum acquisitions in the period 2000- 218 211 May 2009. However, during Jan-May 2009, 200 packaging and construction materials 192 197 accounted for majority of the M&As. 179 172 173 Deals (x) 156 151 150 142 126 109 114 100 84 77 79 67 71 71 60 61 64 65 51 50 34 27 8 0 WTC PCC&HC TA CPC I&C O&MC CM RC Gas CC L&G API AC&F Cat HPP EC Elas A&S PFE FA P&P PA F&B P&CA Bio E&E Pack PE EP CP P&C Segments Source: Frost & Sullivan N68F-F1 13

End Market Demand Housing Market Automotive Market & Semiconductor Market 2250 Housing Starts (in thousands) 2000 Housing Starts 1750 1500 1250 1000 750 500 250 0 Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug 00 00 00 01 01 02 02 02 03 03 04 04 05 05 05 06 06 07 07 07 08 08 09 09 Months 20.0 Growth (%) 210 Case-Shiller Price Index (Composite 20) Year-on-Year Monthly Growth in Price 15.0 Case Shiller Index (x) 180 10.0 150 5.0 120 0.0 90 (5.0) 60 (10.0) 30 (15.0) Months 0 (20.0) Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar 00 00 00 01 01 02 02 02 03 03 04 04 05 05 05 06 06 07 07 07 08 08 09 N68F-F1 15

End Market Demand Housing Market Automotive Market & Semiconductor Market 60,000 647 700 Bus Production (000's)` 51,034 614 677 Production (000's) 48,656 48,566 576 45,517 600 50,000 49,841 46,162 47,259 48,375 500 40,000 536 495 Every auto produced in the US 400 30,000 284 439 contains $2700 worth chemicals 300 15,442 16,045 15,756 15,432 15,374 15,679 20,000 15,932 15,488 200 10,000 100 0 0 2005 2006 2007 2008 2009 2010 2011 2012 Years Car Production LCV Production Bus Production 250.00 Americas Japan Market Billings ($ billion) 200.00 Europe Asia Pacific 115 124 127 51 102 87 150.00 36 46 41 61 50 46 48 100.00 46 44 49 32 35 42 38 30 31 39 40 40 41 40 50.00 32 32 27 63 46 39 31 32 39 40 45 43 39 0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Years N68F-F1 16

Detailed Table of Contents Introduction to Mergers & Acquisitions Analysis of Trends Analysis by Time Trend by Integration Analysis by Deal Volume & Average Deal Size Analysis by Acquirer Profile Analysis by Geography Analysis by Segments Economic Indicators Global GDP Growth Bank Lending Consumer Confidence US Saving Rate Crude Oil Baltic Dry Index Chemicals Index Capacity Utilization N68F-F1 18

Detailed Table of Contents End Market Demand Autos Housing Semiconductors Oil Rigs Conclusions Concluding Thoughts About Frost & Sullivan N68F-F1 19

Next Steps Register for the next Chairman’s Series on Growth: The Growth Excellence Model: Competitive Benchmarking & Growth Investing (November 3, 2009) (http://www.frost.com/growth) Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities (www.frost.com/news) N68F-F1 20

For Additional Information Johanna Haynes Lori Salazar-Malone Corporate Communications North American Sales Director (210) 247-3870 Business & Financial Services johanna.haynes@frost.com (210) 247-2448 lsalazar-malone@frost.com Andrew Calvert Jennifer O’Grady Vice President Research Director Business and Financial Services Business & Financial Services 44 (0)20 7343 8373 (214) 887-1818 andrew.calvert@frost.com jogrady@frost.com N68F-F1 21

Mergers & Acquisitions in Chemicals and Materials - Light at the End of Tunnel is NOT that of the Approaching Train

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