Deal Making In High Definition by J.P. Morgan + Thomson Reuters
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Deal Making In High Definition by J.P. Morgan + Thomson Reuters (December 2009)

Sector Connections: Food Beverages and Tobacco, Household & Personal Products, Consumer Durables and Apparels, Food and Staples Retail, Retailing, Healthcare, Telecom Services, Media, Information Technology, Energy, Utilities, Banks, Insurance, Auto and Components, Chemicals, Metals & Mining, Transport, Real Estate.

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Deal Making In High Definition by J.P. Morgan + Thomson Reuters Deal Making In High Definition by J.P. Morgan + Thomson Reuters Document Transcript

  • DECEMBER 2009Deal making in high definitionSector connections
  • All inquiries should be directed to any of theindividuals at J.P. Morgan or Thomson Reuterslisted below.Sam BridgesJ.P. MorganAssociate10 Aldermanbury, London EC2V 7RF0207 325 0545Hernan CristernaJ.P. MorganManaging Director10 Aldermanbury, London EC2V 7RF0207 325 4631Vincent FlasseurThomson ReutersDeals Intelligence30 South Colonnade, London, E14 5EP0207 542 1958
  • Deal making in high definition 1Table of contents1. Introduction 22. General observations 73. Food Beverages and Tobacco 94. Household & Personal Products 145. Consumer Durables and Apparels 196. Food and Staples Retail 247. Retailing 298. Healthcare 349. Telecom Services 3910. Media 4411. Information Technology 4912. Energy 5413. Utilities 5914. Banks 6415. Insurance 6916. Auto and Components 7417. Chemicals 7918. Metals & Mining 8419. Transport 8920. Real Estate 94
  • 2 Sector connections 1. Introduction As economies around the world begin to emerge from recession, many industry sectors will become ripe for increased M&A activity. This latest report from J.P. Morgan and Thomson Reuters looks at which industry sectors are most suited to respond to this upturn. In our last report , “The Era of Globalized M&A: Winds of Change”, we established that business confidence, rather than opportunism, was the most important driver for M&A activity and was very closely tied to macro-economic conditions and stock market performance. To this end, M&A requires three main drivers: 1) Confidence 2) Improved business conditions 3) Available funds to make acquisitions In the third quarter of 2009, there was positive GDP growth in the Eurozone (+0.4%) and the United States (+0.9%). The MSCI European and North American indices both grew by over 20% in 2009 from January to November. This suggests that the developed world is poised to emerge from recession, and the M&A environment is likely to see a significant increase in activity. To help support this concept our framework will focus on: 1) Deal volumes and cross-border activity; 2) Sector performance vs. the broader world index; 3) Valuation; 4) Historical sector valuation and future EPS growth; 5) Capital raising; 6) Geographic footprint; The current financial crises resulted in the postponement of M&A projects in 2009 as companies focused on ensuring that they have sufficient liquidity. With favorable capital market conditions, many companies have raised record amounts of additional capital. As developed economies such as US and the Eurozone emerge from recession, plans are now being dusted off as CEOs recognize the need to increase earnings by expanding their businesses. The aim of this report is to a) analyze the historical growth patterns across various sectors, and b) to identify the sectors which are well capitalized and potential candidates for M&A through 2010 and beyond.
  • Deal making in high definition 3We examine the behavior of sectors across two time periods; the “dot.com “bubble (1Q2000-1Q 2002) and the “leverage bubble” (4Q 2005-2Q 2008). The dot.com bubble, whilepredominantly confined to the telecoms and technology sectors, did produce increasedlevels of activity across other sectors whereas the leverage bubble was a product ofcheap financing, and a key factor in the rise in M&A across many sectors.The table opposite forms the basis of the analysis that looks at the value destructioncaused by the financial crisis and the estimated earnings per share growth over a 12month period. We have examined 18 sectors in total which have experienced a degree ofM&A activity at one time or another over the entire time period. The sectors can beaggregated into the following groups:1) Consumer, retail and healthcare;2) Telecoms, media and technology;4) Natural resources;3) Financial institutions;5) Diversified industries; and6) Real estate;
  • 4 Sector connections Exhibit 1.1 Sector breakdown by market value and EPS 12 month growth forecast Sector Sector as a % of Mkt value EPS Growth Regional key growth areas total market difference (12 month between 2007 estimate)* and 2009 Food beverages and 6.5% (8.5%) 8.9% Europe ex. UK tobacco Household & personal 1.9% Flat 2.7% UK products Consumer durables and 1.7% (8.5%) 113.1% North America apparels Food and staples retail 2.8% (14.1%) 7.5% Pacific ex. Japan Retailing 2.5% (29.5%) 9.2% Emerging markets Healthcare 10.8% (13.9%) 9.0% Europe ex. UK Telecom services 6.0% (26.6%) 1.6% Emerging markets Media 2.4% (45.1%) 6.8% Emerging markets Information technology 13.9% (18.1%) 35.6% Europe ex. UK Energy 13.4% (17.1%) 3.8% North America Utilities 5.4% (19.4%) 7.4% Europe ex. UK Banks 12.4% (28.9%) 24.8% Emerging markets Insurance 4.8% (37.2%) 29.3% North America Auto and components 2.5% (30.2%) N/A Emerging markets Chemicals 2.9% (21.1%) 16.1% Emerging markets Metals & mining 5.3% (14.9%) 17.1% UK Transport 2.3% (26.4%) 18.9% North America Real estate 2.5% (31.1%) (1.8%) Emerging markets Total market 100% (25.2%) 19.2% - * 12 month forecast is from 3Q 2009-3Q 2010 Financing acquisitions remains the single biggest challenge as lenders shy away from over exposure on risky loans and CEOs balance the need for growth over the potential negative ratings from the agencies on highly leveraged acquisitions. The cost of debt is relatively simple to calculate – it includes the risk-free rate and a risk premium. The cost of equity is more complex as it does not pay a set return to investors and so the risk is normally calculated by comparing the investment to other similar investments in order to determine a median. The multiples examined across the sectors (see exhibit 1.2) indicate that real estate has the highest EBITDA valuation multiple of 24.8x earnings.
  • Deal making in high definition 5Exhibit 1.2 Sector median for EBITDA and PE multiples (1998-3Q 2009) 40.8 EBITDA P/E 35 34.6 29.4 28 24.8 25.9 22.3 22.1 23.3 23.9 22.8 23.4 20.4 21.1 18 16.8 16.6 17.8 16.4 11.7 11.1 10.8 10.7 10.5 10.4 10.3 10 9.9 9.5 9.3 8.9 l ts re g to s a g e s Se rt IT gy e es l o es e ai al nk lin in i nc r o cc at uc ed Au pa ca et er i ti sp ic ic in st ai Ba ra ba od ti l rv M R Ap En lth m M an lE et su U To he Pr s ea R & Tr le ea d In C an H al s ap m d R al an on co St s et le rs le s M & ge ab Te Pe od ra ur & Fo ve D ld er Be ho m od se su ou Fo on H CHistorically, chemicals has commanded the highest premiums (defined as the one monthmedian share price prior to the announcement date) across all sectors, while real estateis the lowest in the sample.Exhibit 1.3 Sector premium median (1998-3Q 2009) as a percentage 30.4 28.5 28.1 28.1 27.5 26.5 26.2 22.5 22.4 22.4 21.2 20 19.9 19 18.3 17.7 16.4 15.1 l ts re to g s e g ia s Se rt IT gy re es l o es e ai al nk in lin nc o cc at uc ed Au pa ca et er i ti sp ic ic in st ai Ba ra ba od ti l rv M R Ap En lth m M an lE et su U To he Pr s ea R & Tr le ea d In C an H al ls ap m d R an a on co St s et le rs le s M & ge ab Pe Te od ra ur & Fo ve D d er Be l ho m od se su ou Fo on H C
  • 6 Sector connections Exhibit 1.4 Overall M&A activity by target sector year- on- year percentage change based value/number of deals Based on $ value Based on number of deals 188% Auto & Components (4)% 95% HH & Perso Products (23)% 7% Healthcare (9)% (3)% Transport (16)% (6)% Energy (4)% (10)% IT (20)% (23)% Insurance (21)% (23)% Metals & Mining 23% (25)% Retailing (14)% (34)% Global M&A All Sectors (9)% (35)% Real Estate (7)% (40)% Banks 35% (46)% Chemicals (22)% (48)% Utilities 14% (53)% Media (11)% (54)% Food & Staples Retail (6)% (61)% Consumer Durables & Apparel (22)% (64)% Telecom Services (21)% (71)% Food Beverages & Tobacco (8)% Fundamental to any up tick in M&A is economic growth. With a number of key markets emerging from recession during the third quarter, improved business confidence should re-energize M&A deal flow with only the UK and Spain yet to experience growth of the major developed markets. Exhibit 1.5 Quarter-on-quarter GDP percentage change 2007-3Q 2009 Quarter France US UK Eurozone Germany Spain Japan 1Q 2007 0.7 0.3 0.7 0.8 0.3 0.9 1.4 2Q 2007 0.4 0.8 0.6 0.4 0.3 0.8 0.0 3Q 2007 0.7 0.9 0.5 0.6 0.8 0.7 (0.6) 4Q 2007 0.3 0.5 0.5 0.3 0.1 0.6 1.0 1Q 2008 0.5 (0.2) 0.6 0.8 1.6 0.4 1.0 2Q 2008 (0.4) 0.4 (0.1) (0.3) (0.6) 0.0 (0.7) 3Q 2008 (0.2) (0.7) (0.7) (0.4) (0.3) (0.6) (1.7) 4Q 2008 (1.5) (1.4) (1.8) (1.8) (2.4) (1.1) (3.0) 1Q 2009 (1.4) (1.6) (2.5) (2.5) (3.5) (1.6) (3.2) 2Q 2009 0.3 (0.2) (0.6) (0.2) 0.4 (1.1) 0.7 3Q2009 0.3 0.9 (0.4) 0.4 0.7 (0.3) 1.2
  • Deal making in high definition 72. General observationsGeneral observations• The growth of M&A: Business conditions for companies to consider undertaking M&A are improving. At date of publication, global corporate bond issuance is up 17% compared to the same period last year while follow on equity issuance is up 41%. Syndicated lending continues to suffer from effects of the credit crunch but the capital markets have provided much needed liquidity and easier access to capital. Private equity firms have started to take advantage of this change in economic health. We have already seen an increase in the financial sponsor activity during the fourth quarter, including the recently announced leveraged buyouts of Anheuser-Busch InBev’s Central European and Busch Entertainment assets (USD5.7 billion) and IMS Health (USD5.1 billion). As conditions continue to improve, we can expect an influx of financial sponsor activity as these firms put to work the funds they raised at record levels in the year following the onset of the credit crisis in mid-2007.• Consolidation: Bearing in mind the expected growth in M&A activity in 2010, we have focused on looking at various factors across industries to establish which sectors in particular demonstrate characteristics that make them likely candidates for consolidation in the near term. Based on analysis covering earnings per share growth, equity capital markets performance, fundraising activity, market capitalization, and M&A trends seen during the last major economic cycles, including consideration structure, premia and exit multiple analysis, we have identified the following sectors as having strong credentials conducive to M&A: – Consumer durables & apparels – Telecommunications, media & technology – Insurance – Food beverages & tobacco – Opportunities may present themselves in the following sectors especially so in the emerging markets – Banking – Utilities – Chemicals• We expect the following sectors to see little in the way of M&A activity: – Real estate – Auto & componentsBy sector• The consumer durables and apparel sector has seen 12 month EPS growth of 113.1% through to November 2009 suggesting a confident and bullish market with a market value decrease of 8.5% between 2007 and 2009. Follow–on, convertible and corporate bond issuance has been strong in 2009 suggesting that companies in the sector have shored up balance sheets to support the strong earnings potential and market pricing.• Twelve of the 20 largest telecoms IPOs in the sector to reach the market since 2005 are from emerging markets and more notably from MENA. We have already seen serious attempts for domestic consolidation in the emerging markets most notably from Bharti/ MTN. We also expect to see cross-border M&A to take place between low growth developed markets and the high growth opportunities that the emerging markets represent.• Corporate bond issuance in media in the first nine months of 2009 already exceeds the volumes of the last 2 years with USD40.8 billion almost double 2008 figures. Strong
  • 8 Sector connections borrowing for corporate issuers is due to the high cost of going to the loans market at this time, meaning it is much more cost effective to borrow on the bonds market in the current recession. Follow-on issuance is also up with USD7.2 billion, almost treble last year’s value of USD2.5 billion. • Earnings in the information technology sector are forecasted to grow by 36% over the next 12 months with emerging Asia and developed Europe offering the best prospects. Emerging markets players more than doubled (150%) their market capitalization since 2002 and now account for 14% of the sector’s capitalization. Emerging Asia is now the second largest area by market capital behind North America. • The insurance sector is likely to see regulatory changes that will promote consolidation. The number of public participants in the sector has increased from 92 in 2007 to 97 in 2009, with more companies in North America and Japan. Cross-border activity accounted for as much as 40% of the top 20 deals between 1998 and 2009 with a mixture of intra-European cross-border activity and a degree of transatlantic flow. • In food beverages and tobacco, emerging markets along with Japan offer the best prospects for earnings growth over the next 12 months with estimated 12 month EPS growth above the sector’s average of 8.9%. • Banking has already seen a large degree of consolidation and government bailout activity in 2008 and 2009. However, based on expected improvement in EPS growth and likely regulatory policy in the US that would limit the size and scope of these institutions, there may still be plenty of room for M&A activity. The obvious targets will be in the emerging markets as growing economies in Asia have led to a more competitive global landscape. • Of the 20 largest utilities IPOs to reach the market since 2005 it is worth noting that 7 were from BRIC (Brazil, Russia, India and China) countries, including 4 from India alone. Renewable energy alongside privatizations of the last remaining government controlled entities across developed and emerging market represent some of the main sources of new entrants in the sector. • During the last cycle in chemicals, emerging markets were the key growth areas with 11% market share compared to 7% in 2002. The UK market share contracted to 3% during the last cycle compared to 6% in 2002. Based on analysis of the top 20 IPOs, North America has had 8 newly listed companies compared to 4 from emerging markets. Furthermore, growth in the number of constituents in the developed markets has been confined to North America while emerging markets saw a decline in the number of companies operating in 2009 compared with 2007. • The real estate sector’s mean 12 month EPS growth rate forecast of -1.8% in 2009 is well below the 2002 return of 18.5% and the 2009 world average of 19.2%. The credit crunch has resulted in a steep decline in M&A activity as buyers no longer have access to financing and depressed stock prices have held strategic buyers at bay. Since the height of the last boom in M&A, the number of participants has declined by 20.4% to 109 with the biggest falls in developed markets such as Europe and North America. In the near term, we can anticipate M&A activity to remain relatively flat with moderately priced and attractive opportunities in EMEA and Asia. • Activity in auto and components in 2009 is in line to reach an all time high level, but this is mostly due to the sector’s need to restructure as a result of the collapse of the global economy following the credit crisis. Illustrating the concentration of M&A activity in the sector, it is worth noting that, since 1998, 19 of the 20 largest acquisitions targeting automobile and component companies took place either in the US or in Europe. We therefore expect limited consolidation until the effectiveness of the restructurings and a global recovery result in significantly stronger earnings.
  • Deal making in high definition 93. Food Beverages and TobaccoExecutive summaryEPS growth of 8.9% in this sector is forecast to grow below the sector average for the next12 months increasing pressure on low growth companies in developed markets to acquiretargets already established in emerging markets.• M&A activity peaked in 2008 with the Anheuser-Busch/InBev deal (USD60 billion) ending 5 years of continuous growth from the 2003 low of USD52 billion. In 2008 a record USD298 billion worth of transactions got announced, 40% of which were initiated by foreign acquirors. (Exhibit 3.1).• Cross-border activity is an essential driver to this sector’s M&A activity. Foreign acquisitions account for 48% of all transactions since 1998, and despite the slow down recorded in 2009 their proportion have increased to 50% in 2009. By comparison cross- border deals only account for 34% of global M&A since 1998 and stand at a record low of 27% so far in 2009. (Exhibit 3.1).• Since 1998 the largest transactions targeting the sector have predominantly been paid in cash with valuations well in excess of the sector’s EBITDA multiple median of 10.7x, especially during the recent leverage bubble. (Exhibit 3.2-4).• The market value of emerging markets players have more than doubled since 2002 and are now worth a combined USD100 billion (up 114%) and accounts for 8% of the global sector’s market capitalization. Nevertheless the US, Europe and the UK still make up for an imposing 85% of the sectors capitalization. (Exhibit 3.7-8)• Emerging markets along with Japan offer the best prospects for earnings growth over the next 12 months with estimated 12 month EPS growth above the sector’s average of 8.9%. (Exhibit 3.6)Exhibit 3.1 Food Beverage and Tobacco targeted M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 160 180 Dot.com bubble Leverage bubble 140 160 120 140 100 . Index price M&A ($bn) 80 120 60 100 40 80 20 0 60 1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09
  • 10 Equity Value/Net Income Rank Value/EBITDA Offer Price/Target Share Price (%) Sector connections 0 10 20 30 40 50 60 0 20 40 60 80 100 0 5 10 15 20 25 30 35 40Jan-98 Jan-98 Jan-98 Exhibit 3.3 Exhibit 3.2 Exhibit 3.4May-98 May-98 May-98Oct-98 Oct-98 Oct-98Mar-99 Mar-99 Mar-99 Jul-99 Jul-99 Jul-99 Sector median*Dec-99 Dec-99 Dec-99May-00 May-00 May-00Sep-00 Sep-00 Sep-00Feb-01 Feb-01 Feb-01 Jul-01 Jul-01 Jul-01Dec-01 Dec-01 Dec-01Apr-02 Apr-02 * Sector median across all charts is represented by this line Apr-02Sep-02 Sep-02 Sep-02Feb-03 Feb-03 Feb-03 Cash Only Cash Only Cash OnlyJun-03 Jun-03 Jun-03Nov-03 Nov-03 Nov-03 Apr-04 Stock OnlyApr-04 Apr-04 Stock Only Stock OnlyAug-04 Aug-04 Aug-04 Jan-05 HybridJan-05 Hybrid Jan-05 HybridJun-05 Jun-05 Jun-05 Price/earnings–Food Beverage and Tobacco acquisitions >$500mmOct-05 Oct-05 Oct-05Mar-06 Mar-06 Mar-06 Rank value/EBITDA–Food Beverage and Tobacco acquisitions >$500mmAug-06 Aug-06 Aug-06Jan-07 Jan-07 Jan-07May-07 May-07 May-07Oct-07 Oct-07 Oct-07 Offer price to target share price–Food Beverage and Tobacco acquisitions >$500mmMar-08 Mar-08 Mar-08 Jul-08 Jul-08 Jul-08Dec-08 Dec-08 Dec-08May-09 May-09 May-09Sep-09 Sep-09 Sep-09
  • Deal making in high definition 11Exhibit 3.5 Exhibit 3.6 Market value ($m) EPS growth % 12 mths MSCI AC World (U$) MSCI ACWI Fd./Bev./Tob. ($) MSCI AC World MSCI ACWI Fd./Bev./Tob. 27.3 26.0 22,114,240 16,733,020 31,774,960 23,752,480 19.2 15.3 1,303,085 13.6 1,424,755 10.8 8.9 797,885 7.6 672,971 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009Exhibit 3.7 Exhibit 3.8 Food Beverage and Tobacco market Food Beverage and Tobacco market capitalisation by region–1Q2002 capitalisation by region–3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 51.1% 43.3% 25.7% 22.9% 1.1% 16.3% 0.6% 13.7% 2.1% 2.1% 3.8% 5.0% 2.6% 5.0% 3.3% 1.5% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK JapanExhibit 3.9 Exhibit 3.10 Food Beverage and Tobacco IPOs Food Beverage and Tobacco follow on offeringsValue ($bn) No. of issues Value ($bn) No. of issues12 70 35 140 31.2 10.3 60 30 120 10 50 25 100 8 7.1 7.1 40 20 80 17.7 6 4.8 30 15 60 4.4 4 3.3 3.1 2.8 20 10 40 2.3 6.6 2.0 5.8 2 5.4 1.2 10 5 3.4 3.23.6 20 0.9 2.5 2.7 1.9 1.6 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Exhibit 3.11 Exhibit 3.12 Food Beverage and Tobacco convertibles Food Beverage and Tobacco corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 6 20 80 250 73.2 5.4 18 70 5 63.8 4.6 16 200 60 14 4 3.6 3.6 50 46.7 12 43.7 150 43.0 39.5 3 2.7 10 40 38.0 2.4 27.9 2.2 8 27.8 100 30 26.8 2 1.5 6 21.3 20 18.3 1.0 1.1 4 50 1 0.5 0.5 10 2 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • 12Top 20 Food Beverage and Tobacco acquisitions Sector connections Value Value/ Target Exhibit 3.13Rank Date ($mm) Consideration Premium EBITDA P/E Target Name Nation Sub Sector Acquiror Name Acquiror Nation11/06/08 60,408.1 Cash Only 39.4 15.3 24.6 Anheuser-Busch Cos Inc US Food and Beverage InBev NV Belgium02/05/00 23,699.2 Cash Only 42.3 14.7 28.7 Bestfoods US Food and Beverage Unilever PLC UK28/04/08 23,194.2 Cash Only 28.1 18.5 34.0 William Wrigley Jr. Co US Food and Beverage Mars Inc US14/03/07 21,489.4 Cash Only 57.7 15.8 28.6 Altadis SA Spain Tobacco Imperial Tobacco Overseas Hldg UK08/08/08 19,826.7 Other 0.0 12.9 16.4 British American Tobacco PLC UK Tobacco Shareholders Switzerland25/06/00 19,357.5 Cash Only 6.5 13.9 39.8 Nabisco Holdings Corp(Nabisco) US Food and Beverage Philip Morris Cos Inc US07/09/09 19,309.6 Cash and Stock Combination 31.0 15.2 27.9 Cadbury PLC UK Food and Beverage Kraft Foods Inc US15/12/06 18,799.9 Cash Only 13.3 20.3 Gallaher Group PLC UK Tobacco JTI(UK)Management Ltd UK25/10/07 18,631.5 Unknown 36.6 21.2 24.6 Scottish & Newcastle PLC UK Food and Beverage Sunrise Acquisitions Ltd Jersey05/04/05 17,765.2 Cash and Stock Combination 36.4 13.4 21.1 Allied Domecq PLC UK Food and Beverage Goal Acquisitions Ltd Guernsey09/07/07 16,824.9 Other 37.7 24.6 37.2 Koninklijke Numico NV Netherlands Food and Beverage Groupe Danone SA France25/06/00 15,151.5 Unknown 222.1 10.9 37.9 Nabisco Group Holdings Corp US Food and Beverage RJ Reynolds Tobacco Holdings US04/12/00 14,306.0 Cash and Stock Combination 18.5 15.9 36.7 Quaker Oats Co US Food and Beverage PepsiCo Inc US08/09/08 11,617.7 Cash Only 28.7 11.9 19.3 UST Inc US Tobacco Armchair Merger Sub Inc US20/04/09 10,757.6 Cash and Stock Combination 44.8 7.2 33.6 Pepsi Bottling Group Inc US Food and Beverage PepsiCo Inc US17/07/00 10,528.7 Other NP N/M Pillsbury Co(Diageo PLC) US Food and Beverage General Mills Inc US31/03/08 8,888.0 Unknown 23.3 33.8 Vin & Sprit AB Sweden Food and Beverage Pernod Ricard SA France19/12/00 8,169.6 Cash Only NP NP Seagram Co-Alcohol & Spirit Canada Food and Beverage Investor Group UK08/03/99 7,831.8 Unknown NP NP RJ Reynolds International Netherlands Tobacco Japan Tobacco Inc Japan03/03/04 7,758.0 Other NP NP John Labatt Ltd Canada Food and Beverage Ambev Brazil
  • Top Food Beverage and Tobacco IPOs since 2005Issue Date Proceeds ($mm) Issuer Domicile Sub Sector Exchange PE Backed? Exhibit 3.1412/14/05 1,598.9 Goodman Fielder Ltd Australia Food and Beverage Australia No New Zealand07/19/05 1,170.5 RHM PLC UK Food and Beverage London Yes03/15/08 1,047.9 Want Want China Holdings Ltd China Food and Beverage Hong Kong No05/24/06 979.8 Thai Beverage PCL Thailand Food and Beverage Singapore No02/10/09 828.0 Mead Johnson Nutrition Co US Food and Beverage New York No12/08/05 822.1 Britvic PLC UK Food and Beverage London03/29/07 774.3 JBS SA Brazil Food and Beverage BOVESPA No07/15/05 614.4 Almarai Co Ltd Saudi Arabia Agriculture & Livestock Saudi Exch No01/28/08 565.8 Sabeco Vietnam Food and Beverage Hanoi No06/26/07 527.5 Marfrig Frigorificos e Brazil Food and Beverage BOVESPA No12/07/07 516.8 Uni-President China Holdings China Food and Beverage Hong Kong No03/15/07 459.9 China Agri-Inds Hldg Ltd Hong Kong Food and Beverage Hong Kong No11/03/06 440.3 Dangote Sugar Refinery Plc Nigeria Food and Beverage Nigeria No11/15/05 401.9 Cosan SA Industria e Comercio Brazil Food and Beverage BOVESPA No05/09/08 370.9 BAT Myronivskyi Khliboprodukt Ukraine Agriculture & Livestock London No10/24/07 370.0 Agrenco Ltd Brazil Agriculture & Livestock BOVESPA No07/19/07 359.3 Acucar Guarani SA Brazil Food and Beverage BOVESPA No SOMA02/14/07 353.3 China Huiyuan Juice Group Ltd China Food and Beverage Hong Kong Yes02/28/07 321.4 Samling Global Ltd Malaysia Agriculture & Livestock Hong Kong No05/05/06 317.2 Coca-Cola Icecek Uretim AS Turkey Food and Beverage Istanbul No Deal making in high definition 13
  • 14 Sector connections 4. Household & Personal Products Executive summary We expect minimal M&A activity from this sector which accounts for only 1.9% market share of all sectors coupled with low forecasted EPS over the next 12 months. • Equity performance across the sector over the last 12 months is disappointingly low at (9)%. North America, the largest market by capitalization (70% of global market) was the worse hit, down 14% in the last year. (Exhibit 4.7-8). • Earnings growth rates forecast for the sector is historically low at 2.7% for the next 12 months. By comparison, in June 2007, just before the credit crisis started, analysts estimated the sector to outgrow the global market with a 12 month growth rate of 14%. Today, emerging Asia and Latin America offer the best prospect for growth with expected +42% and +12% respectively. (Exhibit 4.6). Exhibit 4.1 Household & Personal Products targeted M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 14 180 12 160 10 140 . Index price M&A ($bn) 8 120 6 100 4 80 2 0 60 98 98 98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
  • Equity Value/Net Income Offer Price/Target Share Price (%) Rank Value/EBITDA 0 20 40 60 80 100 0 20 40 60 80 100 0 10 20 30 40 50Jan-98 Jan-98 Jan-98 Exhibit 4.3 Exhibit 4.2 Exhibit 4.4May-98 May-98 May-98Oct-98 Oct-98 Oct-98Mar-99 Mar-99 Mar-99 Jul-99 Jul-99 Jul-99Dec-99 Dec-99 Dec-99May-00 May-00 May-00Sep-00 Sep-00 Sep-00Feb-01 Feb-01 Feb-01 Jul-01 Jul-01 Jul-01Dec-01 Dec-01 Dec-01Apr-02 Apr-02 Apr-02Sep-02 Sep-02 Sep-02 Cash Only Cash OnlyFeb-03 Feb-03 Feb-03 Cash OnlyJun-03 Jun-03 Jun-03Nov-03 Nov-03 Nov-03 Stock OnlyApr-04 Apr-04 Stock Only Apr-04 Stock OnlyAug-04 Aug-04 Aug-04 HybridJan-05 Jan-05 Jan-05Jun-05 Jun-05 Hybrid Hybrid Jun-05Oct-05 Oct-05 Oct-05Mar-06 Mar-06 Mar-06 Price/earnings–Household & Personal Products acquisitions >$500mmAug-06 Aug-06 Aug-06Jan-07 Jan-07 Rank value/EBITDA–Household & Personal Products acquisitions >$500mm Jan-07May-07 May-07 May-07Oct-07 Oct-07 Oct-07Mar-08 Mar-08 Mar-08 Jul-08 Jul-08 Offer price to target share price–Household & Personal Products acquisitions >$500mm Jul-08Dec-08 Dec-08 Dec-08May-09 May-09 May-09Sep-09 Sep-09 Sep-09 Deal making in high definition 15
  • 16 Sector connections Exhibit 4.5 Exhibit 4.6 MKT value ($m) EPS growth % 12mths MSCI AC World (U$) MSCI ACWI H/H Pres Prd ($) MSCI AC World MSCI ACWI H/H Pres Prd 31,774,960 27.3 26.0 19.2 23,752,480 22,114,240 13.9 12.2 12.6 10.8 16,733,020 255,539 281,337 381,104 380,775 2.7 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009 Exhibit 4.7 Exhibit 4.8 Household & Personal Products market Household & Personal Products market capitalisation by region–1Q2002 capitalisation by region–3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 73.4% 70.0% 0.0% 0.0% 16.1% 6.1% 2.7% 7.8% 6.2% 3.8% 1.7% N/A N/A 0.0% 10.9% 1.4% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK Japan Exhibit 4.9 Exhibit 4.10 Household & Personal Products Household & Personal Products follow IPOs on offerings Value ($bn) No. of issues Value ($bn) No. of issues 0.9 10 1.4 25 0.8 1.3 0.8 9 1.2 1.2 0.7 8 20 0.7 7 1.0 0.6 0.5 6 15 0.5 0.8 0.7 5 0.4 0.4 0.4 0.3 0.6 4 10 0.3 0.3 3 0.4 0.2 2 5 0.1 0.1 0.2 0.2 0.1 0.2 0.2 0.1 1 0.1 0.1 0.1 0.10.1 0.1 0.0 0.0 0.0 0 0.0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Exhibit 4.11 Exhibit 4.12 Household & Personal Products Household & Personal Products convertibles corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 0.30 2.5 14 20 0.28 12.7 18 12 0.25 2 16 10 9.1 14 0.20 8.8 1.5 12 8 0.15 6.5 10 0.13 0.13 6 1 8 0.10 4.4 4.7 0.10 0.09 4.3 4 3.7 3.8 6 3.2 2.3 2.7 0.05 0.5 4 0.05 2 2 0.01 0.00 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • Top 20 Household & Personal Products acquisitionsRank Value Value/ Exhibit 4.13Date ($mm) Consideration Premium EBITDA P/E Target Name Target Nation Sub Sector Acquiror Name Acquiror Nation17/07/00 11,213.3 Cash and Stock Combination 51.3 8.9 24.9 Fort James Corp US Household & Personal Products Georgia-Pacific Corp US06/08/07 5,506.9 Unknown NP NP Natl Starch & Chem Co-Adhesive US Household & Personal Products Henkel AG & Co KGaA Germany23/10/03 4,276.6 Unknown 20.4 NP 37.1 Beiersdorf AG Germany Household & Personal Products Investor Group Germany27/07/99 3,408.5 Stock Only (1.2) 12.7 27.0 Benckiser NV Netherlands Household & Personal Products Reckitt & Colman PLC UK14/12/03 3,045.4 Cash Only 11.1 11.3 23.1 Dial Corp US Household & Personal Products Henkel AG & Co KGaA Germany17/07/05 2,584.5 Cash and Stock Combination 83.1 9.6 396.6 Maytag Corp US Household & Personal Products Whirlpool Corp US11/05/04 2,000.0 Cash Only NP NP Procter & Gamble-Hutchison Ltd China Household & Personal Products Procter & Gamble Co US25/09/09 1,869.8 Cash Only NP NP Sara Lee Corp-European Bus Netherlands Household & Personal Products Unilever PLC UK12/07/07 1,861.4 Cash Only 20.3 14.2 31.0 Playtex Products Inc US Household & Personal Products Energizer Holdings Inc US28/07/08 1,450.0 Other NP NP Unilever PLC-Laundry Business US Household & Personal Products Vestar Capital Partners US02/04/07 969.2 Cash Only 14.1 36.0 KCP Income Fund Canada Household & Personal Products Caxton-Iseman Capital Inc US26/04/01 886.3 Cash Only 28.1 8.0 23.2 Sanitec Corp Finland Household & Personal Products Pool Acquisition Helsinki Oy Finland26/04/99 830.0 Cash Only 11.7 48.8 Fort James-Folding Carton Bus US Household & Personal Products ACX Technologies Inc US09/05/08 778.9 Cash Only 2.7 7.8 13.8 Neochimiki SA Greece Household & Personal Products Green Bidco Commercial & US01/08/07 700.0 Unknown NP NP Wilton Industries Inc US Household & Personal Products EK Success Ltd US Svenska Cellulosa12/03/07 671.8 Cash Only NP NP Procter & Gamble Co- European UK Household & Personal Products Sweden Aktiebolaget03/12/01 668.9 Cash Only 32.8 5.3 11.9 Paragon Trade Brands Inc US Household & Personal Products Tyco International Ltd Bermuda Svenska Cellulosa25/03/04 655.1 Unknown NP NP Carter Holt Harvey Ltd-NZ Bus New Zealand Household & Personal Products Sweden Aktiebolaget Corning-Consumer Housewares02/03/98 603.0 Unknown NP NP US Household & Personal Products Borden Inc(Kohlberg Kravis) US Op29/11/02 588.7 Unknown 26.3 8.6 107.6 Ontex NV Belgium Household & Personal Products ONV Holdco NV Belgium Deal making in high definition 17
  • 18Top Household & Personal Products IPOs since 2005 Sector connections Issue date Proceeds ($mm) Issuer Domicile Sub sector Exchange PE backed? Exhibit 4.14 09/28/06 404.8 Bare Escentuals Inc US Household & Personal Products Nasdaq Yes 04/16/08 365.9 Hypermarcas SA Brazil Household & Personal Products BOVESPA No 11/13/07 220.7 Duni AB Sweden Household & Personal Products OMX Stock Yes 06/30/07 162.7 Vinda International Hldg Ltd Hong Kong Household & Personal Products Hong Kong No 12/03/07 123.9 Transdermal Cosmetics PLC UK Household & Personal Products PLUS 10/25/07 68.1 Ming Fai International Hong Kong Household & Personal Products Hong Kong No 06/19/05 51.5 Zelmer SA Poland Household & Personal Products Warsaw No 11/15/07 47.1 Splash Corp Philippines Household & Personal Products Philippine No 11/30/06 37.1 Aupu Group Holding Co Ltd China Household & Personal Products Hong Kong No 12/08/06 22.9 Fujian Guanfu Mod Household Co China Household & Personal Products Shenzhen No 11/05/07 22.5 Sunspring Metal Corp Taiwan Household & Personal Products Taiwan No 09/19/07 18.6 Art & Fragrance SA Switzerland Household & Personal Products Berne No 01/21/05 15.7 Able C & C Inc South Korea Household & Personal Products Korea OTC No 07/14/05 15.0 Orchids Paper Products Co US Household & Personal Products American No 05/05/06 12.3 Mastrad Finances France Household & Personal Products AlterParis No 09/18/06 11.8 Biocare Solutions PLC UK Household & Personal Products London AIM 09/02/09 8.4 SHO-BI Corp Japan Household & Personal Products Jasdaq No 02/08/05 8.4 Zenith Hygiene Group PLC UK Household & Personal Products London AIM 11/26/07 7.8 Marbletrend Group Ltd Australia Household & Personal Products Australia No 11/08/06 6.5 Team Int Marketing SA Belgium Household & Personal Products Euronext B No
  • Deal making in high definition 195. Consumer Durables and ApparelsExecutive summaryFollow-on, convertible and corporate bond issuance has been strong in 2009 and wellcapitalized balance sheets and EPS forecast of 113.1% over the next 12 months wouldindicate that this sector has the ‘dry powder’ to conduct M&A.• M&A activity in the consumer durables and apparel sector peaked in 2005 with the USD57 billion acquisition of Gillette by Procter & Gamble. Activity has fallen consistently ever since and 2009 is in line to be one of the weakest years on record with only USD12 billion worth of transactions announced so far. (Exhibit 5.1).• The performance of the sector stocks have been neutral over the last 12 months with the UK +14%, emerging Asia +20% and emerging Latin America +13% recording the best stock performance over the last year.• The sector as a whole offers one of the best prospects for earnings growth over the next 12 months with a forecasted mean EPS growth rate of 113%. The US +64%, emerging Asia +49% and Latin America +37% are expected to generate the best growth rates. (Exhibit 5.6).• Since 2002 the market capitalization of emerging markets stocks has more than trebled to now stand at USD30 billion and account for 9% of the sectors, up from 3% in 2002. With a majority of IPOs since 2005 originating from emerging markets the region could see further market gain and potentially generate M&A activity. (Exhibit 5.7-8, 5.14).Exhibit 5.1 Consumer Durables and Apparels targeted M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 70 190 60 170 50 150 . Index price M&A ($bn) 40 130 30 110 20 90 10 70 0 50 1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09
  • 20 Equity Value/Net Income Rank Value/EBITDA Offer Price/Target Share Price (%) Sector connections 0 10 20 30 40 50 0 10 20 30 40 50 60 0 10 20 30 40 50 60 70 80Jan-98 Jan-98 Jan-98 Exhibit 5.3 Exhibit 5.2 Exhibit 5.4May-98 May-98 May-98Oct-98 Oct-98 Oct-98Mar-99 Mar-99 Mar-99 Jul-99 Jul-99 Jul-99Dec-99 Dec-99 Dec-99May-00 May-00 May-00Sep-00 Sep-00 Sep-00Feb-01 Feb-01 Feb-01 Jul-01 Jul-01 Jul-01Dec-01 Dec-01 Dec-01Apr-02 Apr-02 Apr-02Sep-02 Sep-02 Sep-02Feb-03 Feb-03 Feb-03 Cash Only Cash Only Cash OnlyJun-03 Jun-03 Jun-03Nov-03 Nov-03 Nov-03Apr-04 Apr-04 Apr-04 Stock Only Stock Only Stock OnlyAug-04 Aug-04 Aug-04 Hybrid Jan-05 Jan-05 HybridJan-05 HybridJun-05 Jun-05 Jun-05Oct-05 Oct-05 Oct-05Mar-06 Mar-06 Mar-06 Price/earnings–Consumer Durables and Apparels acquisitions >$500mmAug-06 Aug-06 Aug-06Jan-07 Jan-07 Jan-07 Rank value/EBITDA–Consumer Durables and Apparels acquisitions >$500mmMay-07 May-07 May-07Oct-07 Oct-07 Oct-07Mar-08 Mar-08 Mar-08 Offer price to target share price–Consumer Durables and Apparels acquisitions >$500mm Jul-08 Jul-08 Jul-08Dec-08 Dec-08 Dec-08May-09 May-09 May-09Sep-09 Sep-09 Sep-09
  • Deal making in high definition 21Exhibit 5.5 Exhibit 5.6 Market value ($m) EPS growth % 12 mths MSCI AC World (U$) MSCI ACWI Fd./Bev./Tob. ($) MSCI AC World MSCI ACWI Cons Dur/App 186.0 113.1 31,744,960 23,752,480 22,114,240 16,733,020 26.0 22.0 27.3 334,662 20.7 19.2 551,813 330,515 644,350 10.8 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009Source: Thomson Reuters Datastream Source: Thomson Reuters DatastreamExhibit 5.7 Exhibit 5.8 Consumer Durables and Apparels market Consumer Durables and Apparels market capitalisation by region–1Q2002 capitalisation by region–3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 45.9% 29.6% 33.1% 26.9% 25.7% 22.5% 0.6% 0.4% 1.9% 2.2% 6.0% 0.1% 1.6% 1.2% 0.1% 2.0% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK JapanExhibit 5.9 Exhibit 5.10 Consumer Durables and Apparels IPOs Consumer Durables and Apparels follow on offeringsValue ($bn) No. of issues Value ($bn) No. of issues9 100 6 180 8.0 8 90 160 5 4.8 80 7 4.4 140 70 6 4 120 60 3.5 5 4.6 3.1 100 50 3 2.8 4.0 2.7 4 2.5 80 3.5 40 3.1 2.1 3 2 1.8 60 2.3 2.4 30 1.6 1.7 1.4 1.9 1.7 2 40 1.4 20 1.1 1.1 1 1 10 20 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Exhibit 5.11 Exhibit 5.12 Consumer Durables and Apparels Consumer Durables and Apparels convertibles corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 4 30 25 300 22.3 3.5 25 20.1 250 20 18.7 3 2.9 18.2 17.5 16.2 16.2 2.5 20 15.6 200 15 12.9 2.0 2.0 12.1 150 2 15 1.6 1.6 10 8.3 10 7.8 100 1.1 1.0 1 5 5 50 0.3 0.4 0.1 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • 22Top 20 Consumer Durables and Apparels acquisitions Sector connectionsRank Value Value/ Exhibit 5.13Date ($mm) Consideration Premium EBITDA P/E Target Name Target Nation Sub Sector Acquiror Name Acquiror Nation28/01/05 57,226.8 Cash and Stock Combination 17.6 18.6 32.5 Gillette Co US Other Consumer Products Procter & Gamble Co US15/01/01 11,736.1 Cash Only 36.0 NP 28.4 Ralston Purina Co US Other Consumer Products Nestle SA Switzerland03/10/05 7,210.1 Stock Only (1.6) NP 14.9 Alliance UniChem PLC UK Other Consumer Products Boots Group PLC UK29/01/03 7,132.7 Stock Only (5.4) 20.0 21.5 Nichimen Corp Japan Other Consumer Products Nissho Iwai Corp Japan05/06/98 6,090.0 Unknown NP NP Astra Merck Inc(Merck & Co) US Other Consumer Products Astra AB Sweden21/05/01 4,950.0 Cash Only NP NP Bristol-Myers Squibb-Clairol US Other Consumer Products Procter & Gamble Co US29/11/05 4,942.2 Stock Only 17.1 3.8 13.1 Brambles Industries PLC UK Other Consumer Products Brambles Industries Ltd Australia19/02/08 4,893.6 Cash Only 12.5 10.2 28.0 Corporate Express NV Netherlands Other Consumer Products Staples Inc US18/03/03 4,530.0 Cash Only 56.4 12.2 30.2 Wella AG Germany Other Consumer Products Procter & Gamble Co US28/10/05 4,390.2 Cash and Stock Combination (3.9) 19.0 N/M Tomen Corp Japan Other Consumer Products Toyota Tsusho Corp Japan02/08/05 4,288.1 Cash Only 38.0 12.3 21.3 Reebok International Ltd US Textiles & Apparel adidas-Salomon AG Germany16/12/05 3,540.1 Cash Only NP NP Kanebo Cosmetics Inc Japan Other Consumer Products Kao Corp Japan16/03/01 3,523.4 Cash and Stock Combination 9.7 11.5 N/M Bergen Brunswig Corp US Other Consumer Products AmeriSource Health Corp US25/05/98 3,512.0 Stock Only 7.9 13.6 36.1 US Surgical Corp US Other Consumer Products Tyco International Ltd Bermuda26/04/02 3,460.0 Other 4.6 N/M Comdisco Inc US Other Consumer Products Creditors US10/03/04 3,286.3 Other NP NP Kanebo Ltd-Cosmetics Div Japan Other Consumer Products Ind Revitalisation Corp of JP Japan28/09/07 3,093.8 Other NP NP CJ Corp-Business Co South Korea Other Consumer Products Shareholders South Korea10/09/01 3,039.1 Unknown (63.0) NP 39.5 Gucci Group NV Netherlands Textiles & Apparel Pinault Printemps-Redoute France01/03/00 2,985.3 Stock Only 11.6 NP 16.5 Ratin A/S Denmark Other Consumer Products Rentokil Initial PLC UK19/03/99 2,925.0 Cash Only 26.1 38.1 Gucci Group NV Netherlands Textiles & Apparel Pinault Printemps-Redoute France
  • Top Consumer Durables and Apparels IPOs since 2005Issue Date Proceeds ($mm) Issuer Domicile Sub Sector Exchange PE Backed? Exhibit 5.1305/16/07 1,273.7 Belle Intl Holdings Ltd Hong Kong Textiles & Apparel Hong Kong No10/03/07 893.0 Bosideng Intl Hldg Ltd China Textiles & Apparel Hong Kong No10/03/07 811.1 China Dongxiang(Group)Co Ltd China Other Consumer Products Hong Kong No02/09/05 515.2 Prestige Brands Holdings Inc US Other Consumer Products New York Yes04/06/06 515.2 Sealy Corp US Home Furnishings New York Yes06/30/07 466.0 ANTA Sports Products Ltd China Textiles & Apparel Hong Kong No05/22/07 458.3 RSC Holdings Inc US Other Consumer Products New York Yes06/28/07 444.7 Stella International Hldgs Ltd Hong Kong Textiles & Apparel Hong Kong No07/26/07 376.7 Lululemon Athletica Inc Canada Textiles & Apparel NASDAQ Toronto Yes07/26/07 346.3 Springs Global Participacoes Brazil Textiles & Apparel BOVESPA No05/30/08 328.7 Pou Sheng Intl Hldgs Ltd Hong Kong Other Consumer Products Hong Kong No05/28/08 285.4 Xtep International Holdings China Textiles & Apparel Hong Kong No11/11/05 281.4 Samson Holding Ltd China Home Furnishings Hong Kong No07/25/07 266.8 Cia Providencia Brazil Textiles & Apparel BOVESPA No06/23/09 263.4 361 Degrees International Ltd China Other Consumer Products Hong Kong No07/22/05 246.7 Maidenform Brands Inc US Textiles & Apparel New York Yes05/11/07 245.2 Pacific Textiles Holdings Ltd Hong Kong Textiles & Apparel Hong Kong No12/20/07 244.2 Asianlogic Ltd British Virgin Other Consumer Products London AIM No03/10/08 230.7 Li Heng Chemical Fibre Tech China Textiles & Apparel Singapore No05/18/06 228.8 Grupo Famsa SA de CV Mexico Other Consumer Products Mexico No Deal making in high definition 23
  • 24 Sector connections 6. Food and Staples Retail Executive summary Cross-border M&A has historically posed one of the most challenging obstacles for this sector with a number of unsuccessful forays into markets dominanted by domestic institutions. Likewise domestic consolidation is fraught with regulatory red tape and we therefore anticpate low levels of M&A at this time based on solid but unspectacular EPS forecasts for the next 12 months and the challenges this sector faces. • The food & staples retail sector underwent an initial wave of activity in the late 1990s with numerous domestic and cross-border strategic deals. With the economic downturn that followed the dot.com bubble, M&A activity in the sector came to a near stand still by 2003. Subsequently the sector witnessed 6 years of uninterrupted M&A activity growth that culminated in 2007 at the high point of the leverage bubble with the largest transaction of the decade, the USD21 billion buyout of Alliance Boots. Private investors, private equity funds and sovereign wealth funds were key drivers of the second cycle of M&A activity. (Exhibit 6.1, 6.13). • A vast majority of mid-size and larger transactions to occur since 1998 incorporated a form of stock consideration. All the 20 largest transactions announced since 1998 targeted developed economies. (Exhibit 6.2-4, 6.13). • In the 12 months leading to 3Q 2009 stocks from the food & staples retail sector performed poorly, down 3.7%. Japan and the US were the worst hit, down 12% and 9% respectively. Meanwhile, emerging EMEA markets and emerging-Pacific excluding Japan performed the best, up 34% and 21% respectively. • As at the end of 3Q 2009 US companies accounted for just over the majority (52%) of the sectors capitalization. Emerging markets trebled their market share from 2002 to 6%. Furthermore, half of the 20 largest IPOs to reach the market since 2005 have originated in emerging markets. (Exhibit 6.5, 6.14) • Earnings in the sector are expected to grow by an average 7.5% over the next 12 months. Japan and emerging EMEA markets offer the best prospects for earnings growth with an expected 21% and 15% growth rate over the next 12 months. (Exhibit 6.6) Exhibit 6.1 Food and Staples Retail targeted M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 35 170 30 150 25 130 . Index price M&A ($bn) 20 110 15 90 10 70 5 0 50 1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09
  • Equity Value/Net Income Offer Price/Target Share Price (%) Rank Value/EBITDA 0 20 40 60 80 100 0 20 40 60 80 100 0 10 20 30 40 50Jan-98 Jan-98 Jan-98 Exhibit 6.3 Exhibit 6.2 Exhibit 6.4May-98 May-98 May-98Oct-98 Oct-98 Oct-98Mar-99 Mar-99 Mar-99 Jul-99 Jul-99 Jul-99Dec-99 Dec-99 Dec-99May-00 May-00 May-00Sep-00 Sep-00 Sep-00Feb-01 Feb-01 Feb-01 Jul-01 Jul-01 Jul-01Dec-01 Dec-01 Dec-01Apr-02 Apr-02 Apr-02Sep-02 Sep-02 Sep-02Feb-03 Feb-03 Feb-03 Cash Only Cash Only Cash OnlyJun-03 Jun-03 Jun-03Nov-03 Nov-03 Nov-03Apr-04 Stock Only Apr-04 Stock Only Apr-04 Stock OnlyAug-04 Aug-04 Aug-04Jan-05 Hybrid Hybrid Jan-05 Jan-05 Price/earnings–Food and Staples Retail acquisitions >$500mm HybridJun-05 Jun-05 Jun-05Oct-05 Rank value/EBITDA–Food and Staples Retail acquisitions >$500mm Oct-05 Oct-05Mar-06 Mar-06 Mar-06Aug-06 Aug-06 Aug-06Jan-07 Jan-07 Jan-07 Offer price to target share price–Food and Staples Retail acquisitions >$500mmMay-07 May-07 May-07Oct-07 Oct-07 Oct-07Mar-08 Mar-08 Mar-08 Jul-08 Jul-08 Jul-08Dec-08 Dec-08 Dec-08May-09 May-09 May-09Sep-09 Sep-09 Sep-09 Deal making in high definition 25
  • 26 Sector connections Exhibit 6.5 Exhibit 6.6 Market value ($m) EPS growth % 12 mths MSCI AC World (U$) MSCI ACWI Fd./Staples Rtl. ($) MSCI AC World MSCI ACWI Fd./Staples Rtl. 27.3 26.0 22,114,240 31,744,960 23,752,480 18.0 19.2 17.3 16,733,020 12.7 10.8 7.5 556,036 647,510 220,295 252,660 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009 Exhibit 6.7 Exhibit 6.8 Food and Staples Retail market Food and Staples Retail market capitalisation by region–1Q2002 capitalisation by region–3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 49.3% 52.8% 23.8% 17.4% 0.8% 12.3% 11.9% 11.5% 1.5% 0.1% 1.8% 5.6% 4.7% 3.0% 0.9% 2.7% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK Japan Exhibit 6.9 Exhibit 6.10 Food and Staples Retail IPOs Food and Staples Retail follow on offerings Value ($bn) No. of issues Value ($bn) No. of issues 4.0 18 6 30 5.5 3.5 16 5 25 14 3.0 2.9 3.9 3.9 12 4 20 2.5 10 3.2 2.0 3 2.8 15 8 2.2 1.5 1.3 1.2 6 1.0 2 10 1.0 1.4 4 1.2 1.3 0.5 0.5 1 0.8 5 0.4 0.8 0.7 0.5 0.3 0.3 2 0.3 0.3 0.1 0.0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Exhibit 6.11 Exhibit 6.12 Food and Staples Retail convertibles Food and Staples Retail corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 1.8 7 30 70 1.6 1.5 6 25.1 60 1.4 25 23.4 23.1 1.3 22.9 1.3 5 50 20 19.0 1.0 0.9 4 40 0.9 14.9 0.8 0.8 14.1 14.7 15 12.7 13.7 0.8 3 12.0 30 0.6 10 9.2 0.5 2 20 0.4 0.3 5 0.3 0.2 1 10 0.1 0.0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • Top 20 Food and Staples Retail acquisitions Value Value/ Target Exhibit 6.13Rank Date ($mm) Consideration Premium EBITDA P/E Target Name Nation Sub Sector Acquiror Name Acquiror Nation09/03/07 21,450.0 Other 39.8 16.1 28.5 Alliance Boots PLC UK Other Retailing AB Acquisitions Ltd UK22/01/06 17,367.8 Cash and Stock Combination 8.1 7.1 22.7 Albertsons Inc US Food & Beverage Retailing AB Acquisition LLC US30/08/99 15,837.5 Stock Only 20.3 23.8 54.3 Promodes France Food & Beverage Retailing Carrefour SA France02/07/07 15,727.0 Cash and Stock Combination 7.9 18.5 17.4 Coles Group Ltd Australia Food & Beverage Retailing Wesfarmers Ltd Australia20/04/05 12,483.1 Cash and Stock Combination 13.3 NP 29.0 Seven-Eleven Japan Co Ltd Japan Food & Beverage Retailing Ito-Yokado Co Ltd Japan03/08/98 11,719.7 Cash and Stock Combination 30.5 9.4 30.2 American Stores Co US Food & Beverage Retailing Albertsons Inc US14/06/99 10,742.9 Other 38.1 11.5 21.2 ASDA Group PLC UK Food & Beverage Retailing Wal-Mart Stores(UK)Ltd UK09/01/03 7,470.3 Stock Only 32.9 7.3 17.7 Safeway PLC UK Food & Beverage Retailing Wm Morrison Supermarkets PLC UK07/09/00 5,586.3 Stock Only 15.5 8.0 10.6 Delhaize America Inc US Food & Beverage Retailing Etablissements Delhaize Freres Belgium18/08/99 3,642.2 Cash and Stock Combination 24.0 12.7 34.4 Hannaford Bros Co US Food & Beverage Retailing Food Lion Inc US24/08/06 3,470.0 Cash and Stock Combination NP NP Jean Coutu Group(PJC)USA Inc US Other Retailing Rite Aid Corp US16/07/08 3,127.0 Cash Only 14.2 N/M Somerfield Stores Ltd UK Food & Beverage Retailing Co-operative Group Ltd UK28/08/98 3,071.3 Cash and Stock Combination 12.6 16.2 39.6 Comptoirs Modernes SA France Food & Beverage Retailing Carrefour SA France12/08/08 2,852.9 Cash Only 29.7 10.2 24.5 Longs Drug Stores Corp US Other Retailing CVS Caremark Corp US19/05/98 2,676.1 Cash Only 14.1 13.1 37.0 Giant Food Inc US Food & Beverage Retailing Koninklijke Ahold NV Netherlands05/07/99 2,546.0 Cash Only 9.3 10.1 19.2 General Nutrition Cos Inc US Food & Beverage Retailing Koninklijke Numico NV Netherlands26/03/04 2,475.0 Cash Only NP NP Shaws Supermarkets Inc US Food & Beverage Retailing Albertsons Inc US05/04/04 2,375.0 Cash Only NP NP JC Penney-Eckerd Stores,NE US US Other Retailing Jean Coutu Group(PJC)Inc Canada25/05/05 2,153.7 Cash and Stock Combination NP NP Foodland-New Zealand Bus New Zealand Food & Beverage Retailing Woolworths Ltd Australia09/02/05 2,006.2 Other 21.6 7.7 17.2 Somerfield PLC UK Food & Beverage Retailing Violet Acquisitions Ltd Cayman Islands Deal making in high definition 27
  • 28Top Food and Staples Retail IPOs since 2005 Sector connectionsIssue Date Proceeds ($mm) Issuer Domicile Sub Sector Exchange PE Backed? Exhibit 6.1405/05/05 687.2 Pyaterochka Russian Fed Food & Beverage Retailing London No11/08/07 384.2 China Nep Chain Drugstore Ltd China Other Retailing New York No05/18/07 360.0 Dixy Group OJSC Russian Fed Food & Beverage Retailing Russian TS No MICEX07/08/05 216.0 BIM (Birlesik Magazalar) Turkey Food & Beverage Retailing Istanbul No04/03/09 133.6 Silver Base Group Holdings Ltd Hong Kong Food & Beverage Retailing Hong Kong No07/06/07 129.5 Times Ltd Hong Kong Food & Beverage Retailing Hong Kong No12/06/05 125.6 Hakon Invest AB Sweden Food & Beverage Retailing Stockholm No10/18/06 123.3 Susser Holdings Corp US Food & Beverage Retailing NASDAQ Yes05/30/06 91.2 Kobe Bussan Co Ltd Japan Food & Beverage Retailing Osaka 2 No09/22/06 87.8 Beijing Jingkelong Co Ltd China Food & Beverage Retailing HK GEM No07/02/08 72.8 Label?Vie SA Morocco Food & Beverage Retailing Casablanca No06/30/08 72.2 Abdullah Al-Othaim Markets Co Saudi Arabia Food & Beverage Retailing Dubai Exch No05/17/06 53.4 Liquor Barn Income Fund Canada Food & Beverage Retailing Toronto No06/22/05 52.0 Allion Healthcare Inc US Other Retailing NASDAQ No07/10/08 47.1 Fujian New Hua Du Supercenter China Food & Beverage Retailing Shenzhen No06/28/05 46.9 Colabor Income Fund Canada Food & Beverage Retailing Toronto No07/09/08 45.8 Halwani Bros Saudi Arabia Food & Beverage Retailing Tadawul No01/31/05 44.6 Eurocash SA Poland Food & Beverage Retailing Warsaw No04/13/07 38.5 Universe Co Ltd Japan Food & Beverage Retailing Tokyo 2 No05/18/07 38.3 Jiahua Stores Holdings Ltd China Food & Beverage Retailing Hong Kong No
  • Deal making in high definition 297. RetailingExecutive summaryThe outlook for the retail sector based on the mean 12 months EPS estimate would indicate thatthe sector will underperform against the world average by 10%. Regional EPS growth is expectedto be in Latin America with 39.4% and Japan with 28.1% over the next 12 months. In the nearterm, M&A activity in the retail sector could remain relatively flat with deal flow to continue to beprimarily driven by domestic transactions by strategic buyers in Asia-Pacific and Latin America.• The retail sector saw a period of consolidation from 2004 to 2007 as the sector’s stock performance exceeded that of the world equity index. M&A activity was mainly restricted to domestic transactions with 80% of the top 20 deals classified as domestic. Deal flow was predominately driven by North America with 11 of the top 20 deals targeting companies headquartered in the US. (Exhibit 7.1).• The retail sector has only seen two transactions valued at USD10 billion or more: Federated Department Stores’ USD16.8 billion acquisition of May Department Stores and Kmart’s USD13.8 billion merger with Sears Roebuck. The transactions were announced within three months of each other (2004-2005) and both deals involved a mixture of cash and stock with comparably low premiums of 12-13%. The latter part of the leverage cycle involved transactions paid mainly in cash whereas the credit crunch has resulted in far fewer transactions, which have been paid either in stock or cash-stock hybrids as the sector and world indices have trended upwards. (Exhibit 7.2).• Exit multiples in this sector showed that historically in 1998-1999 retail firms were exiting on stock and hybrid transactions at 15-30x EBITDA and just 10x EBITDA on cash only deals. EBITDA multiples during the leverage cycle trended upwards from around 6x EBITDA in 2005 to around 12x EBITDA at the end of the cycle. (Exhibit 7.3).• Since the end of the leverage cycle, the number of participants in the retail sector has declined by 19.5% to 78 with the number of EMEA participants halved during that time. The only region that experienced growth in terms of number of participants was the Asian emerging markets, which increased from 5 in 2007 to 8 in 2009.• The aggregate market capitalization has declined by 29.6% since the beginning of the leverage cycle as North American retailers lost USD205 billion in market value, a 37.6% decrease from 2002, and ceded a 9% market share to Europe, Asia-Pacific, and Japan. Europe experienced the largest growth as market share increased from 6.5% to 10.0%. (Exhibit 7.7-8).Exhibit 7.1 Retailing targeted M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 45 170 40 150 35 30 130 . M&A ($bn) Index price 25 110 20 15 90 10 70 5 0 50 1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09
  • 30 Equity Value/Net Income Offer Price/Target Share Price (%) Rank Value/EBITDA Sector connections 0 20 40 60 80 100 0 20 40 60 80 100 0 10 20 30 40 50Jan-98 Jan-98 Jan-98 Exhibit 7.3 Exhibit 7.2 Exhibit 7.4May-98 May-98 May-98Oct-98 Oct-98 Oct-98Mar-99 Mar-99 Mar-99 Jul-99 Jul-99 Jul-99Dec-99 Dec-99 Dec-99May-00 May-00 May-00Sep-00 Sep-00 Sep-00Feb-01 Feb-01 Feb-01 Jul-01 Jul-01 Jul-01Dec-01 Dec-01 Dec-01Apr-02 Apr-02 Apr-02Sep-02 Sep-02 Sep-02Feb-03 Feb-03 Feb-03 Cash Only Cash Only Price/earnings–Retailing acquisitions >$500mm Cash OnlyJun-03 Jun-03 Jun-03Nov-03 Nov-03 Rank value/EBITDA–Retailing acquisitions >$500mm Nov-03Apr-04 Apr-04 Stock Only Apr-04 Stock Only Stock OnlyAug-04 Aug-04 Aug-04Jan-05 Jan-05 Hybrid Hybrid Jan-05 Hybrid Jun-05 Offer price to target share price–Retailing acquisitions >$500mmJun-05 Jun-05Oct-05 Oct-05 Oct-05Mar-06 Mar-06 Mar-06Aug-06 Aug-06 Aug-06Jan-07 Jan-07 Jan-07May-07 May-07 May-07Oct-07 Oct-07 Oct-07Mar-08 Mar-08 Mar-08 Jul-08 Jul-08 Jul-08Dec-08 Dec-08 Dec-08May-09 May-09 May-09Sep-09 Sep-09 Sep-09
  • Deal making in high definition 31Exhibit 7.5 Exhibit 7.6 Market value ($m) EPS growth % 12 mths MSCI AC World (U$) MSCI ACWI Retailing ($) MSCI AC World MSCI ACWI Retailing 31,774,960 29 27.3 26.0 23,752,480 19.2 22,114,240 16.6 16,733,020 10.8 11.5 9.2 510,785 834,403 698,662 725,401 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009Exhibit 7.7 Exhibit 7.8 Retailing market capitalisation by region– Retailing market capitalisation by region– 1Q2002 3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 66.7% 78.1% 10.0% 1.40% 6.5% 0.2% 5.9% 5.5% 5.5% 7.4% 0.7% 3.2% 4.2% 1.2% 1.9% 1.6% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK JapanExhibit 7.9 Exhibit 7.10Retailing IPOs Retailing Follow on OfferingsValue ($bn) No. of issues Value ($bn) No. of issues10 70 7 90 9.4 9 80 60 6 5.7 8 70 7.1 7 50 5 4.4 4.4 4.4 60 6 40 4 50 3.5 5 3.9 3.7 3.9 30 3 40 4 3.7 2.3 30 3 2.6 2.4 20 2 1.6 1.8 1.4 1.3 20 2 1.7 1.2 1.2 1.2 1.1 10 1 1 0.6 10 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Exhibit 7.11 Exhibit 7.12 Retailing convertibles Retailing corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 5 30 30 28.1 120 4.5 25 25 100 4 3.4 19.8 3.1 20 20 80 18.3 3 17.5 16.3 2.6 2.4 2.4 15 15 13.9 13.613.4 13.4 60 2 10.5 10.3 1.7 10.1 1.5 10 10 40 1.4 1.3 1.0 1 5 5 20 0.4 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • 32Top 20 Retailing acquisitions Sector connectionsRank Value Value/ Target Acquiror Exhibit 7.14Date ($mm) Consideration Premium EBITDA P/E Target Name Nation Sub Sector Acquiror Name Nation28/02/05 16,789.9 Cash and Stock Combination 13.0 10.5 20.0 May Department Stores Co US Discount and Department Store Retailing Federated Department Stores US17/11/04 13,846.3 Cash and Stock Combination 12.0 N/M 5.8 Sears Roebuck & Co US Discount and Department Store Retailing KMart Holding Corp US19/10/98 9,850.5 Cash and Stock Combination (0.5) 23.6 76.4 Fred Meyer Inc US Discount and Department Store Retailing The Kroger Co US19/06/07 8,500.0 Cash Only NP NP Home Depot Supply US Home Improvement Retailing HD Supply SPV US11/03/07 7,003.5 Cash Only 31.1 15.5 50.4 Dollar General Corp US Discount and Department Store Retailing Buck Acquisition Corp US17/03/05 6,114.4 Cash Only 17.0 7.5 23.8 Toys R Us Inc US Other Retailing Investor Group US30/06/06 5,604.5 Cash Only 29.6 12.0 26.8 Michaels Stores Inc US Other Retailing Michaels Stores SPV US02/05/05 5,157.3 Cash Only 33.8 9.8 21.7 Neiman Marcus Group Inc US Discount and Department Store Retailing Investor Group US14/12/06 4,604.2 Cash Only 21.5 46.4 Vivarte SA France Apparel Retailing Charterhouse Capital Partners UK15/05/02 4,361.7 Cash Only 3.9 24.7 27.0 Castorama Dubois France Home Improvement Retailing Kingfisher PLC UK25/09/98 4,149.0 Stock Only 30.6 122.6 Castorama Dubois France Home Improvement Retailing B&Q PLC UK23/08/07 3,761.9 Stock Only 3.9 18.9 10.4 Mitsukoshi Ltd Japan Discount and Department Store Retailing Isetan Co Ltd Japan26/12/05 3,612.4 Cash Only NP 7.9 Millennium Retailing Inc Japan Discount and Department Store Retailing Seven & I Holdings Co Ltd Japan08/02/07 3,542.4 Cash Only 12.2 16.6 Edgars Consolidated Stores Ltd South Africa Other Retailing Bain Capital LLC US22/03/06 3,293.8 Cash Only 10.9 9.5 18.3 Kesa Electricals PLC UK Computers & Electronics Retailing Investor Group UK09/06/04 3,240.0 Cash Only NP NP Marshall Field & Co US Discount and Department Store Retailing May Department Stores Co US03/07/98 3,213.5 Cash and Stock Combination 15.1 14.3 6.9 Saks Holdings US Discount and Department Store Retailing Proffitt’s Inc US13/12/04 3,143.3 Cash Only 11.6 11.7 34.4 Rexel SA France Other Retailing Ray Acquisition SCA France12/09/03 3,128.0 Cash Only 7.7 15.8 Debenhams PLC UK Discount and Department Store Retailing Baroness Retail Ltd UK18/05/98 3,026.3 Stock Only 43.9 26.6 44.0 Viking Office Products Inc US Internet and Catalog Retailing Office Depot Inc US
  • Top Retailing IPOs since 2005Issue Date Proceeds ($mm) Issuer Domicile Sub Sector Exchange PE Backed? Exhibit 7.1401/27/06 3,738.9 Lotte Shopping Co Ltd South Korea Discount and Department Store Retailing London No05/03/06 1,925.3 Debenhams PLC UK Discount and Department Store Retailing London02/27/07 1,822.4 Sports Direct Intl PLC UK Other Retailing London No04/04/07 1,357.8 Rexel SA France Other Retailing Euro Paris Yes10/10/07 592.3 Dah Chong Hong Holdings Ltd Hong Kong Automotive Retailing Hong Kong No11/21/05 586.7 Der Praktiker Bau- und Germany Other Retailing Frankfurt No03/10/05 530.9 SM Investments Corp Philippines Discount and Department Store Retailing Philippine No03/14/06 442.1 Alpen Co Ltd Japan Other Retailing Tokyo 1 No Nagoya06/27/06 432.4 J Crew Group Inc US Apparel Retailing New York Yes06/30/05 381.3 Lojas Renner SA Brazil Discount and Department Store Retailing BOVESPA No04/27/06 368.4 OAO Magnit Russian Fed Discount and Department Store Retailing Russian TS No03/13/07 357.0 Intime Dept Store(Grp)Co China Discount and Department Store Retailing Hong Kong No04/24/08 354.2 Maoye Intl Hldg Ltd China Discount and Department Store Retailing Hong Kong No10/21/06 351.6 Fawaz Abdulaziz Alhokair Co Saudi Arabia Apparel Retailing Saudi Exch No07/05/07 346.7 New World Dept Store China Ltd Hong Kong Discount and Department Store Retailing Hong Kong No12/18/06 346.2 Dufry South America Ltd Brazil Discount and Department Store Retailing BOVESPA No08/09/07 332.8 Mercadolibre Inc Argentina Internet and Catalog Retailing NASDAQ No06/28/05 307.3 DSW Inc US Apparel Retailing New York Yes08/02/06 301.0 Bic Camera Inc Japan Computers & Electronics Retailing JASDAQ No05/22/07 297.8 Sichuan Xinhua Winshare Chain China Other Retailing Hong Kong No Deal making in high definition 33
  • 34 Sector connections 8. Healthcare Executive summary Earnings in the healthcare sector are expected to grow by 9% over the next 12 months, under performing the forecasted global earning growth rate by 10%. Emerging Asia and Japan offer the best EPS growth prospect over the next 12 months with 56% & 44% respectively. The ability to tap funds from investors with record issuance in follow-ons and value of corporate bonds along with jumbo yankee bonds in the form of Genentech underlines the capacity that this sector has to do large scale M&A. • M&A in the healthcare sector initially coped better than other sectors when the recession hit thanks to two of the largest deals ever announced in 1Q 2009, Wyeth at USD64 billion and Schering-Plough at USD46 billion. Domestic consolidation accounts for 80% of the M&A in 2009, higher than the 70% average since 1998. At its highest, in 2007 with USD275 billion, cross-border transactions accounted for 40% of healthcare M&A. 15 of the top 20 deals since 1998 are domestic. Nevertheless cross-border M&A is up for the third consecutive quarter and 3Q 2009 and accounts for 54% of the activity. (Exhibit 8.1). • At end of the leverage cycle, the number of participants in healthcare declined slightly to 134. North America, Europe and Japan all increased their number of participants from 2007 to 2009. • The US holds the majority of global capitalization in this industry with 60% in 3Q 2009. When comparing M&A cycle low of 1Q 2002 to 3Q 2009 both the US and the UK have lost approximately 7% and 4% in capitalization respectively, while Japan, Europe and the emerging markets have increased there capitalization. However the emerging markets participants haven’t grown in the same proportion as in other sectors only up from 1% to 3%. (Exhibit 8.7-8). • Both follow-on and IPO activity was up in 2009 with USD11.4 billion and USD3.9 billion respectively. Corporate bonds were at an all time high in 2009 with USD109 billion up from USD28.5 billion last year. The largest corporate bond for the first nine months of the year, valued at USD16 billion, was issued by Roche who initiated a shift from loan to corporate bonds to finance their USD42 billion acquisition of the remaining stake in Genentech. This was the largest U.S. dollar-denominated corporate bond sale in history, topping the USD10.9 billion sold by General Electric Capital Corp in 2002. (Exhibit 8.9-12). Exhibit 8.1 Healthcare targeted M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 140 180 120 160 100 140 . Index price M&A ($bn) 80 120 60 100 40 80 20 0 60 98 98 98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
  • Equity Value/Net Income Offer Price/Target Share Price (%) Rank Value/EBITDA 0 20 40 60 80 100 0 10 20 30 40 50 0 20 40 60 80 100Jan-98 Jan-98 Jan-98 Exhibit 8.3 Exhibit 8.2 Exhibit 8.4May-98 May-98 May-98Oct-98 Oct-98 Oct-98Mar-99 Mar-99 Mar-99 Jul-99 Jul-99 Jul-99Dec-99 Dec-99 Dec-99May-00 May-00 May-00Sep-00 Sep-00 Sep-00Feb-01 Feb-01 Feb-01 Jul-01 Jul-01 Jul-01Dec-01 Dec-01 Dec-01Apr-02 Apr-02 Apr-02Sep-02 Sep-02 Sep-02Feb-03 Feb-03 Feb-03 Cash Only Jun-03 Cash OnlyJun-03 Jun-03 Cash Only Price/earnings–Healthcare acquisitions >$500mmNov-03 Nov-03 Nov-03 Apr-04 Rank value/EBITDA–Healthcare acquisitions >$500mmApr-04 Apr-04 Aug-04 Stock OnlyAug-04 Stock Only Stock Only Aug-04Jan-05 Jan-05 Jan-05 Jun-05 HybridJun-05 Jun-05 Hybrid Hybrid Oct-05 Offer price to target share price–Healthcare acquisitions >$500mmOct-05 Oct-05Mar-06 Mar-06 Mar-06 Aug-06Aug-06 Aug-06 Jan-07Jan-07 Jan-07 May-07May-07 May-07 Oct-07Oct-07 Oct-07 Mar-08Mar-08 Mar-08 Jul-08 Jul-08 Jul-08 Dec-08Dec-08 Dec-08 May-09May-09 May-09 Sep-09Sep-09 Sep-09 Deal making in high definition 35
  • 36 Sector connections Exhibit 8.5 Exhibit 8.6 MKT value ($m) EPS growth % 12 mths MSCI AC World (U$) MSCI ACWI Healthcare ($) MSCI AC World MSCI ACWI Healthcare 31,774,960 27.3 26.0 19.2 23,752,480 22,114,240 14.2 12.6 10.8 10.8 16,733,020 9.0 1,681,917 2,041,697 2,518,012 2,168,007 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009 Exhibit 8.7 Exhibit 8.8 Healthcare market capitalisation by Healthcare market capitalisation by region–1Q2002 region–3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 66.5% 59.8% 0.4% 21.7% 16.3% 12.2% 3.9% 0.3% 5.9% 0.4% 1.2% 2.4% 0.0% 8.5% 0.5% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK Japan Exhibit 8.9 Exhibit 8.10 Healthcare IPOs Healthcare follow on offerings Value ($bn) No. of issues Value ($bn) No. of issues 14 200 25 450 180 20.2 400 12 11.6 19.4 10.6 160 20 350 10 140 300 120 15 8 7.6 7.0 250 11.6 11.4 100 10.1 9.7 6 5.7 5.6 200 5.2 9.1 80 10 8.7 4.4 3.9 60 150 6.4 4 4.8 4.8 100 4.0 2.3 40 5 2 1.4 1.3 20 50 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Exhibit 8.11 Exhibit 8.12 Healthcare convertibles Healthcare corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 25 70 109.6 120 120 20.4 60 100 100 20 16.6 50 80 80 71.4 15 14.1 13.0 40 60 60 10.6 9.9 30 10 8.9 36.4 32.8 28.5 40 40 29.2 6.5 27.9 20 25.0 17.2 5 4.1 11.9 3.2 20 20 2.6 10 7.3 1.3 3.8 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • Top 20 Healthcare acquisitionsRank Value Value/ Exhibit 8.13Date ($mm) Consideration Premium EBITDA P/E Target Name Target Nation Sub Sector Acquiror Name Acquiror Nation04/11/99 88,771.1 Stock Only 25.3 30.1 51.4 Warner-Lambert Co US Pharmaceuticals Pfizer Inc US17/01/00 78,775.1 Stock Only 4.6 20.7 42.2 SmithKline Beecham PLC UK Pharmaceuticals Glaxo Wellcome PLC UK26/01/04 65,656.7 Cash and Stock Combination 21.6 12.7 26.6 Aventis SA France Pharmaceuticals Sanofi-Synthelabo SA France26/01/09 64,479.7 Cash and Stock Combination 29.3 8.1 15.2 Wyeth US Pharmaceuticals Pfizer Inc US15/07/02 60,704.0 Stock Only 38.3 17.8 27.4 Pharmacia Corp US Pharmaceuticals Pfizer Inc US21/07/08 46,694.8 Cash Only 16.1 16.7 30.8 Genentech Inc US Biotechnology Roche Holding AG Switzerland09/03/09 45,704.4 Cash and Stock Combination 33.9 15.1 20.2 Schering-Plough Corp US Pharmaceuticals Merck & Co Inc US24/07/06 32,147.0 Cash Only 16.8 8.3 16.6 HCA Inc US Hospitals Hercules Acquisition Corp US09/12/98 31,774.3 Stock Only 13.1 15.9 27.5 Astra AB Sweden Pharmaceuticals ZENECA Group PLC UK07/04/08 27,733.7 Cash Only 21.9 22.8 31.7 Alcon Inc US Healthcare Equipment & Supplies Novartis AG Switzerland20/12/99 26,772.0 Stock Only (1.1) NP 36.5 Pharmacia & Upjohn Inc US Pharmaceuticals Monsanto Co US05/12/05 25,385.7 Cash and Stock Combination 16.4 27.3 67.3 Guidant Corp US Healthcare Equipment & Supplies Boston Scientific Corp US01/11/06 25,092.9 Other 21.5 13.5 24.5 Caremark Rx Inc US Healthcare Providers & Services CVS Corp US23/03/06 20,122.5 Cash Only 33.4 13.4 27.2 Schering AG Germany Pharmaceuticals Bayer AG Germany17/12/01 16,684.6 Cash and Stock Combination 19.2 141.0 95.2 Immunex Corp US Biotechnology Amgen Inc US26/06/06 16,600.0 Cash Only NP NP Pfizer Consumer Healthcare US Pharmaceuticals Johnson & Johnson US27/10/03 16,441.7 Cash and Stock Combination 20.4 10.0 19.5 WellPoint Health Networks Inc US Healthcare Providers & Services Anthem Inc US23/04/07 14,681.2 Cash Only 20.8 66.5 90.0 MedImmune Inc US Biotechnology AstraZeneca PLC UK11/03/07 14,433.0 Cash Only NP NP Organon Biosciences{OBS} Netherlands Pharmaceuticals Schering-Plough Corp US08/05/06 12,026.9 Cash and Stock Combination 7.0 12.4 25.6 Fisher Scientific Intl Inc US Healthcare Equipment & Supplies Thermo Electron Corp US Deal making in high definition 37
  • 38Top Healthcare IPOs since 2005 Sector connectionsIssue Date Proceeds ($mm) Issuer Domicile Sub sector Exchange PE backed? Exhibit 8.1409/16/09 1,295.6 China National Pharma Grp Corp China Pharmaceuticals Hong Kong No09/30/09 1,064.0 Talecris Biotherapeutics Hldg US Pharmaceuticals Nasdaq Yes09/20/06 1,059.0 Warner Chilcott Holdings Co Bermuda Pharmaceuticals Nasdaq Yes London MICEX05/04/07 951.5 OAO Pharmstandard Russian Fed Pharmaceuticals No Russian TS Madrid Barcelona06/19/07 936.6 Almirall Prodesfarma SA Spain Pharmaceuticals Bilbao Valencia No Mercado Cn12/05/05 853.6 Safilo SpA Italy Healthcare Equipment & Supplies Milan No10/25/07 782.0 Amil Participacoes SA Brazil Healthcare Providers & Services (HMOs) BOVESPA No10/11/07 495.6 Pronova BioPharma ASA Norway Pharmaceuticals Oslo No Madrid Barcelona05/15/06 439.2 Grifols SA Spain Pharmaceuticals Valencia Bilbao No Mercado Cn02/02/06 421.6 HealthSpring Inc US Healthcare Providers & Services (HMOs) New York Yes12/06/05 411.7 Ipsen SA France Pharmaceuticals Euro Paris Yes07/07/06 407.0 Southern Cross Healthcare UK Healthcare Providers & Services (HMOs) London Euronext B10/04/07 340.5 Arseus NV Belgium Pharmaceuticals No EuronextAM09/21/06 340.1 Medial Saude SA Brazil Healthcare Providers & Services (HMOs) BOVESPA No09/25/09 336.0 Select Medical Holdings Corp US Hospitals New York Yes02/07/07 331.2 Accuray Inc US Healthcare Equipment & Supplies Nasdaq No09/25/06 310.5 Mindray Medical Intl Ltd China Healthcare Equipment & Supplies New York No05/15/07 297.1 Skilled Healthcare Group Inc US Healthcare Providers & Services (HMOs) New York Yes04/25/06 280.0 Veropharm Russian Fed Pharmaceuticals Russian TS No04/26/07 273.3 Cremer SA Brazil Healthcare Equipment & Supplies BOVESPA Yes
  • Deal making in high definition 399. Telecom ServicesExecutive summaryTwelve of the 20 largest telecoms IPOs in the sector to reach the market since 2005 arefrom emerging markets and more notably from MENA. We have already seen seriousattempts for domestic consolidation in the emerging markets most noteably from Bharti/MTN we also expect to see cross-border M&A to take place between low growth developedmarkets and the high growth opportunities that the emerging markets represent.• M&A in the telecom services sector peaked in 1999-2000 as major economies markets underwent intensive consolidation. Activity culminated at the end of 1999 with the largest M&A deal ever announced, the USD203 billion acquisition of Mannesmann by Vodafone Airtouch. After hitting a low in 2003 activity built up again to reach a second cycle high in 2006 with an accumulation of domestic deals in the US, Japan and Mexico. (Exhibit 9.2, 9.13).• Exit multiples and premiums in the sectors were historically high at the end of the first cycle, with large cash and stock consideration transactions offering in excess of 30x EBITDA, well above the sector’s median of 11.1x. The second cycle saw valuations realign with the sector median and, coinciding with the leverage cycle, the emergence of cash as an alternative consideration type. (Exhibit 9.2-9.4).• Stock performance in the telecom services sector is universally flat over the last 12 months with Japan and Europe recording the best growth rates (12% and 7.5% respectively). In terms of market capitalization, emerging markets grew the most since 2002, up 146% and now worth USD275 billion or 22.8% of the sector’s capitalization (up from only 11% in 2002). The spectacular growth is mostly at the expense of North America which saw their combined market capitalization shrink 23% to USD341 billion and account for 28% of the global market, just ahead of developed Europe (27%). (Exhibit 9.5, 9.7-8)• 12 of the 20 largest IPOs in the sector to reach the market since 2005 are from emerging markets and more notably from EMEA. (Exhibit 9.14).• The global sector’s earnings forecast is bleak with analysts predicting 1.6% growth over the next 12 months. That compares to 10% in the month prior to the start of the credit crisis and 81% back in 2002 as global M&A hit the last cycle’s low. Nevertheless, emerging EMEA markets offer the best EPS growth prospects with 10.6% ahead of Japan (9.3%). (Exhibit 9.6).Exhibit 9.1 Telecom Services targeted M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 350 190 300 170 150 250 . 130 Index price M&A ($bn) 200 110 150 90 100 70 50 50 0 30 98 98 98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
  • 40 Equity Value/Net Income Offer Price/Target Share Price (%) Rank Value/EBITDA Sector connections 0 20 40 60 80 100 0 20 40 60 80 100 0 10 20 30 40 50Jan-98 Jan-98 Jan-98 Exhibit 9.3 Exhibit 9.2 Exhibit 9.4May-98 May-98 May-98Oct-98 Oct-98 Oct-98Mar-99 Mar-99 Mar-99 Jul-99 Jul-99 Jul-99Dec-99 Dec-99 Dec-99May-00 May-00 May-00Sep-00 Sep-00 Sep-00Feb-01 Feb-01 Feb-01 Jul-01 Jul-01 Jul-01Dec-01 Dec-01 Dec-01Apr-02 Apr-02 Apr-02Sep-02 Sep-02 Sep-02Feb-03 Feb-03 Feb-03 Cash Only Jun-03 Cash OnlyJun-03 Jun-03Nov-03 Nov-03 Nov-03Apr-04 Apr-04 Apr-04 Price/earnings–Telecom Services acquisitions >$500mm Stock Only Stock OnlyAug-04 Aug-04 Aug-04Jan-05 Jan-05 Jan-05 Rank value/EBITDA–Telecom Services acquisitions >$500mm HybridJun-05 Jun-05 Hybrid Jun-05 Cash OnlyOct-05 Oct-05 Oct-05Mar-06 Mar-06 Mar-06Aug-06 Aug-06 Aug-06 Offer price to target share price–Telecom Services acquisitions >$500mm Stock OnlyJan-07 Jan-07 Jan-07May-07 May-07 May-07Oct-07 Oct-07 Hybrid Oct-07Mar-08 Mar-08 Mar-08 Jul-08 Jul-08 Jul-08Dec-08 Dec-08 Dec-08May-09 May-09 May-09Sep-09 Sep-09 Sep-09
  • Deal making in high definition 41Exhibit 9.5 Exhibit 9.6 MKT value ($m) EPS growth % 12 mths MSCI AC World (U$) MSCI ACWI T/CM SVS ($) MSCI AC World MSCI ACWI T/CM SVS 31,774,960 80.7 23,752,480 22,114,240 16,733,020 26.0 27.3 20.6 19.2 2,558,280 10.8 10.1 1,047,293 1,640,133 1,202,834 1.6 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009Exhibit 9.7 Exhibit 9.8 Telecom Services market capitalisation by Telecom Services market capitalisation by region–1Q2002 region–3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 6.3% 42.6% 28.4% 27.3% 10.7% 23.0% 1.0% 15.7% 5.2% 11.6% 6.8% 5.9% 2.6% 5.5% 4.5% 3.0% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK JapanExhibit 9.9 Exhibit 9.10 Telecom Services IPOs Telecom Services follow on offeringsValue ($bn) No. of issues Value ($bn) No. of issues60 160 60 180 53.8 51.3 140 160 50 50 140 120 40 40 38.4 35.9 120 100 33.9 100 30 80 30 80 22.9 19.7 60 20 19.1 20 60 12.8 40 11.2 11.5 40 9.7 10.6 10.5 10 6.7 7.7 6.7 10 7.8 5.3 20 4.6 4.1 20 1.3 1.4 3.0 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Exhibit 9.11 Exhibit 9.12 Telecom Services convertibles Telecom Services corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 35 45 200 250 32.4 171.6 40 180 30 145.8 35 160 200 25 140 30 120 150 20 25 95.5 84.9 87.7 16.0 100 80.9 20 75.9 72.3 15 67.6 80 100 63.7 62.4 59.9 11.2 15 10 8.5 9.3 8.9 60 7.3 10 40 50 5 3.9 3.2 3.0 2.6 2.6 5 20 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • 42Top 20 Telecom Services acquisitions Sector connectionsRank Value Value/ Target Exhibit 9.13Date ($mm) Consideration Premium EBITDA P/E Target Name Nation Sub Sector Acquiror Name Acquiror Nation14/11/99 202,785.1 Cash and Stock Combination 89.2 47.6 1,872.6 Mannesmann AG Germany Wireless Vodafone AirTouch PLC UK05/03/06 89,432.0 Cash and Stock Combination 17.9 10.7 24.9 BellSouth Corp US Telecommunications Services AT&T Inc US28/07/98 71,323.6 Stock Only (2.7) 8.2 23.5 GTE Corp US Telecommunications Services Bell Atlantic Corp US11/05/98 70,394.5 Stock Only 27.1 11.1 26.9 Ameritech Corp US Telecommunications Services SBC Communications Inc US15/01/99 65,762.9 Cash and Stock Combination 40.6 34.7 83.2 AirTouch Communications Inc US Telecommunications Services Vodafone Group PLC UK17/02/04 47,100.4 Cash Only 75.4 10.3 95.6 AT&T Wireless Services Inc US Wireless Cingular Wireless LLC US15/12/04 46,513.7 Cash and Stock Combination 16.7 9.3 12.5 Nextel Communications Inc US Wireless Sprint Corp US30/05/00 39,670.6 Cash and Stock Combination 70.6 N/M Orange PLC UK Wireless France Telecom SA France29/02/00 35,549.6 Cash and Stock Combination (6.1) 18.7 25.3 Cable & Wireless HKT Hong Kong Telecommunications Services Pacific Century CyberWorks Ltd Hong Kong21/10/99 35,319.9 Other 21.7 55.6 N/M Orange PLC UK Wireless Mannesmann AG Germany20/02/99 34,757.9 Other 26.6 7.0 30.6 Telecom Italia SpA Italy Telecommunications Services Ing C Olivetti & Co SpA Italy04/10/00 34,161.8 Cash and Stock Combination NP NP Beijing Mobile,6 others China Wireless China Telecom Hong Kong Ltd Hong Kong24/07/00 34,060.6 Cash and Stock Combination (25.4) N/M N/M VoiceStream Wireless Corp US Wireless Deutsche Telekom AG Germany02/06/08 32,011.9 Stock Only 3.0 5.7 16.8 China Netcom Grp(HK)Corp Ltd Hong Kong Wireless China Unicom Ltd Hong Kong31/10/05 31,797.8 Other 21.8 10.1 59.3 O2 PLC UK Wireless Telefonica SA Spain07/11/06 31,756.7 Cash and Stock Combination 16.1 6.5 27.8 America Telecom SA de CV Mexico Wireless America Movil SA de CV Mexico07/12/04 28,820.7 Cash and Stock Combination 8.3 8.8 20.3 Telecom Italia Mobile SpA Italy Telecommunications Services Telecom Italia SpA Italy05/06/08 28,100.0 Cash Only 12.1 32.2 Alltel Corp US Wireless Cellco Partnership US12/03/03 27,835.3 Cash and Stock Combination 2.0 5.8 N/M Telecom Italia SpA Italy Telecommunications Services Ing C Olivetti & Co SpA Italy20/05/07 27,261.8 Cash Only 19.4 11.5 33.2 Alltel Corp US Telecommunications Services Atlantis Holdings LLC US
  • Top Telecom Services IPOs since 2005Issue Date Proceeds ($mm) Issuer Domicile Sub Sector Exchange PE Backed? Exhibit 9.1405/09/08 1,900.5 Turk Telekomunikasyon AS Turkey Telecommunications Services Istanbul No02/18/08 1,872.1 Mobile Telecommunications Saudi Arabia Telecommunications Services Tadawul No02/08/05 1,593.1 OAO AFK Sistema Russian Fed Telecommunications Services London No10/01/07 1,377.0 Hrvatske Telekomunikacije dd Croatia Telecommunications Services Zagreb London No04/18/07 1,322.5 MetroPCS Communications Inc US Wireless New York No10/10/05 1,189.7 Telenet NV Belgium Telecommunications Services Euronext B No10/24/06 1,143.9 Neuf Cegetel SA France Telecommunications Services Euro Paris No02/06/06 1,062.1 OAO Komstar-Obyedinennye Russian Fed Telecommunications Services London No11/29/05 1,014.1 Eutelsat SA France Wireless Euro Paris No04/26/07 979.5 Versatel AG Germany Telecommunications Services Frankfurt No04/26/09 952.7 Vodafone Qatar Qatar Telecommunications Services DohaSecMkt No03/16/05 900.0 PanAmSat Holding Corp US Space and Satellites New York Yes Cairo Alexandria12/07/05 864.2 Telecom Egypt Egypt Telecommunications Services No London12/13/07 857.9 BYD Electronic(Intl)Co Ltd China Telecommunications Equipment Hong Kong No05/07/08 845.6 Safaricom Ltd Kenya Wireless Nairobi No02/07/06 819.0 MTN Group Ltd South Africa Wireless Johannesbu No London10/05/05 778.0 Investcom LLC Lebanon Telecommunications Services No Dubai Exch07/11/05 760.3 Omantel Oman Wireless Oman No06/17/05 740.1 Inmarsat PLC UK Telecommunications Services London New York05/26/05 674.5 TomTom Netherlands Telecommunications Equipment EuronextAM No Deal making in high definition 43
  • 44 Sector connections 10. Media Executive summary Corporate bond issuance in the first nine months of 2009 already exceeds the last 2 years volumes with USD40.8 billion almost double 2008 figures. Strong borrowing for corporate issuers is due to the current high cost of going to the loans market, it is much more cost effective to borrow on the bonds market in the current recession. Follow-on issuance is also up with USD7.2 billion almost treble last year’s value of USD2.5 billion. Armed with additional capital and despite unattractive EPS forecasts we still expect to see a period of consolidation in this sector which for the most part of the leverage cycle did not involve media. • M&A activity targeting the media sector peaked in 1Q 2000 with 662 transactions worth a cumulated USD268 billion, which was largely due to a surge in deals over USD1 billion. Activity reached the second all-time low in 2002 after 2009 with USD63 billion when activity was down 86% from the 2000 high. From 2003 to 2007 the sector recorded a steady growth of M&A volumes bringing it back to the levels seen before the 2000 peak. That trend eventually inverted in 2007 and activity reached a quarterly low in 3Q 2009, with USD7.3 billion, the lowest value since 1998. (Exhibit 10.1). • The level of cross-border activity is one of the lowest of all the sectors with only 24% since 1998 and never exceeded 38% (2007). The 7 out of the top 10 media acquisitions are all US domestic deals. (Exhibit 10.1, 13). • At end of the leverage cycle, the number of participants in the media sector had declined by 37% to 63. None of the regions experienced any growth in terms of number of participants during this period. • Two thirds of the global capitalization for this industry is captured by North America which has retained its dominant position from 2002 to year-to-date. Emerging markets players’ market share increased threefold from 2% in 2002 to 6% in the period from 2002-2009 year-to-date. Europe also increased its market share by 5% up to 18% year-to-date and is the second largest area behind North America. (Exhibit 10.7-8). • Earnings in the media sector are expected to grow by 6.8% over the next 12 months, slower than the expected global equity market earning growth rate of 19%. Japan and emerging Asia offer the best EPS growth prospect over the next 12 months with 125% & 29% respectively. (Exhibit 10.6). Exhibit 10.1 Media targeted M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 300 190 170 250 150 200 . 130 Index price M&A ($bn) 150 110 90 100 70 50 50 0 30 98 98 98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
  • Equity Value/Net Income Equity Value/Net Income Offer Price/Target Share Price (%) 0 25 50 75 100 125 0 20 40 60 80 100 0 20 40 60 80 100Jan-98 Jan-98 Jan-98 Exhibit 10.3 Exhibit 10.2 Exhibit 10.4May-98 May-98 May-98Oct-98 Oct-98 Oct-98 Mar-99 Mar-99Mar-99 Jul-99 Jul-99 Jul-99 Dec-99Dec-99 Dec-99 May-00May-00 May-00 Sep-00Sep-00 Sep-00 Feb-01Feb-01 Feb-01 Jul-01 Jul-01 Jul-01 Dec-01Dec-01 Dec-01 Apr-02Apr-02 Apr-02 Sep-02Sep-02 Sep-02 Feb-03 Price/earnings–Media acquisitions >$500mm Cash OnlyFeb-03 Feb-03 Jun-03Jun-03 Nov-03 Jun-03 Rank value/EBITDA–Media acquisitions >$500mmNov-03 Apr-04 Nov-03Apr-04 Apr-04 Stock Only Aug-04Aug-04 Jan-05 Aug-04Jan-05 Jun-05 Jan-05 Offer price to target share price–Media acquisitions >$500mm HybridJun-05 Oct-05 Jun-05Oct-05 Mar-06 Oct-05Mar-06 Aug-06 Mar-06 Jan-07Aug-06 Aug-06 May-07Jan-07 Jan-07 Oct-07May-07 Hybrid May-07 Mar-08Oct-07 Oct-07 Cash Only Jul-08Mar-08 Mar-08 Dec-08 Jul-08 Jul-08 May-09Dec-08 Dec-08 Hybrid Stock Only Sep-09 May-09 Cash OnlyMay-09 Stock OnlySep-09 Sep-09 Deal making in high definition 45
  • 46 Sector connections Exhibit 10.5 Exhibit 10.6 MKT value ($m) EPS growth % 12 mths MSCI AC World (U$) MSCI ACWI Media ($) MSCI AC World MSCI ACWI Media 31,774,960 55.1 23,752,480 26.0 27.3 22,114,240 22.2 20.2 19.2 16,733,020 10.8 905,622 865,121 6.8 675,005 475,443 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009 Exhibit 10.7 Exhibit 10.8 Media market capitalisation by region– Media market capitalisation by region– 1Q2002 3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 67.4% 63.8% 0.1% 4.7% 1.7% 0.5% 17.8% 2.3% 3.0% 12.9% 11.7% 1.8% 0.4% 1.0% 8.5% 2.3% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK Japan Exhibit 10.9 Exhibit 10.10 Media IPOs Media follow on offerings Value ($bn) No. of issues Value ($bn) No. of issues 13.1 16 140 14 200 12.6 14.7 180 14 120 12 12.4 160 12 10.6 100 10 140 8.9 10 120 7.5 80 8 7.2 8 6.4 6.3 7.2 100 5.5 6.5 60 6 5.1 5.7 80 4.8 6 4.8 4.5 60 3.4 40 4 4 2.5 2.9 40 1.8 20 2 2 0.9 20 0.3 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Exhibit 10.11 Exhibit 10.12 Media convertibles Media corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 18 17.1 40 60 180 51.9 16 35 160 14.2 50 14 140 30 40.8 40.0 12 40 120 33.2 25 32.6 30.9 30.7 10 9.1 100 27.7 20 30 22.7 24.0 23.3 8 80 21.6 6.5 15 6 5.2 20 60 4.7 10 4 3.4 40 2.8 2.5 10 1.7 5 20 2 1.3 1.0 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • Top 20 Media acquisitionsRank Value Value/ Exhibit 10.13Date ($mm) Consideration Premium EBITDA P/E Target Name Target Nation Sub Sector Acquiror Name Acquiror Nation10/01/00 181,568.9 Stock Only 70.9 16.7 84.1 Time Warner US Motion Pictures / Audio Visual America Online Inc US08/07/01 72,041.2 Cash and Stock Combination NP N/M AT&T Broadband & Internet Svcs US Cable Comcast Corp US24/06/98 69,896.5 Other 44.2 35.5 N/M Tele-Communications Inc US Cable AT&T Corp US22/04/99 48,906.9 Cash and Stock Combination 12.1 54.0 9.4 MediaOne Group Inc US Cable AT&T Corp US07/09/99 40,882.2 Stock Only (3.6) 29.5 579.9 CBS Corp US Broadcasting Viacom Inc US20/06/00 40,831.9 Cash and Stock Combination 42.7 47.8 Seagram Co Ltd Canada Motion Pictures / Audio Visual Vivendi SA France16/11/06 25,892.7 Cash Only 4.7 NP 19.0 Clear Channel Commun Inc US Broadcasting BT Triple Crown Co Inc US04/10/99 21,818.7 Cash and Stock Combination 18.3 33.2 N/M AMFM Inc US Broadcasting Clear Channel Commun Inc US16/03/00 18,690.8 Stock Only 79.8 179.0 Seat Pagine Gialle SpA Italy Publishing Tin.it Italy08/05/07 18,266.5 Cash and Stock Combination 41.5 24.0 30.3 Reuters Group PLC UK Publishing Thomson Corp US27/04/05 17,614.0 Cash and Stock Combination 25.3 N/M Adelphia Communications Corp US Cable Investor Group US04/05/09 14,499.1 Cash and Stock Combination 47.1 2.7 Liberty Entertainment Inc US Cable DirecTV Group Inc US20/06/00 14,125.6 Stock Only (8.9) 32.3 N/M Canal+ SA France Broadcasting Vivendi SA France08/10/03 13,677.0 Other NP NP Vivendi Universal US Motion Pictures / Audio Visual NBC US15/08/00 13,649.0 Stock Only (6.7) 24.8 95.2 Infinity Broadcasting Corp US Broadcasting Viacom Inc US27/06/06 13,427.2 Cash Only 18.7 19.8 61.6 Univision Communications Inc US Broadcasting Umbrella Holdings LLC US13/03/00 11,467.4 Cash and Stock Combination 98.2 18.6 35.0 Times Mirror Co US Publishing Tribune Co US16/01/06 11,286.8 Other 9.3 15.1 29.6 VNU NV Netherlands Publishing Valcon Acquisition BV US14/12/01 10,749.5 Cash and Stock Combination NP NP USA Networks Inc-Ent Asts US Broadcasting Vivendi Universal SA France21/05/98 10,198.1 Unknown 8.8 10.1 26.3 PolyGram NV(Philips Electrn) Netherlands Motion Pictures / Audio Visual Universal Studios Inc US Deal making in high definition 47
  • 48IPOs Media 2005 since 2005 Top since IPOs Sector connectionsIssue Date Proceeds ($mm) Issuer Domicile Sub sector Exchange PE backed? Exhibit 10.1403/08/05 1,573.5 Premiere AG Germany Cable Frankfurt Yes03/14/05 1,006.6 Jupiter Telecom Co Ltd Japan Cable Jasdaq No02/07/07 882.0 National CineMedia Inc US Advertising & Marketing Nasdaq Yes11/17/05 693.9 Macquarie Media Group Australia Broadcasting Australia No11/10/05 630.0 Clear Channel Outdoor Hldg Inc US Advertising & Marketing New York No02/07/06 565.2 Trader Media East Ltd Netherlands Advertising & Marketing London No05/10/05 554.2 Warner Music Group Corp US Motion Pictures/ Audio Visual New York Yes11/07/07 550.9 Megacable Holdings SAB de CV Mexico Cable Mexico No04/23/07 537.1 Cinemark Holdings Inc US Motion Pictures/ Audio Visual New York Yes10/18/07 495.5 Grupo Clarin SA Argentina Cable London No Madrid, Barcelona, Bilbao,11/07/06 424.6 Vocento SA Spain Publishing No Valencia, Mercado Cn06/06/07 423.2 Media Nusantara Citra Tbk PT Indonesia Motion Pictures/ Audio Visual Jakarta No06/01/06 380.5 CTC Media Inc Russian Fed Broadcasting Nasdaq No04/25/08 343.1 Cyfrowy Polsat Spoka Akcyjna Poland Broadcasting Warsaw No11/22/05 332.9 Endemol Entertainment Holding Netherlands Cable EuronextAM No12/03/07 307.6 Il Sole 24 ORE SpA Italy Publishing Telematico No03/08/07 300.0 Xinhua Finance Media Ltd China Broadcasting Nasdaq No04/08/06 294.4 Saudi Research & Marketing Saudi Arabia Publishing Saudi Exch No10/24/06 285.7 GateHouse Media Inc US Publishing New York Yes05/13/09 279.3 DigitalGlobe Inc US Motion Pictures/ Audio Visual New York No
  • Deal making in high definition 4911. Information TechnologyExecutive summaryEarnings in the information technology sector are forecasted to grow by 36% over the next12 months with emerging Asia and developed Europe offering the best prospects. Emergingmarkets players more than doubled (150%) their market capitalization since 2002 and nowaccount for 14% of the sector’s capitalization. Emerging Asia is now the second largest areaby market capital behind North America.• The dot.com bubble of the late 1990s and early 2000s saw the stock of the IT sector outperforming the global equity market for about 2 years and boosted M&A activity that reached an all time high in 2000 with 8,607 transactions worth USD488 billion. Activity peaked more precisely in 1Q 2000 with 2,511 transactions worth a cumulated USD199 billion, which was largely due to the growth of deals over USD1 billion. Activity reached an all-time low in 2002 with USD66.9billion when activity was down 86% from the 2000 high. From 2003 to 2007 the sector recorded a steady growth of M&A volumes bringing it back to the levels seen before the 2000 peak. That trend eventually inverted in 2008 and activity reached a quarterly low in 1Q 2009, below the USD10 billion mark for the only time since 1998. (Exhibit 11.1).• M&A activity was mainly restricted to domestic transactions with 72% of the activity from 1998 to 2009. The top 10 IT acquisitions are all US domestic deals, eight of which had a form of stock payment (stock or hybrid). (Exhibit 11.1).• The dot.com bubble saw an overwhelming proportion of stock and hybrid deals, whilst the 2003-2007 build up saw a majority of cash deals. From 1998-2000 premiums and exit multiples are high above the sector median. (Exhibit 11.2)• At end of the leverage cycle, the number of participants in the IT sector was 275, as of 3Q 2009 the number declined by 13.8% to 237. The only region that experienced growth of the number of its participants was the Asian emerging markets, which increased from 78 in 2007 to 82 in 2009.• Two thirds of the global capitalization for this industry is captured by North America which has retained its dominant position from 2002 to year-to-date. Emerging markets players (mostly Asia) more than doubled (150%) their market capitalization since 2002 and now account for 14% of the sector’s capitalization. Emerging Asia is now the second largest area by market capital behind North America. (Exhibit 11.7-8).• 13 out of the top 20 IT IPOs since 2005 were on NYSE or Nasdaq. (Exhibit 11.14).Exhibit 11.1 Information Technology targeted M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 200 254 180 160 204 140 . 120 154 Index price M&A ($bn) 100 80 104 60 40 54 20 0 4 98 98 98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
  • 50 Equity Value/Net Income Rank Value/EBITDA Offer Price/Target Share Price (%) Sector connections 0 50 100 150 200 0 20 40 60 80 100 120 0 20 40 60 80 100Jan-98 Jan-98 Jan-98 Exhibit 11.3 Exhibit 11.2 Exhibit 11.4May-98 May-98 May-98Oct-98 Oct-98 Oct-98Mar-99 Mar-99 Mar-99 Jul-99 Jul-99 Jul-99Dec-99 Dec-99 Dec-99May-00 May-00 May-00Sep-00 Sep-00 Sep-00Feb-01 Feb-01 Feb-01 Jul-01 Jul-01 Jul-01Dec-01 Dec-01 Dec-01Apr-02 Apr-02 Apr-02Sep-02 Sep-02 Sep-02Feb-03 Feb-03 Feb-03Jun-03 Jun-03 Jun-03Nov-03 Nov-03 Nov-03Apr-04 Cash Only Apr-04 Apr-04Aug-04 Aug-04 Aug-04Jan-05 Cash Only Jan-05 Jan-05Jun-05 Price/earnings–Information Technology acquisitions >$500mm Jun-05 Jun-05 Stock OnlyOct-05 Oct-05 Oct-05 Rank value/EBITDA–Information Technology acquisitions >$500mm Stock OnlyMar-06 Mar-06 Mar-06 HybridAug-06 Aug-06 Aug-06Jan-07 Hybrid Jan-07 Jan-07May-07 May-07 May-07 Offer price to target share price–Information Technology acquisitions >$500mmOct-07 Oct-07 Oct-07 HybridMar-08 Mar-08 Mar-08 Cash Only Jul-08 Jul-08 Jul-08Dec-08 Dec-08 Dec-08May-09 May-09 May-09 Stock OnlySep-09 Sep-09 Sep-09
  • Deal making in high definition 51Exhibit 11.5 Exhibit 11.6 MKT value ($m) EPS growth % 12 mths MSCI AC World (U$) MSCI ACWI IT ($) MSCI AC World MSCI ACWI IT 31,774,960 113.9 23,752,480 35.6 22,114,240 31.4 26.0 27.3 16,733,020 19.2 5,207,354 16.3 3,421,417 2,798,775 10.8 2,207,039 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009Exhibit 11.7 Exhibit 11.8 Information Technology market Information Technology market capitalisation by region–1Q2002 capitalisation by region–3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 69.9% 68.0% 0.3% 0.5% 12.2% 8.0% 0.3% 9.6% 0.4% 0.3% 10.4% 13.6% 6.6% 6.7% 0.4% 0.1% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK JapanExhibit 11.9 Exhibit 11.10 Information Technology IPOs Information Technology follow on offeringsValue ($bn) No. of issues Value ($bn) No. of issues70 800 90 800 80.0 59.6 700 80 700 60 70 600 600 50 60 41.9 500 500 40 50 400 400 35.8 30 40 300 300 20.4 20.3 30 22.3 21.7 21.0 20 16.2 15.7 15.2 200 15.5 14.0 200 15.8 15.3 11.6 20 11.4 10.5 9.5 10 7.5 100 5.0 4.4 10 100 2.3 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Exhibit 11.11 Exhibit 11.12 Information Technology convertibles Information Technology corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 35 140 60 300 31.7 48.0 49.7 29.8 30 120 45.9 50 250 25.4 39.4 25 100 35.3 40 200 34.8 21.1 20 19.3 80 17.5 27.8 30 150 25.4 23.3 15 60 21.5 13.0 11.7 17.3 20 100 16.1 10.2 10 8.3 40 6.3 6.0 10 50 5 20 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • 52Top 20 Information Technology acquisitions Sector connectionsRank Value Value/ Acquiror Exhibit 11.13Date ($mm) Consideration Premium EBITDA P/E Target Name Target Nation Sub Sector Acquiror Name Nation10/07/00 40,992.6 Stock Only 77.2 910.9 1,632.7 SDL Inc US Semiconductors JDS Uniphase Corp US04/09/01 23,518.4 Cash and Stock Combination 18.9 7.2 N/M Compaq Computer Corp US Computers & Peripherals Hewlett-Packard Co US07/03/00 20,788.7 Stock Only 47.5 433.8 784.8 Network Solutions Inc US Software VeriSign Inc US29/03/00 17,677.2 Cash and Stock Combination 13.8 16.5 17.7 Seagate Technology Inc US Computers & Peripherals Veritas Software Corp US15/09/06 17,454.5 Cash Only 30.1 12.0 21.6 Freescale Semiconductor Inc US Semiconductors Firestone Holdings LLC US07/06/99 15,266.2 Cash and Stock Combination 4.2 11.9 24.7 Honeywell Inc US Electronics AlliedSignal Inc US17/01/00 15,252.6 Stock Only 55.6 189.9 489.7 E-Tek Dynamics Inc US Semiconductors JDS Uniphase Corp US18/10/98 13,883.3 Stock Only 11.0 36.5 99.8 HBO & Co US IT Consulting & Services McKesson Corp US13/05/08 13,031.0 Cash Only 32.6 5.0 20.0 Electronic Data Systems Corp US IT Consulting & Services Hewlett-Packard Co US16/12/04 11,881.1 Stock Only 9.5 17.9 29.3 Veritas Software Corp US Software Symantec Corp US05/11/98 11,709.2 Cash Only NP NP Siemens AG-Semiconductor Unit Germany Semiconductors Investors Germany19/12/08 11,091.1 Cash Only (9.7) 6.0 17.7 SANYO Electric Co Ltd Japan Electronics Panasonic Corp Japan23/11/98 10,930.9 Stock Only 8.2 9.2 23.5 AMP Inc US Electronics Tyco International Ltd Bermuda28/03/05 10,844.3 Cash Only 44.3 10.4 24.2 SunGard Data Systems Inc US IT Consulting & Services Investor Group US03/08/06 9,475.8 Cash Only NP NP Philips Semiconductors Netherlands Semiconductors Investor Group US06/06/03 8,930.2 Cash Only 75.4 24.0 147.9 PeopleSoft Inc US Software Oracle Corp US15/06/98 8,743.5 Stock Only 35.0 N/M N/M Bay Networks Inc US Computers & Peripherals Northern Telecom Ltd Canada26/01/98 8,680.5 Cash and Stock Combination 32.1 14.8 33.2 Digital Equipment Corp US Computers & Peripherals Compaq Computer Corp US17/03/00 8,250.0 Unknown NP NP AOL Europe,AOL Australia Germany Software America Online Inc US28/09/09 7,975.8 Cash and Stock Combination 33.6 7.2 18.2 Affiliated Computer Svcs Inc US IT Consulting & Services Xerox Corp US
  • Top Information Technology IPOs since 2005Issue Date Proceeds ($mm) Issuer Domicile Sub Sector Exchange PE Backed? Exhibit 11.1410/26/07 1,694.3 Alibaba.com Ltd China E-commerce / B2B Hong Kong Yes06/27/05 1,658.3 PartyGaming PLC Gibraltar Internet Software & Services London No10/06/06 1,496.0 Experian Group Ltd UK Computers & Peripherals London No12/13/06 1,488.0 FPT Corp Vietnam IT Consulting & Services HoChiMinh No11/07/05 1,345.6 SUMCO Corp Japan Semiconductors Tokyo 1 No08/13/07 1,100.6 VMware Inc US Internet Software & Services New York No10/31/07 1,044.5 Giant Interactive Group Inc China Software New York No09/24/09 1,043.8 Shanda Games Ltd China Internet Software & Services Nasdaq No07/25/07 756.0 Moneysupermarket.com UK Internet Software & Services London No08/05/09 745.2 Avago Technologies Ltd Singapore Semiconductors Nasdaq Yes02/15/05 720.0 Wright Express Corp US Computers & Peripherals New York No06/28/05 695.8 NeuStar Inc US Internet Software & Services New York Yes06/07/06 684.1 Teranet Income Fund Canada Internet Software & Services Toronto No08/08/06 627.9 Qimonda AG Germany Semiconductors New York No03/07/07 600.0 Clearwire Corp US Internet Software & Services Nasdaq No02/16/05 569.3 Dolby Laboratories Inc US Electronics New York No12/15/05 567.2 Spansion Inc US Semiconductors Nasdaq No03/30/06 510.6 Himax Technologies Inc Taiwan Semiconductors Nasdaq No07/19/07 510.0 Orbitz Worldwide Inc US E-commerce / B2B New York No07/23/08 500.0 GT Solar International Inc US Semiconductors Nasdaq Yes Deal making in high definition 53
  • 54 Sector connections 12. Energy Executive summary North America and the emerging markets have continued to grow while Europe and the UK have seen their market capitalization shrink since 2002 while EPS 12 month forecasts indicate that the emerging markets could see growth of around 24.8% and with 12 out of the top 20 deals since 1998 with US targets we would conclude that M&A activity is likely to take place in the emerging markets. It should also be noted that the energy sector as a whole has recorded record bond issuance during 2009 and high levels of follow on issurance since 2003. • The energy sector which comprises oil & gas has consistently outperformed the world market since 2Q 2000. From the early 1980s to 2003 the price of crude brent oil was on average below USD25 per barrel, however from 2003 the price rose steadily until it peaked in July 2008 at USD145. Correspondingly the energy equity index also peaked in 2Q 2008, after which performance dropped dramatically by 45% over three quarters. There has been some recovery since then with levels returning to those seen in early 2007. M&A activity reached a high in 2007 with 2,222 transactions worth USD308 billion, but activity has declined steadily since then. The first nine months of 2009 activity reached USD124 billion and was down 45% when compared to 2008. (Exhibit 12.1). • At the end of the first nine months of 2009, the number of participants in the energy sector has remained stable at 162 participants. • North America which holds over half of the global capitalization in this market has retained its dominating position from 2002 to year-to-date. Both North America and the emerging markets have also increased their market capitalization since 2002, up from 47% to 54% and 5% to16% respectively. In comparison Europe and the UK shrunk by 14% and 5% in the same period. (Exhibit 12.7-8). • Earnings in the energy sector are expected to grow by 3.8% over the next 12 months, under performing the global equity market earning growth of 19.2%. Emerging Asia and UK offer the best EPS growth prospect over the next 12 months with 24.8% & 5.3% respectively. (Exhibit 12.6). • 12 deals out of the top 20 M&A deals announced since 1998 are US targeted. The top deal year-to-date was Suncor Energy’s acquisition of Petro Canada in a stock swap transaction valued at USD18.2billion which makes up 68% of total activity for 2009. (Exhibit 12.13). Exhibit 12.1 Energy targeted M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 140 410 120 360 100 310 . Index price M&A ($bn) 80 260 60 210 40 160 20 110 0 60 98 98 98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
  • Equity Value/Net Income Offer Price/Target Share Price (%) Rank Value/EBITDA 0 20 40 60 80 100 0 20 40 60 80 100 0 10 20 30 40 50Jan-98 Jan-98 Jan-98 Exhibit 12.3 Exhibit 12.2 Exhibit 12.4May-98 May-98 May-98Oct-98 Oct-98 Oct-98Mar-99 Mar-99 Mar-99 Jul-99 Jul-99 Jul-99Dec-99 Dec-99 Dec-99May-00 May-00 May-00Sep-00 Sep-00 Sep-00Feb-01 Feb-01 Feb-01 Jul-01 Jul-01 Jul-01Dec-01 Dec-01 Dec-01Apr-02 Apr-02 Apr-02Sep-02 Sep-02 Cash Only Sep-02Feb-03 Feb-03 Price/earnings–Energy acquisitions >$500mm Feb-03 Cash Only Cash OnlyJun-03 Jun-03 Jun-03 Rank value/EBITDA–Energy acquisitions >$500mmNov-03 Nov-03 Nov-03 Stock OnlyApr-04 Apr-04 Apr-04 Stock Only Stock OnlyAug-04 Aug-04 Aug-04Jan-05 Jan-05 Jan-05 Hybrid Offer price to target share price–Energy acquisitions >$500mm Hybrid HybridJun-05 Jun-05 Jun-05Oct-05 Oct-05 Oct-05Mar-06 Mar-06 Mar-06Aug-06 Aug-06 Aug-06Jan-07 Jan-07 Jan-07May-07 May-07 May-07Oct-07 Oct-07 Oct-07Mar-08 Mar-08 Mar-08 Jul-08 Jul-08 Jul-08Dec-08 Dec-08 Dec-08May-09 May-09 May-09Sep-09 Sep-09 Sep-09 Deal making in high definition 55
  • 56 Sector connections Exhibit 12.5 Exhibit 12.6 MKT value ($m) EPS growth % 12 mths MSCI AC World (U$) MSCI ACWI Energy ($) MSCI AC World MSCI ACWI Energy 31,774,960 31.3 26.0 27.3 19.2 23,752,480 22,114,240 10.8 4.9 3.8 16,733,020 3,258,127 2,698,915 1,077,714 1,219,987 (12.3) 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009 Exhibit 12.7 Exhibit 12.8 Energy market capitalisation by region– Energy market capitalisation by region– 1Q2002 3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 48.0% 53.7% 24.9% 5.4% 20.6% 2.6% 15.9% 6.1% 0.3% 1.0% 0.9% 10.8% 2.2% 1.0% 1.7% 4.9% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK Japan Exhibit 12.9 Exhibit 12.10 Energy IPOs Energy follow on offerings Value ($bn) No. of issues Value ($bn) No. of issues 45 140 45 800 41.1 38.6 40 40 700 120 35 35 600 100 30 30 26.8 500 23.2 23.1 80 22.8 25 25 21.1 400 17.8 20 60 20 300 15 12.2 15 11.9 11.4 40 8.6 8.9 200 10 8.2 8.1 7.0 10 6.8 6.5 6.0 5.6 20 5 5 100 2.6 1.9 1.9 1.7 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Exhibit 12.11 Exhibit 12.12 Energy convertibles Energy corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 25 90 200 300 176.1 80 180 20.5 250 20 160 70 140 60 200 107.1 15 120 50 88.2 100 150 75.2 40 68.6 10 8.8 80 61.8 8.4 8.6 54.6 30 100 51.1 50.2 48.0 6.7 6.6 60 47.4 4.9 32.5 4.7 5 4.0 4.2 20 40 50 2.0 10 20 1.0 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • Top 20 Energy acquisitionsRank Value Value/ Exhibit 12.13Date ($mm) Consideration Premium EBITDA P/E Target Name Target Nation Sub Sector Acquiror Name Acquiror Nation01/12/98 85,125.8 Stock Only 26.3 10.7 24.1 Mobil Corp US Oil & Gas Exxon Corp US28/10/04 80,304.7 Stock Only (0.3) 5.5 12.0 Shell Transport & Trading Co UK Oil & Gas Royal Dutch Petroleum Co Netherlands05/07/99 55,339.6 Stock Only 30.2 13.5 94.3 Elf Aquitaine France Oil & Gas Total Fina SA France11/08/98 52,717.1 Stock Only 22.4 9.4 17.7 Amoco Corp US Oil & Gas British Petroleum Co PLC UK16/10/00 43,318.3 Cash and Stock Combination 17.7 8.3 15.5 Texaco Inc US Petrochemicals Chevron Corp US12/12/05 36,472.0 Cash and Stock Combination 20.9 7.6 16.4 Burlington Resources Inc US Oil & Gas ConocoPhillips US01/04/99 33,485.2 Cash and Stock Combination 27.2 19.7 N/M Atlantic Richfield Co US Petrochemicals BP Amoco PLC UK18/12/06 31,998.4 Stock Only (3.3) NP NP Norsk Hydro ASA Norway Oil & Gas Statoil ASA Norway29/05/06 27,489.7 Cash Only 27.4 16.4 23.0 Kinder Morgan Inc US Oil & Gas Knight Holdco LLC US18/11/01 24,785.5 Stock Only (0.3) 4.7 7.7 Conoco Inc US Petrochemicals Phillips Petroleum Co Inc US11/03/98 19,748.5 Stock Only 12.6 10.2 N/M Waste Management Inc US Water and Waste Management USA Waste Services Inc US23/03/09 18,245.8 Cash and Stock Combination 33.4 2.6 6.2 Petro-Canada Canada Oil & Gas Suncor Energy Inc Canada23/06/06 18,217.2 Cash Only 40.2 9.0 53.3 Kerr-McGee Corp US Oil & Gas Anadarko Petroleum Corp US04/04/05 18,165.5 Cash and Stock Combination 40.8 NP 12.9 Unocal Corp US Oil & Gas ChevronTexaco Corp US23/07/07 17,372.7 Cash and Stock Combination 0.1 10.9 13.2 GlobalSantaFe Corp US Oil & Gas Transocean Inc US29/04/99 16,865.7 Cash Only 31.3 8.9 26.8 YPF SA Argentina Oil & Gas Repsol SA Spain22/07/08 13,998.0 Cash Only 11.0 27.7 Suez Environment SA France Water and Waste Management Shareholders France22/04/03 13,615.2 Stock Only 68.3 11.3 16.1 Sibneft Russian Fed Oil & Gas Yukosneftegaz Russian Fed28/09/05 13,101.1 Cash Only 5.6 8.8 Sibneft Russian Fed Oil & Gas OAO Gazprom Russian Fed23/06/08 12,728.8 Cash and Stock Combination 0.8 7.7 17.9 Allied Waste Industries Inc US Water and Waste Management Republic Services Inc US Deal making in high definition 57
  • 58Top energy IPOs since 2005 Sector connectionsIssue date Proceeds ($mm) Issuer Domicile Sub sector Exchange PE backed? Exhibit 12.14 Moscow07/13/06 10,656.2 OAO Rosneft Russian Fed Oil & Gas London No Russian TS12/28/07 4,268.9 PTT Aromatics & Refining PCL Thailand Oil & Gas Thailand No06/12/08 4,102.0 OGX Petroleo e Gas Brazil Oil & Gas BMFBOVESPA No05/12/06 2,949.9 Saras SpA Italy Petrochemicals Milan No09/26/07 2,850.0 Ecopetrol Colombia Oil & Gas Colombia No11/29/06 2,395.8 Petroplus Holdings AG Switzerland Oil & Gas Swiss Exch No London09/29/06 2,255.4 KazMunaiGas Expl & Prodn JSC Kazakhstan Oil & Gas No Kazakh07/13/06 1,879.1 Daqin Railway Company Limited China Pipelines Shanghai No05/07/07 1,800.2 Saudi Kayan Petrochemical Co Saudi Arabia Petrochemicals Saudi Exch No10/09/06 1,690.7 Biffa PLC UK Water and Waste Management London02/12/07 1,517.7 Oil Refineries Ltd Israel Petrochemicals Tel Aviv No Euronxt L10/23/06 1,390.8 Galp Energia SGPS SA Portugal Oil & Gas Yes Mercado Cn Bombay12/19/06 1,296.5 Cairn India Ltd India Oil & Gas No National01/05/08 1,231.6 PetroRabigh Saudi Arabia Petrochemicals Saudi Exch No04/07/06 1,202.3 Legrand SA France Other Energy & Power Euro Paris Yes10/16/06 1,011.7 Idemitsu Kosan Co Ltd Japan Petrochemicals Tokyo 1 No07/21/05 966.3 Novatek Russian Fed Oil & Gas London No11/30/06 913.6 Oil & Gas Development Corp Pakistan Oil & Gas London No09/13/05 838.2 PGNiG(Poland) Poland Oil & Gas Warsaw No01/20/05 800.0 Celanese Corp US Petrochemicals New York Yes
  • Deal making in high definition 5913. UtilitiesExecutive summaryFrom the 20 largest utilities IPOs to reach the market since 2005 it is worth noting that 7 werefrom BRIC (Brazil, Russia, India and China) countries including 4 from India alone. Renewableenergy along side privatizations of the last remaining government controlled entities acrossdeveloped and emerging market represent some of the main source of new entrants for thesector.• The utility sector witnessed over the past 12 years 2 M&A cycles aligned to those of the global M&A and ECM markets. The second cycle, the result of a wave of intra-European consolidation and the largest LBO ever announced (TXU, USD44 billion), peaked in 2007 (USD300 billion) at nearly twice the level reached at the first cycle-high (1999, USD174 billion). Cash has consistently been the consideration of choice in the sector across both cycles whilst valuations have remained close to the sector’s EBITDA median (10.5X). (Exhibit 13.1-4).• Cross-border transactions are an essential driving force of the sector’s M&A activity. It accounts for a combined 41% over the period covered (1998-2009) and has now exceeded domestic activity for the last 2 years to stand at a record 55% in 2009 YTD. (Exhibit 13.1).• Shares of utilities companies have generally underperformed the global equity market and are down 7.8% over the last 12 months. The UK and the US are the worst hit over the same period, down 26% and 12% respectively. In contrast, utilities companies from emerging Asia and Latin America recorded the best performance of the sector, up 23% and 15% respectively. As at the end of 3Q 2009 the market capitalization of utilities companies from emerging markets had more than doubled to USD105 billion, up 165% from 2002. (Exhibit 13.5,7-8).• The level of corporate bonds issuance is at a 10 year high in 2009 (USD208 billion), up for the 4th consecutive year in 3Q 2009. Similarly follow on offerings are also at a 10 year high with USD34 billion raised so far in 2009. (Exhibit 13.9-12).• At 7.4% the 12 months forecasted earnings growth in the utilities sector is significantly below the global average (19.2%). Nevertheless companies from emerging Asia and Japan offer the best prospect for earnings growth with expected 117% and 59% growth rate respectively. (Exhibit 13.6).Exhibit 13.1 Utilities targeted M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 140 190 120 170 100 150 . Index price M&A ($bn) 80 130 60 110 40 90 20 70 0 50 98 98 98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
  • 60 Equity Value/Net Income Offer Price/Target Share Price (%) Rank Value/EBITDA Sector connections 0 20 40 60 80 100 0 20 40 60 80 100 0 10 20 30 40 50Jan-98 Jan-98 Jan-98 Exhibit 13.3 Exhibit 13.2 Exhibit 13.4May-98 May-98 May-98Oct-98 Oct-98 Oct-98Mar-99 Mar-99 Mar-99 Jul-99 Jul-99 Jul-99Dec-99 Dec-99 Dec-99May-00 May-00 May-00Sep-00 Sep-00 Sep-00Feb-01 Feb-01 Feb-01 Jul-01 Jul-01 Jul-01Dec-01 Dec-01 Dec-01Apr-02 Apr-02 Apr-02Sep-02 Sep-02 Sep-02Feb-03 Feb-03 Price/earnings–Utilities acquisitions >$500mm Feb-03 Cash Only Cash OnlyJun-03 Jun-03 Jun-03 Cash OnlyNov-03Apr-04 Nov-03 Rank value/EBITDA–Utilities acquisitions >$500mm Nov-03 Apr-04 Apr-04Aug-04 Stock Only Aug-04 Stock Only Aug-04Jan-05 Stock Only Jan-05 Jan-05Jun-05 Offer price to target share price–Utilities acquisitions >$500mm Hybrid Hybrid Jun-05 Jun-05Oct-05 Hybrid Oct-05 Oct-05Mar-06 Mar-06 Mar-06Aug-06 Aug-06 Aug-06Jan-07 Jan-07May-07 Jan-07Oct-07 May-07 May-07Mar-08 Oct-07 Oct-07 Jul-08 Mar-08 Mar-08Dec-08 Jul-08 Jul-08May-09 Dec-08 Dec-08Sep-09 May-09 May-09 Sep-09 Sep-09
  • Deal making in high definition 61Exhibit 13.5 Exhibit 13.6 MKT value ($m) EPS growth % 12 mths MSCI AC World (U$) MSCI ACWI Utilities ($) MSCI AC World MSCI ACWI Utilities 31,774,960 27.3 26.0 19.2 23,752,480 22,114,240 10.8 16,733,020 9.4 8.3 7.4 7.4 769,396 631,120 1,349,494 1,086,528 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009Exhibit 13.7 Exhibit 13.8 Utilities market capitalisation by region– Utilities market capitalisation by region– 1Q2002 3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 47.7% 34.8% 32.7% 23.5% 1.4% 1.1% 11.8% 4.5% 9.7% 9.5% 3.3% 7.3% 3.3% 2.0% 3.8% 3.8% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK JapanExhibit 13.9 Exhibit 13.10 Utilities IPOs Utilities follow on offeringsValue ($bn) No. of issues Value ($bn) No. of issues25 45 40 120 40 35 34.1 20.1 100 20 35 17.4 30 30 80 25 15 14.0 25 20.0 20 60 20 10 8.5 15 13.3 13.3 7.7 15 40 7.0 11.1 9.5 10.2 5.1 5.2 10 10 8.0 7.4 5 6.3 20 2.8 2.6 4.6 4.3 1.7 5 5 1.5 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Exhibit 13.11 Exhibit 13.12 Utilities convertibles Utilities corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 12 30 250 600 208.2 10.1 181.8 10 25 500 200 8.8 8.4 8 20 400 144.0 150 126.7 117.4 6 5.4 15 300 98.7 96.9 87.0 4.4 100 84.3 79.1 74.9 73.0 4 10 200 3.3 2.7 2.2 2.2 50 2 1.4 1.3 5 100 0.8 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • 62Top 20 Utilities acquisitions Sector connectionsRank Value Value/ Exhibit 13.13Date ($mm) Consideration Premium EBITDA P/E Target Name Target nation Sub Sector Acquiror Name Acquiror Nation25/02/06 75,242.3 Stock Only 3.7 10.6 17.8 Suez SA France Power Gaz de France SA France26/02/07 44,372.4 Cash Only 20.1 8.0 12.9 TXU Corp US Power TXU Corp SPV US28/11/06 26,634.8 Other 4.9 11.2 11.3 Scottish Power PLC UK Power Iberdrola SA Spain02/04/07 26,437.8 Cash Only 116.4 9.6 17.2 Endesa SA Spain Power Investor Group Italy30/07/08 19,468.2 Cash Only 13.2 10.5 13.8 Union Fenosa SA Spain Power Gas Natural SDG SA Spain11/10/99 18,733.5 Cash Only 9.0 23.3 Ente Nazionale per lEnergia Italy Power Investors Italy22/04/02 18,439.9 Stock Only 6.4 8.0 10.7 Lattice Group PLC UK Oil & Gas National Grid Group PLC UK18/01/00 15,678.6 Cash and Stock Combination 26.8 11.5 19.9 Coastal Corp US Oil & Gas El Paso Energy Corp US24/09/08 15,400.4 Other 35.4 20.2 57.3 British Energy Group PLC UK Power Lake Acquisitions Ltd UK09/04/01 15,025.5 Other 26.5 15.4 11.9 PowerGen PLC UK Power E ON AG Germany16/10/06 14,888.8 Cash Only 6.8 21.3 Thames Water PLC UK Water and Waste Management Kemble Water Ltd Australia27/09/99 14,858.1 Stock Only (4.4) 5.9 21.2 VIAG AG Germany Power VEBA AG Germany28/03/08 14,342.2 Cash Only NP NP Endesa Italia Italy Power E ON AG Germany09/05/05 14,137.8 Cash and Stock Combination 13.4 11.8 21.8 Cinergy Corp US Power Duke Energy Corp US23/09/99 13,968.2 Cash and Stock Combination (8.5) 5.8 11.4 Unicom Corp US Power Philadelphia Electric Co US09/08/05 13,843.1 Cash and Stock Combination 8.0 18.1 23.6 Electrabel SA Belgium Power Suez SA France20/02/09 13,470.0 Cash Only 9.0 5.4 Endesa SA Spain Power Enel SpA Italy07/12/98 12,509.3 Cash and Stock Combination 24.7 8.5 34.2 PacifiCorp US Power Scottish Power PLC UK27/02/06 11,872.1 Cash Only 16.1 9.2 18.6 KeySpan Corp US Oil & Gas National Grid PLC UK30/03/07 11,453.2 Other 13.3 39,590.5 45,758.4 Alinta Ltd Australia Oil & Gas Investor Group Singapore
  • Top Utilities IPOs since 2005Issue Date Proceeds ($mm) Issuer Domicile Sub Sector Exchange PE Backed? Exhibit 13.1411/18/05 7,479.1 EDF France Power Euro Paris No12/11/07 6,565.3 Iberdrola Renovables SA Spain Power Barcelona Bilbao Madrid Valencia No07/07/05 4,781.0 Gaz de France France Oil & Gas Euro Paris No01/21/08 2,917.9 Reliance Power Ltd India Power Bombay National No06/02/08 2,437.4 EDP Renovaveis SA Portugal Alternative Energy Sources Euronxt L No04/22/08 1,358.2 American Water Works Co Inc US Water and Waste Management New York No08/20/09 1,247.1 National Hydro Electric Power India Power BombayNational No07/24/07 1,105.1 Meinl International Power Ltd Jersey Power Vienna No04/21/06 1,103.0 Renewable Energy Corp ASA Norway Alternative Energy Sources Oslo No12/12/07 1,091.4 MPX Energia SA Brazil Power BOVESPA No12/07/05 1,056.6 SP AusNet Australia Power Australia, Singapore No09/28/07 995.9 OGK-2 Russian Fed Power Russian TS ICEX London No11/04/08 739.3 Grupa Energetyczna ENEA SA Poland Power Warsaw No09/14/07 738.9 Power Grid Corp of India Ltd India Power National Bombay No06/17/05 671.6 Elia Belgium Power Euronext B No08/03/09 637.5 Adani Power Ltd India Power Bombay National Yes11/28/06 513.4 EDF Energies Nouvelles SA France Power Euro Paris No07/12/05 507.3 EDP Energias do Brasil SA Brazil Power No07/04/07 501.3 Enia SpA Italy Power Milan STAR No07/09/07 480.5 Redes Energeticas Nacionais Portugal Power Euronxt L No Deal making in high definition 63
  • 64 Sector connections 14. Banks Executive summary It is worth noting that 11 of the top 20 bank IPOs since 2005 originated from BRIC countries, indicating that this group of countries could a either attract foreign buyer looking for higher earning growth, or, provided that access to capital remains available, drive activity via expansion of their own. • Despite the global nature of financial markets M&A activity in the banking sector remains overwhelmingly domestic (74% over the last 12 years). Until now activity consisted of waves of consolidations paid in stock within the main developed economies. The US (1998 & 2003/2004), Japan (1999-2000), and Europe (1999-2001) each witnessed sequences of intense market consolidations over the last decade. Lately, the now near exclusive domestic nature of the M&A activity observed (96% in 2009) finds its origin in the many government bailouts that make up the vast majority of the sector’s activity post credit-crunch. (Exhibit 14.1). • Globally stocks in the banking sector have suffered more than the overall equity market, down 4.4% in the 12 months leading to 3Q 2009. Based on stock performance the banking sector is clearly broken down between developed (all down over 12 months) and emerging markets (all up over the same period). Emerging Asia and Latin America stocks lead the way, both up 27% over 12 months whereas Japan, the UK and the US are down 30%, 23% and 15% respectively. Consequently, emerging markets now account for over 20% of the global banking sector market capitalization, up from only 5% at the bottom of the previous M&A cycle (1Q 2002). US banks meanwhile saw their market capitalization shrink by over USD400 billion over the last 2 years. (Exhibit 14.5,7,8). • The banking sector as a whole offers better earning growth perspective than the global equity market with an expected EPS growth of 25% for the next 12 months. The US and emerging Asia banks are expected to drive the trend 12 month EPS growth forecast of 29% and 22% respectively. (Exhibit 14.6). • The sector, shaken by the recent crisis, has now gone through a phase of intense recapitalization reflected by the all time-high activity level observed in follow-on offerings. The unexpectedly low level of corporate bonds issuance can be partly explained by the switch to government guaranteed issuance from October 2008 and well into 2009. (Exhibit 14.9-12). Exhibit 14.1 Banks targeted M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 300 200 180 250 160 200 . 140 Index price M&A ($bn) 150 120 100 100 80 50 60 0 40 98 98 98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
  • Equity Value/Net Income Offer Price/Target Share Price (%) 0 20 40 60 80 100 0 20 40 60 80 100Jan-98 Jan-98 Exhibit 14.3 Exhibit 14.2May-98 May-98Oct-98 Oct-98Mar-99 Mar-99 Jul-99 Jul-99Dec-99 Dec-99May-00 May-00Sep-00 Sep-00Feb-01 Feb-01 Jul-01 Jul-01Dec-01 Dec-01Apr-02 Apr-02Sep-02 Sep-02 Price/earnings–Banks acquisitions >$500mmFeb-03 Feb-03 Cash Only Cash OnlyJun-03 Jun-03Nov-03 Nov-03Apr-04 Apr-04 Stock Only Stock OnlyAug-04 Aug-04 Jan-05 Offer price to target share price–Banks acquisitions >$500mmJan-05 Hybrid HybridJun-05 Jun-05Oct-05 Oct-05Mar-06 Mar-06Aug-06 Aug-06Jan-07 Jan-07May-07 May-07Oct-07 Oct-07Mar-08 Mar-08 Jul-08 Jul-08Dec-08 Dec-08May-09 May-09Sep-09 Sep-09 Deal making in high definition 65
  • 66 Sector connections Exhibit 14.4 Exhibit 14.5 MKT value ($m) EPS growth % 12 mths MSCI AC World (U$) MSCI ACWI Banks ($) MSCI AC World MSCI ACWI Banks 28.9 27.3 31,774,960 26.0 24.8 20.7 19.2 23,752,480 22,114,240 10.8 10.4 16,733,020 3,509,954 2,492,481 1,822,595 1,732,163 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009 Exhibit 14.6 Exhibit 14.7 Banks market capitalisation by region– Banks market capitalisation by region– 1Q2002 3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 4.4% 36.0% 25.4% 28.0% 11.7% 20.0% 18.9% 14.2% 12.5% 6.8% 1.4% 7.2% 5.0% 2.8% 4.5% 1.2% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK Japan Exhibit 14.8 Exhibit 14.9 Bank IPOs Banks follow on offerings Value ($bn) No. of issues Value ($bn) No. of issues 50 50 236.3 250 180 45 43.4 45 160 40 40 179.9 200 140 35 35 30.5 120 30 30 150 100 25 25 20 20 80 100 75.0 15.5 15 15 60 47.0 10 7.9 7.5 10 40 50 27.2 17.0 21.2 20.5 4.9 4.6 19.4 4.3 4.3 18.1 11.2 5 3.0 3.2 3.1 5 20 8.5 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Exhibit 14.10 Exhibit 14.11 Banks convertibles Banks corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 60 140 1,600 6,000 1,387.8 1,306.9 52.7 1,172.7 1,400 1,209.1 120 50 5,000 1,106.3 1,200 100 40 4,000 908.0 1,000 80 744.8 725.0 680.5 674.2 30 800 3,000 26.5 607.3 598.5 60 600 20 2,000 40 13.5 400 10.2 9.7 9.4 10 8.0 7.9 1,000 6.0 5.9 20 200 2.4 2.5 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • Top 20 Banks acquisitionsRank Value Value/Date ($mm) Consideration Premium EBITDA P/E Target Name Target Nation Sub Sector Acquiror Name Acquiror Nation Exhibit 14.1225/04/07 98,189.2 Cash and Stock Combination 14.2 14.1 20.3 ABN-AMRO Holding NV Netherlands Banks RFS Holdings BV Netherlands06/04/98 72,558.2 Stock Only 7.9 11.0 19.8 Citicorp US Banks Travelers Group Inc US13/04/98 61,633.4 Stock Only 0.0 9.9 19.2 BankAmerica Corp US Banks NationsBank Corp,Charlotte,NC US14/01/04 58,663.1 Cash and Stock Combination 15.1 12.1 18.8 Bank One Corp,Chicago,IL US Banks JPMorgan Chase & Co US27/10/03 49,260.6 Stock Only 43.0 13.2 22.8 FleetBoston Financial Corp,MA US Banks Bank of America Corp US13/10/99 45,494.4 Stock Only 3.9 29.9 77.0 Sakura Bank Ltd Japan Banks Sumitomo Bank Ltd Japan18/02/05 41,431.0 Other 27.8 N/M N/M UFJ Holdings Inc Japan Banks Mitsubishi Tokyo Financial Grp Japan20/08/99 40,096.6 Stock Only 17.8 N/M N/M Dai-Ichi Kangyo Bank Ltd Japan Banks Fuji Bank Ltd Japan29/11/99 38,412.9 Other 36.3 9.5 14.3 National Westminster Bank PLC UK Banks Royal Bank of Scotland Group UK26/08/06 37,624.2 Stock Only 7.2 11.0 18.0 SanPaolo IMI SpA Italy Banks Banca Intesa SpA Italy30/06/05 35,810.3 Cash and Stock Combination 31.1 9.8 16.6 MBNA Corp US Banks Bank of America Corp US08/06/98 34,352.6 Cash and Stock Combination 9.3 12.6 25.4 Wells Fargo,San Francisco,CA US Banks Norwest Corp,Minneapolis,MN US20/08/99 30,759.6 Stock Only 8.8 N/M N/M Industrial Bank of Japan Ltd Japan Banks Fuji Bank Ltd Japan13/04/98 29,616.0 Stock Only 26.5 12.1 19.4 First Chicago NBD Corp US Banks BANC ONE Corp,Columbus,Ohio US20/05/07 29,528.1 Other 12.1 11.1 18.7 Capitalia SpA Italy Banks Unicredito Italiano SpA Italy30/07/09 28,078.3 Other N/M N/M Citigroup Inc US Banks Preferred Shareholders Unknown13/10/08 26,062.9 Unknown (27.2) 2.3 3.4 RBS UK Banks HM Treasury UK18/09/08 25,439.5 Stock Only (37.0) 2.3 3.6 HBOS PLC UK Banks Lloyds TSB Group PLC UK29/09/08 23,137.3 Unknown NP NP Fortis Bank Nederland(Holding) Netherlands Banks Netherlands Netherlands07/03/09 22,315.8 Unknown 89.3 158.7 Lloyds Banking Group PLC UK Banks HM Treasury UK Deal making in high definition 67
  • 68Top Bank IPOs since 2005 Sector connectionsIssue Date Proceeds ($mm) Issuer Domicile Sub Sector Exchange PE Backed? Exhibit 14.1310/20/06 21,969.3 ICBC China Banks Hong Kong Yes05/23/06 11,186.4 Bank of China Ltd China Banks Hong Kong No10/20/05 9,226.7 China Construction Bank Corp China Banks Hong Kong Yes05/10/07 7,988.1 Bank VTB Russian Fed Banks London Russian TS MICEX No04/20/07 5,945.6 China CITIC Bank Corp Ltd China Banks Hong Kong No06/25/09 4,330.7 Visanet Brazil Banks BMFBOVESPA No11/06/06 3,213.0 Aozora Bank Ltd Japan Banks Tokyo 1 Yes04/16/08 2,808.1 Alinma Bank Saudi Arabia Banks Saudi Exch No05/24/06 2,579.3 MasterCard Inc US Banks New York No06/17/05 2,165.3 BoCOMM China Banks Hong Kong No01/15/07 2,055.2 Industrial Bank Co Ltd China Banks Shanghai No09/03/07 1,990.7 Bank of Beijing China Banks Shanghai No05/07/07 1,869.8 Turkiye Halk Bankasi AS Turkey Banks Istanbul No04/22/05 1,455.5 Raiffeisen International Bank- Austria Banks Vienna Frankfurt No01/15/06 1,133.3 Al Rayan Bank Qatar Banks DohaSecMkt No07/25/07 1,113.6 Banrisul Brazil Banks BOVESPA No11/14/05 1,111.8 Vakifbank Turkey Banks Istanbul No10/06/05 1,097.0 EFG International Switzerland Banks Swiss Exch No07/12/07 917.2 Bank of Nanjing Co Ltd China Banks Shanghai No10/17/05 790.9 Tokyo Star Bank Ltd Japan Banks Tokyo 1 Yes
  • Deal making in high definition 6914. InsuranceExecutive summaryThe insurance sector is likely to see regulatory changes which will promote consolidation whilehistorically cross-border activity has accounted for as much as 40% of the top 20 deals between1998 to 2009 with a mixture of intra-European cross-border activity and a degree of transatlanticflow. We can anticipate increased deal flow in regions with higher than average EPS growth asbuyers seek to improve their bottom line with value acquisitions of companies trading atattractive earnings multiples, including companies based in North America and Japan.• Amidst a decade of turbulence from terrorist attacks, natural disasters, including hurricane Katrina and the 2004 tsunami, as well as the recent AIG bailout by the US Treasury in the aftermath of the credit crunch, the insurance sector as a whole underperformed during both peak cycles and by as much as 19.5% in 2000. (Exhibit 15.1).• This sector produced a wave of consolidation during the first two cycles as stock issuance remained the consideration of choice for mega-mergers, including AIG’s acquisitions of American General (USD23.4billion) and SunAmerica (USD18.1billion), despite declining stock performance in the sector index midway through the first cycle. (Exhibit 15.2, 15.13).• The recent leverage cycle saw smaller mergers as the average deal size decreased from USD150 million during the first cycle to USD91 million during the leverage cycle as buyers moved to cash and stock hybrids as the consideration of choice as access to cheap financing was readily available and complemented by surging stock prices in both the world and sector indices. (Exhibit 15.2).• The last cycle has been driven largely by value plays as suppressed stock prices in the wake of the credit crunch left companies in search of liquidity, including ING, which took a USD13.4 billion capital injection from the Dutch government at less than 4x earnings; well below the MSCI Europe (excluding UK) sector multiple of 35.4x. The bid premiums during this cycle were less concentrated than other sectors with a spread evident across all deal sizes from around 10% to 50%. (Exhibit 15.4).• Cross-border activity has accounted for as much as 40% of the top 20 deals with a mixture of intra-European cross border activity and a degree of transatlantic deal flow.• The number of participants in the sector has increased from 92 in 2007 to 97 in 2009 with more companies in North America and Japan. In terms of market capitalization, North America and Europe (excluding UK) has ceded a 14% market share to Asia Pacific, Japan, and the emerging markets. The latter experienced the largest growth as market share increased from 1.9% in 2002 to 7.8% in 2009, including 6.9% held by Asian emerging market companies. (Exhibit 15.7-8).• The IPO market for the insurance sector peaked in 2007, largely driven by Asian and Japanese issuers, including the USD4.1 billion private equity-backed issuance by China Pacific Insurance and a USD3.0 billion issuance by Sony Financial. This has since declined to record low levels in both 2008 and 2009 as the financial markets destabilized. (Exhibit 15.9).• 12 Month EPS growth for the insurance sector is 10.1% higher than the world average and, with an upward trend in the world and sector indices. (Exhibit 15.6).
  • 70 Offer Price/Target Share Price (%) M&A ($bn) Sector connections 0 5 10 15 20 25 30 35 40 45 50 0 10 20 30 40 50 60 70 80Jan-98 1Q98 Exhibit 15.1 Exhibit 15.2 .May-98 2Q98 3Q98Oct-98 4Q98Mar-99 1Q99 Sector M&A ($bn) 2Q99 Jul-99 3Q99 4Q99 Insurance targeted M&ADec-99 1Q00 2Q00May-00 3Q00Sep-00 4Q00 1Q01Feb-01 2Q01 3Q01 Jul-01 4Q01Dec-01 1Q02 2Q02 Cross Border M&A ($bn)Apr-02 3Q02 4Q02Sep-02 1Q03Feb-03 2Q03 Cash Only 3Q03Jun-03 4Q03 1Q04Nov-03 2Q04Apr-04 3Q04 Stock Only 4Q04Aug-04 1Q05 2Q05Jan-05 Hybrid 3Q05 4Q05Jun-05 Offer price to target share price–Insurance acquisitions >$500mm 1Q06Oct-05 2Q06 3Q06Mar-06 4Q06 1Q07Aug-06 2Q07 3Q07 MSCI Sector IndexJan-07 4Q07May-07 1Q08 2Q08Oct-07 3Q08Mar-08 4Q08 1Q09 Jul-08 2Q09 3Q09Dec-08 30 50 70 90 MSCI World Index 110 130 150 170May-09Sep-09 Index price
  • Deal making in high definition 71Exhibit 15.3 Exhibit 15.4 Market value ($m) EPS growth % 12 mths MSCI AC World (U$) MSCI ACWI Insurance ($) MSCI AC World MSCI ACWI Insurance 31,774,960 46.8 23,752,480 22,114,240 29.3 26.0 27.3 19.2 16,733,020 8.5 10.8 968,728 1,543,385 5.7 808,068 717,448 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009Exhibit 15.5 Exhibit 15.6 Insurance market capitalisation by region– Insurance market capitalisation by region– 1Q2002 3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 26.8% 43.4% 34.0% 29.1% 0.8% 2.4% 0.9% 8.5% 8.2% 2.1% 5.5% 5.7% 0.1% 6.9% 1.0% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK JapanExhibit 15.7 Exhibit 15.8 Insurance IPOs Insurance follow on offeringsValue ($bn) No. of issues Value ($bn) No. of issues12 11.4 35 30 70 10.3 10.3 30 60 10 8.5 8.5 21.7 8.1 25 50 8 20 6.5 20 40 6 14.7 13.0 12.6 12.4 15 30 4.1 10.210.3 4 3.7 9.4 10 10 20 6.5 6.3 1.9 4.9 2 5 3.7 10 0.6 0.4 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Exhibit 15.9 Exhibit 15.10 Insurance convertibles Insurance corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 9 30 100 300 94.5 7.7 7.8 90 86.3 83.7 7.3 25 80.3 80.2 250 80 6.6 72.4 6.5 70 6 20 61.1 200 5.2 60 51.1 51.7 4.4 15 48.8 48.1 150 50 3.8 3.6 40 35.4 3 10 100 2.5 2.3 30 20 5 50 0.5 10 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • 72Top 20 Insurance acquisitions Sector connectionsRank Value Value/ Target Acquiror Exhibit 15.11Date ($mm) Consideration Premium EBITDA P/E Target Name Nation Sub Sector Acquiror name Nation03/04/01 23,398.2 Stock Only 20.3 NP 20.4 American General Corp US Insurance AIG US19/06/98 22,300.2 Stock Only 23.4 NP 23.0 General Re Corp US Insurance Berkshire Hathaway Inc US17/04/00 19,399.1 Other 13.9 NP 14.2 Allied Zurich PLC UK Insurance Zurich Allied AG Switzerland20/08/98 18,117.0 Stock Only 25.9 NP 43.0 SunAmerica Inc US Insurance AIG US17/11/03 16,136.1 Stock Only (0.6) NP 39.0 Travelers Ppty Casualty Corp US Insurance St Paul Cos Inc US19/10/08 13,410.2 Cash Only 36.3 NP 5.6 ING Groep NV Netherlands Insurance Netherlands Netherlands27/09/01 12,469.9 Stock Only NP 12.3 Fortis(NL)NV Netherlands Insurance Fortis (B) Belgium19/12/01 12,213.0 Other 13.6 19.8 Travelers Property Casualty US Insurance Shareholders US21/02/00 11,858.3 Stock Only (12.2) NP 13.0 Norwich Union PLC UK Insurance CGU PLC UK31/01/05 11,694.7 Cash and Stock Combination NP 13.0 Travelers Life & Annuity US Insurance MetLife Inc US30/08/00 11,189.3 Cash and Stock Combination 4.6 NP 36.1 AXA Financial Inc US Insurance AXA-UAP SA France23/06/99 11,119.5 Other NP NP Scottish Widows Fund & Life UK Insurance Lloyds TSB Group PLC UK18/01/07 11,106.6 Cash and Stock Combination 74.1 NP 10.6 AGF France Insurance Allianz AG Germany25/02/98 11,100.5 Stock Only (4.2) NP 13.5 General Accident PLC UK Insurance Commercial Union PLC UK28/09/03 11,062.6 Stock Only 12.6 NP 13.9 John Hancock Finl Svcs Inc US Insurance Manulife Financial Corp Canada14/09/99 10,179.6 Cash and Stock Combination 25.2 NP 25.6 INA Italy Insurance Assicurazioni Generali SpA Italy14/06/06 9,988.6 Cash Only NP NP Winterthur Schweizerische Switzerland Insurance AXA SA France18/02/99 9,690.7 Cash and Stock Combination 33.1 NP 13.4 TransAmerica Corp US Insurance Aegon NV Netherlands03/04/06 7,853.0 Cash Only 1.3 6.4 General Motors Acceptance Corp US Insurance FIM Holdings LLC US18/11/05 7,753.3 Other NP 141.0 GE Insurance Solutions Corp US Insurance Swiss Reinsurance Co Ltd Switzerland
  • Top Insurance IPOs since 2005Issue Date Proceeds ($mm) Issuer Domicile Sub Sector Exchange PE Backed? Exhibit 15.1207/07/06 4,459.9 Standard Life Plc UK Insurance London12/17/07 4,070.8 China Pacific Ins(Grp)Co Ltd China Insurance Shanghai Yes10/01/07 3,007.4 Sony Financial Holdings Inc Japan Insurance Tokyo 1 No05/17/06 1,742.8 SNS Reaal NV Netherlands Insurance EuronextAM No10/13/05 1,008.3 TrygVesta A/S Denmark Insurance Copenhagen No12/13/05 967.2 Lancashire Holdings Ltd Bermuda Insurance London AIM No05/28/05 772.3 Toro Assicurazioni SpA Italy Insurance Milan No11/08/06 690.0 OneBeacon Insurance Group Ltd US Insurance New York No01/30/07 523.0 Employers Holdings Inc US Insurance New York No08/01/06 480.5 Security Capital Assurance Ltd Bermuda Insurance New York No10/03/07 425.6 Sul America SA Brazil Insurance BOVESPA No01/05/05 382.7 NCCI Saudi Arabia Insurance Saudi Exch No07/24/07 345.4 Validus Holdings Ltd Bermuda Insurance New York Yes07/11/06 344.1 Allied World Assur Co Hldgs Bermuda Insurance New York Yes07/12/07 309.7 Paris RE Switzerland Insurance Euro Paris No05/30/08 305.4 Pozavarovalnica Sava dd Slovenia Insurance Ljubljana No09/25/09 287.3 Tong Yang Life Ins Co Ltd South Korea Insurance Korea No12/06/07 233.5 Triple-S Management Corp Puerto Rico Insurance New York No05/24/07 224.0 Greenlight Capital Re Ltd Cayman Islands Insurance NASDAQ No10/30/07 216.4 CNinsure Inc China Insurance NASDAQ No Deal making in high definition 73
  • 74 Sector connections 16. Auto and Components Executive summary Activity in auto and components in 2009 is in line to reach an all time high level but this is mostly due to the sector’s necessity to restructure following the collapse of the global economy following the credit crisis. Illustrating the concentration of M&A activity in the sector it is worth noting that 19 of the 20 largest acquisitions targeting automobile and component companies since 1998 took place either in the US or in Europe and we therefore expect limited consolidation until the effectiveness of the restructurings and global recovery result in significantly stronger earnings. • The observation of the global and sectorial equity indices shows how tightly correlated the equity performance of the sector is to the global equity market and global macro economic conditions in general since 2002. Nevertheless M&A activity in the sector has not until now particularly benefited from the 2 previous economic growth cycles. (Exhibit 16.1). • Activity in 2009 is in line to reach an all time high level but this mostly due to the sector’s necessity to restructure following the collapse of the global economy following the credit crisis. (Exhibit 16.1). • Illustrating the concentration of M&A activity in the sector it is worth noting that 19 of the 20 largest acquisitions targeting automobile and components companies since 1998 took place either in the US or in Europe. (Exhibit 16.13). • Based on market capitalization, Japan is the dominant market of the sector with companies valued at USD251 billion and accounting for 51%, up from 41% in 2002, of the sector’s market capitalization. US manufacturers are the worst hit since 2002 with market capitalization more than halved (USD119 billion to USD52 billion) and now only account for 11% of the total auto market (down from 30%). (Exhibit 16.7-8). • Reflecting the intense pressure to refinance and recapitalize the level of debt and equity capital raising has hit historical high in 2009. Follow-on offerings in the sectors have so far in 2009 helped raise USD8.7 billion whilst corporate bonds totalled USD57 billion. (Exhibit 15.9-12). Exhibit 16.1 Auto and Components M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 80 190 70 170 60 150 50 . Index price M&A ($bn) 130 40 110 30 90 20 70 10 0 50 98 98 98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
  • Equity Value/Net Income Rank Value/EBITDA Offer Price/Target Share Price (%) 0 20 40 60 80 100 0 2 4 6 8 10 12 14 16 18 20 0 10 20 30 40 50Jan-98 Jan-98 Jan-98 Exhibit 16.3 Exhibit 16.2 Exhibit 16.4May-98 May-98 May-98Oct-98 Oct-98 Oct-98Mar-99 Mar-99 Mar-99 Jul-99 Jul-99 Jul-99Dec-99 Dec-99 Dec-99May-00 May-00 May-00Sep-00 Sep-00 Sep-00Feb-01 Feb-01 Feb-01 Jul-01 Jul-01 Jul-01Dec-01 Dec-01 Dec-01Apr-02 Apr-02 Apr-02Sep-02 Sep-02 Sep-02 Cash Only Cash OnlyFeb-03 Feb-03 Feb-03 Cash OnlyJun-03 Jun-03 Jun-03Nov-03 Nov-03 Nov-03 Stock Only Apr-04 Stock OnlyApr-04 Apr-04 Stock OnlyAug-04 Aug-04 Aug-04 Jan-05 Price/earnings–Auto and components acquisitions >$500mmJan-05 Jan-05 Hybrid Hybrid Jun-05 HybridJun-05 Jun-05 Rank value/EBITDA–Auto and Components acquisitions >$500mmOct-05 Oct-05 Oct-05 Mar-06Mar-06 Mar-06 Aug-06Aug-06 Aug-06 Jan-07Jan-07 Jan-07 Offer price to target share price–Auto and Components acquisitions >$500mm May-07May-07 May-07 Oct-07Oct-07 Oct-07 Mar-08Mar-08 Mar-08 Jul-08 Jul-08 Jul-08 Dec-08Dec-08 Dec-08 May-09May-09 May-09 Sep-09Sep-09 Sep-09 Deal making in high definition 75
  • 76 Sector connections Exhibit 16.5 Exhibit 16.6 MKT value ($m) EPS growth % 12 mths MSCI AC World (U$) MSCI ACWI Auto & Compo ($) MSCI AC World MSCI ACWI Auto & Compo 31,774,960 31.6 28.9 27.3 26.0 23,752,480 19.2 22,114,240 15.4 16,733,020 10.8 591,218 709,298 494,424 393,572 N/A 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009 Exhibit 16.7 Exhibit 16.8 Auto and Components market Auto and Components market capitalisation by region–1Q2002 capitalisation by region–3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 40.6% 50.8% 30.3% 24.1% 27.3% 0.2% 0.9% 10.7% N/A 11.2% 3.9% N/A N/A 0.0% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK Japan Exhibit 16.9 Exhibit 16.10 Auto and Components IPOs Auto and Components follow on offerings Value ($bn) No. of issues Value ($bn) No. of issues 6.0 40 10.0 100 5.4 9.0 8.7 90 35 5.0 8.0 80 30 7.0 7.1 7.0 70 4.0 25 6.0 60 5.1 5.0 3.0 2.8 20 5.0 50 4.4 4.2 2.1 15 4.0 40 2.0 2.0 1.8 1.8 3.13.2 3.0 2.6 30 10 1.1 2.0 20 1.0 0.9 1.3 0.6 0.5 0.5 5 1.0 0.3 1.0 10 0.0 0 0.0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Exhibit 16.11 Exhibit 16.12 Auto and Components convertibles Auto and Components corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 12.00 16 70 300 14 58.1 60 56.7 10.00 250 12 50 47.7 8.00 7.56 44.4 200 10 39.3 40 34.4 6.00 5.39 8 32.3 150 30 26.4 28.829.7 3.87 6 22.7 4.00 3.79 100 20 18.0 4 2.00 50 1.33 10 2 0.75 0.02 0.00 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • Top 20 Auto and Components acquisitionsRank Value Value/ AcquirorDate ($mm) Consideration Premium EBITDA P/E Target Name Target Nation Sub Sector Acquiror Name Nation Exhibit 16.1301/06/09 55,279.5 Other NP NP General Motors-Cert Assets US Automobiles & Components Vehicle Acq Holdings LLC US06/05/98 40,466.5 Stock Only 48.8 6.0 14.3 Chrysler Corp US Automobiles & Components Daimler-Benz AG Germany25/07/07 15,648.6 Unknown NP NP Siemens VDO Automotive AG Germany Automobiles & Components Continental AG Germany13/08/09 12,696.0 Unknown NP NP Dr Ing hcF Porsche AG Germany Automobiles & Components Volkswagen AG Germany22/02/02 11,958.8 Stock Only 30.1 8.7 29.9 TRW Inc US Automobiles & Components Northrop Grumman Corp US01/06/09 10,982.0 Other NP NP Delphi Corp US Automobiles & Components Creditors US14/08/09 9,569.5 Unknown 9.2 14.5 Volkswagen AG Germany Automobiles & Components Qatar Investment Authority Qatar15/07/08 9,019.7 Unknown 39.4 7.5 15.0 Continental AG Germany Automobiles & Components Schaeffler KG Germany14/05/07 7,400.0 Unknown NP NP Chrysler Group US Automobiles & Components Cerberus Capital Management LP US28/01/99 6,450.0 Unknown NP NP Volvo-Worldwide Passenger Bus Sweden Automobiles & Components Ford Motor Co US13/08/09 5,825.2 Cash Only NP NP Dr Ing hcF Porsche AG Germany Automobiles & Components Volkswagen AG Germany05/04/00 5,726.1 Cash Only NP NP Mannesmann Atecs AG Germany Automobiles & Components Investor Group Germany17/07/07 5,642.2 Stock Only NP 13.0 WABCO Belgium Automobiles & Components Shareholders Belgium13/08/09 5,072.2 Unknown NP NP Porsche Holding Salzburg Austria Automobiles & Components Volkswagen AG Germany18/01/99 4,910.5 Unknown 0.8 8.4 N/M Nissan Motor Co Ltd Japan Automobiles & Components Renault SA France17/11/02 4,725.0 Other 10.9 N/M TRW Automotive Holdings Corp US Automobiles & Components Blackstone Group LP US13/06/08 4,377.5 Cash Only 32.9 12.7 18.7 Scania AB Sweden Automobiles & Components Volkswagen AG Germany04/05/98 4,034.6 Cash and Stock Combination 81.8 12.0 25.0 Echlin Inc US Automobiles & Components Dana Corp US05/04/00 3,229.1 Cash Only NP NP Mannesmann Atecs AG Germany Automobiles & Components Investor Group Germany01/07/04 3,183.1 Cash Only NP N/M Automobile Association UK Automobiles & Components Investor Group UK Deal making in high definition 77
  • 78Top Auto and Components IPOs since 2005 Sector connectionsIssue date Proceeds ($mm) Issuer Domicile Sub sector Exchange PE backed? Exhibit 16.1410/27/06 836.9 Takata Corp Japan Automobiles & Components Tokyo 1 No04/12/07 714.2 Yangzijiang Shipbuilding Hldgs China Automobiles & Components Singapore No11/30/05 589.2 DongFeng Motor Co Ltd China Automobiles & Components Hong Kong No07/05/06 453.3 Piaggio & Co SpA Italy Automobiles & Components Milan Yes02/03/05 392.5 Kumho Tire Co Inc South Korea Automobiles & Components Korea London No06/21/07 246.5 Landi Renzo SpA Italy Automobiles & Components Milan STAR No04/01/07 220.7 Aicon Yachts SpA Italy Automobiles & Components Milan No10/12/07 211.7 Mecachrome International Inc Canada Automobiles & Components Toronto No07/08/07 207.1 Ghabbour Auto SAE Egypt Automobiles & Components Egypt No11/14/05 201.7 KK Amtel Russian Fed Automobiles & Components London No07/25/07 195.6 SAF-HOLLAND SA Germany Automobiles & Components Frankfurt Yes12/05/07 186.3 JES International Holdings Ltd China Automobiles & Components Singapore No06/06/08 167.3 Chongqing Mach & Electric Co China Automobiles & Components Hong Kong No08/19/05 165.2 New Flyer Industries Ltd Canada Automobiles & Components Toronto No08/27/09 134.2 Guangdong Alpha Animation Co China Automobiles & Components Shenzhen No02/15/07 130.5 TS Tech Co Ltd Japan Automobiles & Components Tokyo 1 No08/10/09 122.9 Tianrun Crankshaft Co Ltd China Automobiles & Components Shenzhen No06/23/05 116.3 Kongsberg Automotive ASA Norway Automobiles & Components Oslo No04/27/06 112.9 Polytec Holding AG Austria Automobiles & Components Vienna Yes12/11/07 109.1 Vietnam Mnfg & Export Process Vietnam Automobiles & Components Hong Kong No
  • Deal making in high definition 7917. ChemicalsExecutive summaryWe expect chemicals to grow in the emerging markets which has grown from 7% marketshare in 2002 to 11% in 3Q 2009. The UK market share contracted to 3% during the lastcycle from 6% in 2002. Based on the analysis from the top 20 IPO’s, the data shows thatNorth America has had 8 newly listed companies compared to emerging markets with 4.Furthermore growth in the number of constituents in the developed markets has beenconfined to North America while emerging markets saw a decline in the number ofcompanies operating in 2009 compared to 2007.• Chemicals experienced 2 waves of activity since 1998 which was in line with the global trend. This sector was driven by cross-border activity with a balance of inter-European deals and transatlantic deal flow. During the start of the dot.com bubble the chemicals sector experienced a degree of restructuring in the form of demergers and resulted in the creation of new types of global companies for example Syngenta, born from the demerger of Astra Zeneca and Novartis and Lonza Group, which was spun-off from Aluuisse Lonza Group. Mid-size domestic consolidation on both sides of the Atlantic contributed to the vast majority of deal value during this period. The second wave of activity was on the whole driven by European cross-border consolidation and to a lesser extent transatlantic activity. Both periods were absent of any tangible signs of emerging market influence with the exception of a Chinese domestic merger between Qinghai Salt Lake Industry Group and Qinghai Salt Lake Potash Co for USD11 billion. (Exhibit 17.1).• Premiums paid in the chemicals sector have been growing despite the global downturn. The growth in premiums paid was not specific to a particular deal size as growth is evident in all deal size ranges. However the biggest of the transactions have demanded the highest premiums. 3 of the 4 USD15 billion plus transactions in the last cycle saw premiums paid range in excess of 30% with cash as the primary consideration paid in • The exit multiples would suggest that this sector did not experience a divergence in valuation during the last cycle but with the absence of larger transactions in the down cycle, exit multiples have decreased in smaller transactions. (Exhibit17.3-4).• During the last cycle chemicals outperformed the world index by 11.6% compared to a decline during the dot.com cycle of 4.9%• Forward looking growth indicates that the chemicals sector will grow at a slower estimated rate of 16.1% compared to 19.2% for the world index. Record follow-on offerings of USD4.7 billion in 2009 show that the sector is well capitalized for future M&A. (Exhibit 17.6,17.10)Exhibit 17.1 Chemicals targeted M&A Sector M&A ($bn) Cross Border M&A MSCI Sector Index MSCI World Index 50 300 45 40 250 35 . 30 200 Index price M&A ($bn) 25 20 150 15 10 100 5 0 50 98 98 98 98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
  • 80 Equity Value/Net Income Rank Value/EBITDA Offer Price/Target Share Price (%) Sector connections 0 10 20 30 40 50 0 20 40 60 80 100 0 20 40 60 80 100 Jan-98Jan-98 Exhibit 17.3 Exhibit 17.2 Exhibit 17.4 Jan-98 May-98May-98 May-98 Oct-98Oct-98 Oct-98Mar-99 Mar-99 Mar-99 Jul-99 Jul-99 Jul-99 Dec-99 Dec-99Dec-99May-00 May-00 May-00Sep-00 Sep-00 Sep-00Feb-01 Feb-01 Feb-01 Jul-01 Jul-01 Jul-01Dec-01 Dec-01 Dec-01Apr-02 Apr-02 Apr-02 Sep-02 Sep-02Sep-02 Feb-03 Cash Only Feb-03 Cash OnlyFeb-03 Cash Only Jun-03 Price/earnings–Chemicals acquisitions >$500mmJun-03 Jun-03 Nov-03 Nov-03Nov-03 Rank value/EBITDA–Chemicals acquisitions >$500mm Apr-04 Apr-04 Stock OnlyApr-04 Stock Only Stock Only Aug-04Aug-04 Aug-04 Jan-05 Jan-05 HybridJan-05 Jun-05 Hybrid HybridJun-05 Jun-05 Offer price to target share price–Chemicals acquisitions >$500mm Oct-05Oct-05 Oct-05 Mar-06Mar-06 Mar-06 Aug-06Aug-06 Aug-06 Jan-07Jan-07 Jan-07 May-07May-07 May-07 Oct-07Oct-07 Oct-07 Mar-08Mar-08 Mar-08 Jul-08 Jul-08 Jul-08 Dec-08Dec-08 Dec-08 May-09May-09 May-09 Sep-09Sep-09 Sep-09
  • Deal making in high definition 81Exhibit 17.5 Exhibit 17.6 Market value ($m) EPS growth % 12 mths MSCI AC World U$ MSCI ACWI Chemicals $ MSCI AC World MSCI ACWI Chemicals 46.4 31,774,960 23,752,480 27.3 22,114,240 26.0 22.2 19.2 16,733,020 16.1 10.8 10 591,617 397,761 315,683 749,691 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009Exhibit 17.7 Exhibit 17.8 Chemicals market capitalisation by Chemicals market capitalisation by region–1Q2002 region–3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 40.4% 40.0% 30.9% 29.2% 0.5% 2.0% 16.9% 16.4% 2.2% 8.4% 0.4% 0.3% 6.5% 0.8% 4.2% 0.9% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK JapanExhibit 17.9 Exhibit 17.10 Chemicals IPOs Chemicals follow on offeringsValue ($bn) No. of issues Value ($bn) No. of issues9 50 5 90 4.7 7.9 4.5 8 45 4.3 80 40 4 7 70 35 3.4 6 5.7 60 30 3 2.8 5 4.7 2.7 2.6 50 25 2.5 4 40 20 2 2.9 1.6 3 30 2.3 15 2.1 2.0 2.2 1.2 2 1.0 10 20 1 1.1 0.7 1 0.6 0.6 0.8 5 10 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Exhibit 17.11 Exhibit 17.12 Chemicals convertibles Chemicals corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 7 25 40 250 35.9 6 5.9 35 20 200 30 5 25.9 25 15 22.4 150 4 3.4 20.2 20 19.0 18.8 17.9 18.518.6 17.0 3 15.6 10 100 2.4 15 10.8 2 1.5 10 1.3 1.3 1.0 1.1 1.1 5 50 1 5 0.5 0.2 0.3 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • 82Top 20 Chemical acquisitions Sector connections Value Value/ Acquiror Exhibit 17.13Rank Date ($mm) Consideration Premium EBITDA P/E Target Name Target Nation Sub Sector Acquiror Name Nation17/05/99 28,353.4 Stock Only (13.2) NP 24.6 Hoechst AG Germany Chemicals Rhone-Poulenc SA France17/07/07 18,765.5 Cash Only 19.6 6.8 951.0 Lyondell Chemical Co US Chemicals Basell NV Netherlands10/07/08 18,565.1 Cash Only 74.0 13.1 32.2 Rohm & Haas Co US Chemicals Dow Chemical Co US18/06/07 15,708.0 Cash Only 57.3 12.4 28.9 ICI PLC UK Chemicals Akzo Nobel NV Netherlands25/01/06 15,544.5 Cash Only 39.0 12.1 21.4 BOC Group PLC UK Chemicals Linde AG Germany04/08/99 11,813.5 Cash and Stock Combination 37.2 13.5 34.8 Union Carbide Corp US Chemicals Dow Chemical Co US21/05/07 11,600.0 Cash Only NP NP GE Plastics US Chemicals SABIC Saudi Arabia07/10/05 9,000.0 Cash Only NP NP Innovene US Chemicals INEOS Group Ltd UK26/01/98 8,240.1 Stock Only 8.8 16.5 NOVA Corp of Alberta Ltd Canada Chemicals TransCanada Pipelines Ltd Canada15/03/99 7,749.4 Cash and Stock Combination 16.6 21.5 35.8 Pioneer Hi-Bred International US Chemicals DuPont US10/07/01 6,646.1 Unknown NP NP Aventis CropScience Hldg SA France Chemicals Bayer AG Germany18/06/98 6,529.7 Cash Only 14.2 9.9 50.9 ARCO Chemical Co US Chemicals Lyondell Petrochemical US05/05/05 5,697.3 Cash Only NP NP Basell NV Netherlands Chemicals Investor Group US03/01/06 5,415.7 Cash Only 29.4 12.6 20.4 Engelhard Corp US Chemicals BASF AG Germany13/01/99 5,075.9 Cash and Stock Combination 50.1 11.6 24.2 Morton International Inc US Chemicals Rohm & Haas Co US02/12/99 5,057.9 Other NP NP AstraZeneca PLC-Agrochemicals Switzerland Chemicals Novartis AG-Crop Protection Switzerland25/06/99 4,667.5 Cash Only 29.7 13.0 89.9 Nalco Chemical Co US Chemicals Suez Lyonnaise des Eaux SA France15/09/08 4,548.9 Cash Only 31.6 7.2 N/M Ciba Specialty Chemicals Switzerland Chemicals BASF SE Germany16/08/99 4,536.4 Cash Only 7.2 13.2 91.9 AGA AB Sweden Chemicals Linde AG Germany04/09/03 4,350.0 Cash Only NP NP Ondeo Nalco Co US Chemicals Nalco Holding Co US
  • Top Chemical IPOs since 2005Issue Date Proceeds ($mm) Issuer Domicile Sub Sector Exchange PE Backed? Exhibit 17.1412/08/06 1,845.9 Symrise GmbH & Co KG Germany Chemicals Frankfurt Yes02/10/05 1,593.0 Huntsman Corp US Chemicals New York Yes01/31/05 1,504.6 Lanxess AG Germany Chemicals Frankfurt No04/09/06 1,452.2 Wacker Chemie AG Germany Chemicals Frankfurt No04/21/08 1,104.0 Intrepid Potash Inc US Chemicals New York No10/12/07 1,068.8 JSC Uralkali Russian Fed Chemicals London No04/07/06 779.4 Dyno Nobel Ltd Australia Chemicals Australia No08/10/05 759.0 CF Industries Holdings Inc US Chemicals New York No09/18/06 660.0 Sipchem Saudi Arabia Chemicals Saudi Exch No06/13/06 482.7 Verasun Energy Corp US Chemicals New York Yes09/30/09 469.8 Yingde Gases Investment Co Ltd China Chemicals Hong Kong Yes08/16/05 469.4 Rockwood Holdings Inc US Chemicals New York Yes04/21/07 433.8 PetroVietnam Fert & Chem JSC Vietnam Chemicals HoChiMinh No09/22/06 393.2 China BlueChemical Ltd China Chemicals Hong Kong No06/28/06 389.5 Aventine Renewable Energy Hldg US Chemicals New York Yes08/18/05 260.6 Canexus Income Fund Canada Chemicals No09/28/06 254.1 CropEnergies AG Germany Chemicals Frankfurt No11/21/05 244.7 Tronox Inc US Chemicals New York No06/09/05 210.9 Titan Chemicals Corp Bhd Malaysia Chemicals Kuala Lump No05/09/05 202.3 Foseco PLC UK Chemicals London Deal making in high definition 83
  • 84 Sector connections 18. Metals & Mining Executive summary 18 of top 20 deals in this sector where driven by developed markets, however a wave of new players over the last 3 years originating mostly from emerging markets and especially so from Russia and China may act as a catalyst for increased M&A in these markets. 14 of the top 20 IPOs since 2005 have been from the emerging markets. Follow-on offerings and corporate bonds are at record levels in 2009 resulting in successful recapitalization. • At the top of the last M&A cycle, metals and mining equities were vastly over performing the world index +22.5% whilst at the previous cycle high the sector was level. Consolidation was concentrated during the second cycle in increased M&A which saw a period of sustained cross-border activity peaking during the third quarter of 2007. (Exhibit 18.1). • Consolidation in this sector was driven by the need to create more efficient operations as higher cost margins impacted profits despite record commodity prices. The sector outperformed the world index since 2003 and despite losing significant value during the main thrust of the crisis this sector has gained in value through the latter half of 2009 as commodity prices rise on the weakness of the US dollar rather than demand for raw materials. (Exhibit 18.1). • Premiums paid in this sector were sporadic during the dot.com period with no real consensus on pricing. During the leverage cycle premiums have been coming down with a tighter spread with the median premium standing at 26.2%. The vast majority of transactions have been dominated by all cash or mixed consideration with only a handful of all stock deals. (Exhibit 18.2). • The number of constituents has increased from 114 in June 2007 compared to 128 in 3Q 2009. Since the global downturn this sector has lost 15% in value while EPS growth indicates that the sector is expected to underperform over the next 12 months compared to the world average. • Emerging markets have not grown to the same levels as seen in other sectors with only 2% market share gain from the period 2002 to 3Q 2009. State backed companies and protectionism of sovereign raw materials have stemmed the flow of international investors. The UK experienced the highest growth in market share from 12% in 2002 to 20% in 3Q 2009. (Exhibit 18.7-8). Exhibit 18.1 Metals & Mining targeted M&A Sector M&A ($bn) Cross Border M&A ($bn) MSCI Sector Index MSCI World Index 90 850 80 750 70 650 60 . 550 Index price 50 M&A ($bn) 450 40 350 30 250 20 10 150 0 50 1Q 98 2Q 98 3Q 98 4Q 98 1Q99 2Q 99 3Q 99 4Q 99 1Q 00 2Q 00 3Q 00 4Q 00 1Q 01 2Q 01 3Q 01 4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03 4Q 03 1Q 04 2Q 04 3Q 04 4Q 04 1Q 05 2Q 05 3Q 05 4Q 05 1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09
  • Equity Value/Net Income Offer Price/Target Share Price (%) Rank Value/EBITDA 0 20 40 60 80 100 0 20 40 60 80 100 Jan-98 0 10 20 30 40 50Jan-98 Exhibit 18.3 Exhibit 18.2 Exhibit 18.4 Jan-98May-98 May-98 May-98Oct-98 Oct-98 Oct-98Mar-99 Mar-99 Mar-99 Jul-99 Jul-99 Jul-99Dec-99 Dec-99 Dec-99May-00 May-00 May-00Sep-00 Sep-00 Sep-00Feb-01 Feb-01 Feb-01 Jul-01 Jul-01 Jul-01Dec-01 Dec-01 Dec-01Apr-02 Apr-02 Apr-02Sep-02 Sep-02 Sep-02Feb-03 Feb-03 Feb-03 Cash Only Cash Only Cash OnlyJun-03 Jun-03 Jun-03 Nov-03 Nov-03Nov-03 Apr-04 Price/earnings–Metals & Mining acquisitions >$500mm Apr-04 Stock OnlyApr-04 Stock Only Stock Only Aug-04Aug-04 Aug-04 Rank value/EBITDA–Metals & Mining acquisitions >$500mm Jan-05 HybridJan-05 Jan-05 Hybrid Hybrid Jun-05Jun-05 Jun-05 Oct-05Oct-05 Oct-05 Mar-06Mar-06 Mar-06 Offer price to target share price–Metals & Mining acquisitions >$500mm Aug-06Aug-06 Aug-06 Jan-07Jan-07 Jan-07 May-07May-07 May-07 Oct-07Oct-07 Oct-07 Mar-08Mar-08 Mar-08 Jul-08 Jul-08 Dec-08 Jul-08Dec-08 May-09 Dec-08May-09 Sep-09 May-09Sep-09 Sep-09 Deal making in high definition 85
  • 86 Sector connections Exhibit 18.5 Exhibit 18.6 Market value ($m) EPS growth % 12 mths MSCI AC World U$ MSCI ACWI Metals & mining $ MSCI AC Worl MSCI ACWI Metals & mining 62.7 22,114,240 16,733,020 31,774,960 23,752,480 1,253,857 1,066,812 39.6 26.0 27.3 19.2 17.1 269,958 278,100 10.8 8.7 03/31/2000 03/31/2002 06/30/2007 09/30/2009 03/31/2000 03/31/2002 06/30/2007 09/30/2009 Exhibit 18.7 Exhibit 18.8 Metals and mining market capitalisation Metals and mining market capitalisation by region–1Q2002 by region–3Q2009 EM EMEA EM Asia EM Lat. Am. EM EMEA EM Asia EM Lat. Am. 7.0% 8.0% 16.0% 32.0% 23.0% 20.0% 16.0% 14.0% 5.0% 13.0% 12.0% 9.0% 7.0% 6.0% 7.0% 5.0% North Europe ex. UK Pacific ex. Japan EM North Europe ex. UK Pacific ex. Japan EM America UK Japan America UK Japan Exhibit 18.9 Exhibit 18.10 Metals & Mining IPOs Metals & Mining follow on offerings Value ($bn) No. of issues Value ($bn) No. of issues 25 350 70 2,500 22.3 63.6 300 60 20 54.1 2,000 250 50 44.3 15 1,500 13.0 200 40 10.6 150 30 10 1,000 7.4 20.5 100 20 5 4.2 10.8 500 3.0 2.6 10.2 2.6 2.4 50 10 7.5 2.0 1.8 2.0 5.0 3.5 1.6 2.4 2.6 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Exhibit 18.11 Exhibit 18.12 Metals & Mining convertibles Metals & Mining corporate bonds Value ($bn) No. of issues Value ($bn) No. of issues 14 80 60 300 12.5 11.8 70 51.0 12 50 250 60 10 40.0 40 38.1 200 50 8 7.6 6.8 40 30 150 5.9 25.5 6 5.4 22.9 30 19.5 20 17.917.7 100 16.7 4 3.2 13.9 20 11.8 2.2 2.1 10 50 2 7.3 1.3 10 0.7 0.8 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  • Top 20 Metals & Mining acquisitions Value Value/ Acquiror Exhibit 18.13Rank Date ($mm) Consideration Premium EBITDA P/E Target Name Target Nation Sub Sector Acquiror Name Nation05/06/09 58,000.0 Unknown NP NP Rio Tinto PLC-WA Iron Ore Asts Australia Metals & Mining BHP Billiton-WA Iron Ore Asts Australia12/07/07 43,032.2 Cash Only 9.7 18.6 Alcan Inc Canada Metals & Mining Rio Tinto Canada Holdings Inc Canada27/01/06 39,463.7 Cash and Stock Combination 80.9 7.1 7.5 Arcelor SA Luxembourg Metals & Mining Mittal Steel Co NV Netherlands19/11/06 22,629.1 Cash and Stock Combination 33.1 5.8 14.0 Phelps Dodge Corp US Metals & Mining Freeport-McMoRan Copper & Gold US11/08/06 18,372.2 Other 31.5 NP 20.7 Inco Ltd Canada Metals & Mining Cia Vale do Rio Doce SA Brazil17/05/06 18,235.5 Cash Only 64.5 14.7 26.6 Falconbridge Ltd Canada Metals & Mining Xstrata PLC Switzerland19/03/01 15,569.6 Stock Only 21.6 11.5 17.4 Billiton PLC UK Metals & Mining BHP Ltd Australia01/02/08 14,284.2 Cash Only 21.1 15.8 16.4 Rio Tinto PLC UK Metals & Mining Shining Prospect Pte Ltd Singapore29/07/08 13,640.8 Cash and Stock Combination 11.8 22.2 27.1 Fording Canadian Coal Trust Canada Metals & Mining Teck Cominco Ltd Canada17/10/06 12,694.6 Cash Only 49.2 9.2 31.9 Corus Group PLC UK Metals & Mining Tata Steel UK Ltd UK13/04/01 11,893.8 Stock Only (9.0) 7.9 3.3 NKK Corp Japan Metals & Mining Kawasaki Steel Corp Japan15/02/01 10,984.3 Other 42.1 52.5 19.8 De Beers Consolidated Mines South Africa Metals & Mining DB Investments Luxembourg31/10/05 10,256.8 Cash and Stock Combination 35.0 26.0 107.9 Placer Dome Inc Canada Metals & Mining Barrick Gold Corp Canada05/08/08 9,653.8 Cash and Stock Combination 5.2 10.1 OAO GMK Norilsk Nickel Russian Fed Metals & Mining Vladimir Potanin Russian Fed31/08/06 8,710.3 Stock Only 32.4 136.7 445.2 Glamis Gold Ltd US Metals & Mining Goldcorp Inc Canada03/05/07 8,210.9 Cash Only 7.7 8.2 13.0 IPSCO Inc US M