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The document is a case study on managing complex global carve-outs, detailing the process of divesting subsidiaries and its implications from an HR and organizational perspective. It highlights difficulties in workforce allocation, the importance of communication with trade unions, and the critical aspect of retaining key personnel during such transitions. The Areva T&D carve-out is presented as a significant example, showcasing strategic and organizational measures taken during the separation process.

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1 MANAGING COMPLEX GLOBAL CARVE-OUTS A CASE STUDY AND LESSONS LEARNED FROM AN HR AND ORGANISATIONAL PERSPECTIVE 5 Merger Integration Management Forum Amsterdam, Sheraton Schipol May 14th, 2013 Francesco Picconi
Introducing Francesco Picconi Group Head of HR at Falck, Italy HR Director, South Europe & Africa, Areva T&D, Italy HR Director, BU Corus Colors, Corus Group, UK Group OD Director, Indesit Company, Italy HR Director BU, Transolver/Fraikin, Fiat Iveco, France OD Manager, Automotive Lighting, Fiat Magneti Marelli, Germany HR Manager Global Marketing and Sales, GE Oil&Gas, Italy BUT MOST IMPORTANTLY…… A Multicultural HR passionate for M&A, JV, Post-Mergers Integration in International/ Global contexts it.linkedin.com/in/francescopicconi/ 2 Phone +39 335 5351875
3 What is a carve-out A carve-out is the process through which a Company divests subsidiaries, divisions, B.U.’s, assets to: - another company - a combination of companies - individuals in exchange for cash, securities or assets as consideration
4 The buyer can be: - - another Company (acquisition) - - a combination of Companies in view of a joint management or a subsequent carve-out: the Areva T&D case - - Its own shareholders (spin-off) - - the public stock market (IPO) - - the subsidiary’s management (Management Buy Out) What is a carve-out
5 Carve-out and Acquisition Company A w/o subsidiary B Old Sub B Company C Cash, securities or assets as consideration
6 Carve-out and Spin-off Company A after spinoff New company BShareholders receive Shares of company B Old shareholders still own shares of company A, which now only represent ownership of A without B.
7 Rationales for carve-outs Kaplan and Weisbach Change of focus or corporate strategy (40%) Unit unprofitable or mistake (22%) Sale to pay off leveraged finance (29%) Antitrust (2%) Need cash (3%) Defend against takeover (1%) Good price (3%)
Global carve-outs: organisation and HR aspects We will focus on the most frequent case, whereas the carved- out organisation is then integrated into one or more acquiring organisations. We will focus on the carve-out planning and execution from an organisation and HR perspectives. 8
In complex global carve-outs, workforce allocation difficulty depends on whether employees belong to: 1) A well defined Division/B.U. or a Country entirely carved out 2) A Core Function, dedicated both to the carved-out organisation and to the original organisation (f.i. Global Sales, Global Services , Global R&D) 3) A Shared Services Function, providing support to both the carved-out and the original organisations. These are normally staff functions (f.i. HR, Finance, Sourcing, EHS) 9 The planning phase: workforce allocation issues
10 Global CEO Global HR Global Finance BU 1 BU 2 BU 3 Global Sales Global Services Global R&D Difficulty of workforce allocation in organisations to be carved out: Low (full carve-out of B.U.) Medium (partial carve-out of core functions) High (partial carve-out of support functions) The planning phase: workforce allocation issues
11 BU 3 CEO BU HR BU Finance PL 1 PL 2 PL 3 BU Sales BU Services BU R&D Difficulty of workforce allocation in a case of a subsequent carve-out: Low – Full carve-out of PL to C1 or C2 Medium – Splitted between C1 and C2 High - Splitted between C1 and C2 Future of the BU CEO? The planning phase: workforce allocation issues
12 1) A well defined Division/B.U. or a Country entirely carved out This is normally the case of the majority of the employees of the carved Out organisation who are usually fully allocated to a clearly defined Division/B.U. Depending on the sector and on the organisation model, employees in B.U. or Countries entirely carved out can easily be 80% - 85% of the total manpower to be allocated. Therefore for the majority of employees, workforce allocation difficulty is relatively low BUT In case of acquisition by more than one Company, the intention of the buyers is frequently to proceed to a further separation of Product Lines within the BU, often with a second carved-out. Then the degree of difficulty may vary again The planning phase: workforce allocation issues
13 2) A Group Core Function dedicated to both the carved out organisation and to the original organisation (f.i. Global Sales, Global Services, Global R&D) These global core functions in complex global companies may report at Group level and may comprise employees who are physically located in the Corporate HQ or sometimes at local level in various Countries Depending on the sector and on the organisation model, employees in these core functions can be 10% - 15% of the total manpower to be allocated These employees are normally highly critical in the short and long term in the new context The planning phase: workforce allocation issues
14 3) A Group Shared Services function providing support to both the carved out and to the original organisation (f.i. HR, Finance, Sourcing) Similarly to the core functions, employees in the Shared Services functions may report at Group level and may be based either at Corporate HQ or locally Depending on the sector and on the organisation model, employees in these Shared Services can be 5% - 10% of the total manpower to be allocated • They are normally critical to the carved out organisation in the short term, when the organisation has not been fully integrated in the acquiring Company/ies (f.i. Payroll, Accounts Receivables, all “transactional” functions) • They become much less critical (redundant?) in the long term, when the acquiring Company/ies have better understood the carved-out organisation and integration has moved forward The planning phase: workforce allocation issues
15 Focus on allocation of employees in the Group Core Services and Group Shared Services Functions Employees in the Core Services and Shared Services Functions can be: • Part of teams fully dedicated to the carved-out organisation. Will be transferred => low/medium difficulty • Part of teams who are not fully dedicated, but individual employees may be full-time working for the carved-out organisation. Will be transferred => low/medium difficulty • Part of teams who are not fully dedicated, and individual employees may be only part-time working for the carved-out organisation. Can be transferred (f.i. if they work >50% of time), but difficult allocation decisions => high difficulty The planning phase: workforce allocation issues
16 The Relocation issue Employees belonging to a B.U./Country entirely carved out are often already based in the “right” location. Employees in the Group Core Services and Group Shared Services Functions can be based at Corporate HQ locally in different Countries The allocation exercise in this case sometimes takes two steps: 1. Workforce allocation: these employees are normally allocated to the carved-out organisation, which follows strictly objective rules 2. Employees allocation: before of after the workforce allocation exercise is made public, individual issues (willingness to relocate, but also availability of relocation or redundancy packages, different career options) may be taken into account and employees and be allocated differently The planning phase: workforce allocation issues
The Execution phase: People Management Processes 17 Trade Unions: Communication and Consultation processes The role of T.U. varies substantially from Country to Country depending on the more or less regulated labour environments. A Country-specific planning has to take place well before the execution phase, with timings, milestones and a high level of HR involvement Most legislations only require a consultation and information process. In few highly regulated legislations T.U. have a by-law negotiation power In the EU the Transfers of Undertakings Directive 2001/23 EC provides a common framework in terms of consultation and information, and a specific body (European Works Council) may play a key role Failure to fully comply with the EU T.U. consultation and information process may block/delay the process
18 Trade Unions: Negotiation processes T.U. agreement (or at least non opposition) is always critical to avoid any disturbance to normal operations (f.i. strikes, overtime avoidance). T.U. can play a significant support in sustaining employees morale and customer focus, particularly if social plans are foreseen. According to a recent Ernst & Young research among 100 Executives experienced in global corporate divestments (Human Capital Carve-out Study strategies of successful sellers, E&Y, 2013), the ideal point to engage in T.U. discussions on carve-outs is: • After the employees allocation process • 15 to 30 days before the announcements • few days before the legal limit The Execution phase: People Management Processes
19 Negotiating HR Transitional Services Agreements (TSA’s) Buyers of a carved-out business expect business operations to continue seamlessly, so HR TSA’s is needed until internal capabilities are developed It is critical to have an agreement on HR TSA’s to support the carved-out organisation as a condition for the deal, in order to avoid lack of support from the original organisation The Ernst & Young research shows that the most common HR TSA’s, are: 1.Payroll and Benefits 2.HR Information Systems 3.Pensions 4.General HR support 5.Expats support 6.Recruiting The Execution phase: People Management Processes
20 Managing Key People: Communication and Retention Issues Retaining Key People is, also according to the Ernst & Young research, the N.1 priority, followed by Costs (n.2) and Speed (N.3). Freezing transfers is the most common practice used by 88% of Executives, of which 72% before the closing) If the confidentiality of the deal allows, it is considered a best practice to manage early communications with: • Executive Leadership and Management Teams • Key employees (f.i. critical R&D or Key Account Managers) Need to gain early acceptance and engagement of these two groups through a targeted communication before public announcement is made and transfers are frozen, to better retaining Key people in the long term The Execution phase: People Management Processes
21 Managing Key People: Communication and Retention Issues Typical options to retain Key People in a carved-out organisation are: • Retention bonuses (typically in a 2-3 years horizon) • Exceptional Salary increases • Stock-based grants in the acquiring Company/ies • New benefits from the acquiring organisations • Career perspectives (in the carved-out or in the acquiring organisations) Compensation-based incentives (f.i. Retention Bonuses) are a temporary solution and have little effect on individual engagement and motivation Career perspectives have a stronger long-term effect on engagement and motivation (at least after the Retention Bonus has been cashed !) The Execution phase: People Management Processes
22 Managing all Employees: Communication and Retention Issues Plan in advance the all-employees Communication strategy at global level, and a related Communication timeframe, conveying few key general messages which can be adapted at local level Top-down communication from the carved-out or the acquiring organisation (all-employees meetings, formal presentations, welcome days, house organs) is essential to convey the idea of a positive future However, according to the Ernst & Young research, all-employees retention initiatives rank as follows, in order of successful results: 1. Leverage the Management of the carved out organisation 2. Provide employment or severance protection for the post-close period 3. Top-down communication to articulate the value proposition 4. Retention bonuses for all employees The Execution phase: People Management Processes
The Areva T&D Carve-Out Case History
This Project represents approx. 4bn€ in Enterprise Value Financial Net Debt at 30.6.09 , Enterprise Value Agreement with Areva ~ 400M € 1 053M € 2 290M € • EBITDA 2008: 587M€ - 50M€ Minor. • Part Alstom ~2/3 • Part Schneider Electric ~1/3 • • Multiple de ~8 x EBITDA* 2009 ~ 4 000M € ~ 200M € Minorities Finance *Estimated by Alstom and Schneider Electric 3,3 Enterprise ValuePensions ~ 400M € 1 053M € 2 290M € • • Part Alstom ~2/3 • Part Schneider Electric ~1/3 • Adjustment of each part based on EBITDA of T and D activities • ~ 4 000M € ~ 200M € impact 3,3Bn € Part Schneider Electric ~1/3
In late 2009 the French Multinational Areva, N.1. worldwide in the Nuclear industry and N.3 worldwide in the Energy Transmission & Distribution (T&D) business, decided to dismiss T&D in order to better focus on Nuclear and in order to finance the exit of Siemens from its NP business In 2010 T&D had a turnover of around 5.6 bn€ and around 33.000 employees worldwide. The T&D business was actually sold in January 2011 The French state, majority owner of Areva, posed 3 conditions to win the bid: Price, Market perspectives and Social perspectives. Final bidders were GE, Toshiba and a consortium Alstom/ Schneider Electric, who won the bid The consortium would then allocate the Distribution activities (Medium Voltage, about 11.000 employees) to Schneider Electric, while Alstom would keep the Transmission activities (High Voltage, about 22.000 employees) An innovative Labour Agreement between Alstom, Schneider Electric and the European Federation of Metalworkers (EFM) defined a stringent job security framework (a role for all employees, no plant closures for 2 years) Case Description: key points
A booming energy market with two different drivers Distribution & User pointsGeneration & Transmission Network control Industry & Infrastructure Residential Other industries & services Ultra high voltage (UHV) and High voltage (HV) – from 52kV to 1200kV Medium voltage - from 3kV to 52kV Low voltage - < 3kV Conventional generation Renewables UHV HV MV MV LVUHV/HV Decentralized management LV Automation and Substations
Two poles of specialization, with two different sets of dynamics Renew- able On-site Storage Backup Power Centralized Generation Transportation Residential Commercial Industrial • Major global players • Large projects • Focused on utilities Production Transmission Distribution Consumption • Global and regional players • Equipment and product sale • Multi-clients
Distribution and user pointsGeneration & Transmission ● Two complementary actors for a unified answers which integrates and connects generation with the transmission network ● Takes into account the new generation sources thanks to optimized network management ● Innovative answers in order to propose integrated solutions Alstom with Areva T ● Consolidation of 2 actors in: - Primary and secondary Distribution - Automation and substations ● An answer to the challenge posed by Smart grids with a flexible interface between user points and the distribution network Schneider Electric Medium Voltage with Areva D The Alstom – Schneider Electric offer: an answer to energy strategic challenges…
… To create two global leaders ABB Production High Voltage Medium Voltage Low Voltage Siemens Areva T&D Schneider Electric GE Cooper Crompton Greaves XD Group Alstom GeneralistsSpecialistsEmerging 3rd 2nd 1st 1st 2nd 3rd 4th 1st 2nd 4th 3rd 2nd 3nd 1st 4th Integrated player in Production and Transmission New n 1 in Medium and Low Voltage
General Scheme: a multi-stage Project Power 1 Areva Activities T&D Trans- mission Distribu- tion T&D Separation Areva T&D Separation 2 Business Energy 3 Separation of Activities with Medium Voltage 4 2Separation of Activities with High Voltage
Activity Separation Principles, in line with Alstom and Schneider Electric Strategic Interests Trans- mission Distribu- tion Transmission Ultra- High Voltage & High Voltage Primary and Secondary Distribution General Principles
Integration of Areva Transmission within Alstom A new Sector, represented by the President of the Sector at the Executive Committee Located in Paris region Preservation of the industrial base Preservation of the ISO commercial network Organisation by Sector of the future combined Group Alstom Power Transmission Transport
A new Energy business focused on utilities and electro-intensive industries Key market segments Key product lines • Utilities • Oil and gas Areva D € 1.7 bn IT Power (MV +LV ) Buildings IT Power Industry Buildings Energy 5 Businesses critical power & cooling LV Power Industrial automation Building automation & security MV distribution IS&C Grid Automation • Retail • Hotels • Hospitals • Offices • Data centers • Bank / Insurance • Residential • Marine 4 Businesses € 4.6 bn Industry • OEMs • Water • Mining CST
Objective Prior to the final offer, Alstom and Schneider Electric have entered into a Consortium Agreement setting out the key principles of: The joint acquisition of Areva T&D The allocation and separation of T and D activities The management of each activity during the transition period
Joint Acquisition At Closing, acquisition of Areva T&D by a joint acquisition vehicle (“AS5”) AS5 financed by Alstom and Schneider Electric pro-rata to the respective contribution of T and D activities to the EBITDA (i.e. approximately 2/3 for T and 1/3 for D) Then, progressive transfer of D activities to Schneider Electric
Allocation All Areva T&D’s activities allocated to either Alstom or Schneider Electric and no “orphan” employees Provisional allocation agreed upon between Alstom and Schneider Electric, and to be confirmed/adjusted based on further exchanges with Areva T&D Such provisional allocation to be discussed separately through a tri-partite working group
Separation Transfer of D activities to Schneider Electric as soon as feasible/practicable, taking into account the need to: Ensure business continuity Preserve the value of each of T and D activities Respect the rights of employee representatives Make this transfer compliant with social legal requirements
Management during Transition Period From Closing: T activities exclusively managed by Alstom D activities exclusively managed by Schneider Electric Management Committee to manage/coordinate joint decisions regarding both T and D activities during the transition period until their transfer to either Alstom or Schneider Electric
Industrial base High Voltage product lines remain with Alstom Medium voltage product lines are transferred to Schneider Electric - Either through the transfer of a legal entities or sites - Or through the transfer of carved-out elements Employment contracts will be transferred accordingly When sites will be shared, common services could be maintained Alstom Schneider Electric
Commercial network The majority of employees in local teams are in effect specialized in T or D – their allocation is natural For the employees which are not specialized in T or D, in particular within commercial functions : Power generation, Transmission, rail transportation and aluminum activities remain with Alstom Distribution, oil & gas, mining and heavy industries will be transferred to Schneider Electric The management of these teams will be associated to the allocation process of the employees who are not specialized Alstom Schneider Electric
R&D The majority of employees in local teams are in effect specialized in T or D – their allocation is natural The management of the R&D teams will be associated to the allocation process of the employees who are not specialized
Support Functions and Shared Services (at Corporate / Country level) Support functions will be allocated to Alstom and Schneider Electric based on their respective weights. The management of the T&D teams involved will be associated to the allocation process For Shared Services, an option will remain to maintain service to transferred activities, which is made possible as there is no overlap between Alstom and Schneider Electric
For the majority of activities, « natural separation » basing on activity predominance = ~ 85% of Areva T&D employees A Allocation by reporting Units following Economic rationales B Allocation principally linked to competences and Market Segments C Support Functions ISO (Global Sales Force): • Allocation by Country • Majority of Sales Force actually specialized in T or D • Link to Market Segments : o Within Alstom: Power Generation, Transmission, Rail, Aluminium o Within Schneider Electric: Distribution, Oil&Gas, Mining and Heavy Industry Service : • Allocation linked to technical competences and product knowledge R&D: • Natural allocation for the majority of R&D activities Shared Services : • As much as possible, keep Shared Services unity, to avoid value destruction and disorganisation: either within Alstom or within Schneider Electric Support Functions to Regions & to BU, ISO and R&D : • Study to identify the main activities served (T or D) • On a case by case basis, keep integrity and operational consistency Support Functions based in La Défense HQ: • Separation based on activities needs of the two Groups, based on a 70% - 30% ratio • Proposal for a Pilot Project limited to HQ-based HR and Finance (~100 employees) : use of simple allocation principes, to be validated in view of their extension on larger scale Impact on Employment: 3 Different Situations
A coherent split of the activities Secondary Distribution Ultra High Voltage Transmission High Voltage Transmission Primary Distribution Products Services GIS & Circuit breakers MV switchgears Power transformers HV substations Proximity business EMS / DMS SAS MV installed baseHV installed base Power electronics Distribution transformers HV relays MV relays Prefabricated substationHV instrument transformers Disconnectors Primary substation Alstom Schneider Electric Under review Automation Systems
Impact on Employment: 3 Different Situations 220 3 90017 580 JV Protection 1 070 NMS 520 1 180 2 090 7 330 250 10 000 2 830 320 740 590 1 870 1 180 2 090 0 % 3 350 100 %20 % 40 % 60 % 80 % 3 270 8 070 + PACIS 14 490 29 970 Total To be allocated Pure SEI Pure Alstom Products Automation Systems Service s Support FunctionsISOTotal PACIS SEI mix JV Protection Alstom mix SDSU
What about me? At Closing, all employees remain employed by the same legal entities. The acquisition vehicle is the new shareholder of legal entities Employment contracts remain unchanged Social commitments become effective
Sound social commitments Alstom and Schneider do not foresee any restructuring linked to this acquisition Alstom and Schneider will propose a professional future to each and every employee. All employees will have a proposal of an equivalent position (same geographical area, grade, seniority, remuneration) Until early 2013, there will be no site closure in Europe (except plans communicated to the employees before the sale agreement) and no mass redundancy departures other than voluntary (except in the case of a significant downturn in the general economic conditions) Alstom and Schneider are working closely with the management of AREVA T&D, in order to lead to a rapid integration
Overall timetable Comex meeting Top 60 meeting EWF / Works councils Antitrust Preparation of separation with Areva and PMI* PMI* workgroups kick off PMI* India (Public offer) Business Continuity Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 05/01 ClosingSigningKey milestones 01 December Dec 15/12 17/12 (Areva) and 18/12 (T&D) Disposal Separation / Integration *PMI: Post Merger Integration Jan. 5
Majority of legal separations completed. Effective transfer dates below 2010 2011 Letters available for communicating legal entity name changes to stakeholders. See Regional Communications and Regional Legal.
50 Thank you !

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Amsterdam may13 v3_picconi

  • 1.
    1 MANAGING COMPLEX GLOBALCARVE-OUTS A CASE STUDY AND LESSONS LEARNED FROM AN HR AND ORGANISATIONAL PERSPECTIVE 5 Merger Integration Management Forum Amsterdam, Sheraton Schipol May 14th, 2013 Francesco Picconi
  • 2.
    Introducing Francesco Picconi GroupHead of HR at Falck, Italy HR Director, South Europe & Africa, Areva T&D, Italy HR Director, BU Corus Colors, Corus Group, UK Group OD Director, Indesit Company, Italy HR Director BU, Transolver/Fraikin, Fiat Iveco, France OD Manager, Automotive Lighting, Fiat Magneti Marelli, Germany HR Manager Global Marketing and Sales, GE Oil&Gas, Italy BUT MOST IMPORTANTLY…… A Multicultural HR passionate for M&A, JV, Post-Mergers Integration in International/ Global contexts it.linkedin.com/in/francescopicconi/ 2 Phone +39 335 5351875
  • 3.
    3 What is acarve-out A carve-out is the process through which a Company divests subsidiaries, divisions, B.U.’s, assets to: - another company - a combination of companies - individuals in exchange for cash, securities or assets as consideration
  • 4.
    4 The buyer canbe: - - another Company (acquisition) - - a combination of Companies in view of a joint management or a subsequent carve-out: the Areva T&D case - - Its own shareholders (spin-off) - - the public stock market (IPO) - - the subsidiary’s management (Management Buy Out) What is a carve-out
  • 5.
    5 Carve-out and Acquisition CompanyA w/o subsidiary B Old Sub B Company C Cash, securities or assets as consideration
  • 6.
    6 Carve-out and Spin-off CompanyA after spinoff New company BShareholders receive Shares of company B Old shareholders still own shares of company A, which now only represent ownership of A without B.
  • 7.
    7 Rationales for carve-outs Kaplanand Weisbach Change of focus or corporate strategy (40%) Unit unprofitable or mistake (22%) Sale to pay off leveraged finance (29%) Antitrust (2%) Need cash (3%) Defend against takeover (1%) Good price (3%)
  • 8.
    Global carve-outs: organisationand HR aspects We will focus on the most frequent case, whereas the carved- out organisation is then integrated into one or more acquiring organisations. We will focus on the carve-out planning and execution from an organisation and HR perspectives. 8
  • 9.
    In complex globalcarve-outs, workforce allocation difficulty depends on whether employees belong to: 1) A well defined Division/B.U. or a Country entirely carved out 2) A Core Function, dedicated both to the carved-out organisation and to the original organisation (f.i. Global Sales, Global Services , Global R&D) 3) A Shared Services Function, providing support to both the carved-out and the original organisations. These are normally staff functions (f.i. HR, Finance, Sourcing, EHS) 9 The planning phase: workforce allocation issues
  • 10.
    10 Global CEO Global HR Global Finance BU1 BU 2 BU 3 Global Sales Global Services Global R&D Difficulty of workforce allocation in organisations to be carved out: Low (full carve-out of B.U.) Medium (partial carve-out of core functions) High (partial carve-out of support functions) The planning phase: workforce allocation issues
  • 11.
    11 BU 3 CEO BUHR BU Finance PL 1 PL 2 PL 3 BU Sales BU Services BU R&D Difficulty of workforce allocation in a case of a subsequent carve-out: Low – Full carve-out of PL to C1 or C2 Medium – Splitted between C1 and C2 High - Splitted between C1 and C2 Future of the BU CEO? The planning phase: workforce allocation issues
  • 12.
    12 1) A welldefined Division/B.U. or a Country entirely carved out This is normally the case of the majority of the employees of the carved Out organisation who are usually fully allocated to a clearly defined Division/B.U. Depending on the sector and on the organisation model, employees in B.U. or Countries entirely carved out can easily be 80% - 85% of the total manpower to be allocated. Therefore for the majority of employees, workforce allocation difficulty is relatively low BUT In case of acquisition by more than one Company, the intention of the buyers is frequently to proceed to a further separation of Product Lines within the BU, often with a second carved-out. Then the degree of difficulty may vary again The planning phase: workforce allocation issues
  • 13.
    13 2) A GroupCore Function dedicated to both the carved out organisation and to the original organisation (f.i. Global Sales, Global Services, Global R&D) These global core functions in complex global companies may report at Group level and may comprise employees who are physically located in the Corporate HQ or sometimes at local level in various Countries Depending on the sector and on the organisation model, employees in these core functions can be 10% - 15% of the total manpower to be allocated These employees are normally highly critical in the short and long term in the new context The planning phase: workforce allocation issues
  • 14.
    14 3) A GroupShared Services function providing support to both the carved out and to the original organisation (f.i. HR, Finance, Sourcing) Similarly to the core functions, employees in the Shared Services functions may report at Group level and may be based either at Corporate HQ or locally Depending on the sector and on the organisation model, employees in these Shared Services can be 5% - 10% of the total manpower to be allocated • They are normally critical to the carved out organisation in the short term, when the organisation has not been fully integrated in the acquiring Company/ies (f.i. Payroll, Accounts Receivables, all “transactional” functions) • They become much less critical (redundant?) in the long term, when the acquiring Company/ies have better understood the carved-out organisation and integration has moved forward The planning phase: workforce allocation issues
  • 15.
    15 Focus on allocationof employees in the Group Core Services and Group Shared Services Functions Employees in the Core Services and Shared Services Functions can be: • Part of teams fully dedicated to the carved-out organisation. Will be transferred => low/medium difficulty • Part of teams who are not fully dedicated, but individual employees may be full-time working for the carved-out organisation. Will be transferred => low/medium difficulty • Part of teams who are not fully dedicated, and individual employees may be only part-time working for the carved-out organisation. Can be transferred (f.i. if they work >50% of time), but difficult allocation decisions => high difficulty The planning phase: workforce allocation issues
  • 16.
    16 The Relocation issue Employeesbelonging to a B.U./Country entirely carved out are often already based in the “right” location. Employees in the Group Core Services and Group Shared Services Functions can be based at Corporate HQ locally in different Countries The allocation exercise in this case sometimes takes two steps: 1. Workforce allocation: these employees are normally allocated to the carved-out organisation, which follows strictly objective rules 2. Employees allocation: before of after the workforce allocation exercise is made public, individual issues (willingness to relocate, but also availability of relocation or redundancy packages, different career options) may be taken into account and employees and be allocated differently The planning phase: workforce allocation issues
  • 17.
    The Execution phase: PeopleManagement Processes 17 Trade Unions: Communication and Consultation processes The role of T.U. varies substantially from Country to Country depending on the more or less regulated labour environments. A Country-specific planning has to take place well before the execution phase, with timings, milestones and a high level of HR involvement Most legislations only require a consultation and information process. In few highly regulated legislations T.U. have a by-law negotiation power In the EU the Transfers of Undertakings Directive 2001/23 EC provides a common framework in terms of consultation and information, and a specific body (European Works Council) may play a key role Failure to fully comply with the EU T.U. consultation and information process may block/delay the process
  • 18.
    18 Trade Unions: Negotiationprocesses T.U. agreement (or at least non opposition) is always critical to avoid any disturbance to normal operations (f.i. strikes, overtime avoidance). T.U. can play a significant support in sustaining employees morale and customer focus, particularly if social plans are foreseen. According to a recent Ernst & Young research among 100 Executives experienced in global corporate divestments (Human Capital Carve-out Study strategies of successful sellers, E&Y, 2013), the ideal point to engage in T.U. discussions on carve-outs is: • After the employees allocation process • 15 to 30 days before the announcements • few days before the legal limit The Execution phase: People Management Processes
  • 19.
    19 Negotiating HR TransitionalServices Agreements (TSA’s) Buyers of a carved-out business expect business operations to continue seamlessly, so HR TSA’s is needed until internal capabilities are developed It is critical to have an agreement on HR TSA’s to support the carved-out organisation as a condition for the deal, in order to avoid lack of support from the original organisation The Ernst & Young research shows that the most common HR TSA’s, are: 1.Payroll and Benefits 2.HR Information Systems 3.Pensions 4.General HR support 5.Expats support 6.Recruiting The Execution phase: People Management Processes
  • 20.
    20 Managing Key People:Communication and Retention Issues Retaining Key People is, also according to the Ernst & Young research, the N.1 priority, followed by Costs (n.2) and Speed (N.3). Freezing transfers is the most common practice used by 88% of Executives, of which 72% before the closing) If the confidentiality of the deal allows, it is considered a best practice to manage early communications with: • Executive Leadership and Management Teams • Key employees (f.i. critical R&D or Key Account Managers) Need to gain early acceptance and engagement of these two groups through a targeted communication before public announcement is made and transfers are frozen, to better retaining Key people in the long term The Execution phase: People Management Processes
  • 21.
    21 Managing Key People:Communication and Retention Issues Typical options to retain Key People in a carved-out organisation are: • Retention bonuses (typically in a 2-3 years horizon) • Exceptional Salary increases • Stock-based grants in the acquiring Company/ies • New benefits from the acquiring organisations • Career perspectives (in the carved-out or in the acquiring organisations) Compensation-based incentives (f.i. Retention Bonuses) are a temporary solution and have little effect on individual engagement and motivation Career perspectives have a stronger long-term effect on engagement and motivation (at least after the Retention Bonus has been cashed !) The Execution phase: People Management Processes
  • 22.
    22 Managing all Employees:Communication and Retention Issues Plan in advance the all-employees Communication strategy at global level, and a related Communication timeframe, conveying few key general messages which can be adapted at local level Top-down communication from the carved-out or the acquiring organisation (all-employees meetings, formal presentations, welcome days, house organs) is essential to convey the idea of a positive future However, according to the Ernst & Young research, all-employees retention initiatives rank as follows, in order of successful results: 1. Leverage the Management of the carved out organisation 2. Provide employment or severance protection for the post-close period 3. Top-down communication to articulate the value proposition 4. Retention bonuses for all employees The Execution phase: People Management Processes
  • 23.
    The Areva T&DCarve-Out Case History
  • 24.
    This Project representsapprox. 4bn€ in Enterprise Value Financial Net Debt at 30.6.09 , Enterprise Value Agreement with Areva ~ 400M € 1 053M € 2 290M € • EBITDA 2008: 587M€ - 50M€ Minor. • Part Alstom ~2/3 • Part Schneider Electric ~1/3 • • Multiple de ~8 x EBITDA* 2009 ~ 4 000M € ~ 200M € Minorities Finance *Estimated by Alstom and Schneider Electric 3,3 Enterprise ValuePensions ~ 400M € 1 053M € 2 290M € • • Part Alstom ~2/3 • Part Schneider Electric ~1/3 • Adjustment of each part based on EBITDA of T and D activities • ~ 4 000M € ~ 200M € impact 3,3Bn € Part Schneider Electric ~1/3
  • 25.
    In late 2009the French Multinational Areva, N.1. worldwide in the Nuclear industry and N.3 worldwide in the Energy Transmission & Distribution (T&D) business, decided to dismiss T&D in order to better focus on Nuclear and in order to finance the exit of Siemens from its NP business In 2010 T&D had a turnover of around 5.6 bn€ and around 33.000 employees worldwide. The T&D business was actually sold in January 2011 The French state, majority owner of Areva, posed 3 conditions to win the bid: Price, Market perspectives and Social perspectives. Final bidders were GE, Toshiba and a consortium Alstom/ Schneider Electric, who won the bid The consortium would then allocate the Distribution activities (Medium Voltage, about 11.000 employees) to Schneider Electric, while Alstom would keep the Transmission activities (High Voltage, about 22.000 employees) An innovative Labour Agreement between Alstom, Schneider Electric and the European Federation of Metalworkers (EFM) defined a stringent job security framework (a role for all employees, no plant closures for 2 years) Case Description: key points
  • 26.
    A booming energymarket with two different drivers Distribution & User pointsGeneration & Transmission Network control Industry & Infrastructure Residential Other industries & services Ultra high voltage (UHV) and High voltage (HV) – from 52kV to 1200kV Medium voltage - from 3kV to 52kV Low voltage - < 3kV Conventional generation Renewables UHV HV MV MV LVUHV/HV Decentralized management LV Automation and Substations
  • 27.
    Two poles ofspecialization, with two different sets of dynamics Renew- able On-site Storage Backup Power Centralized Generation Transportation Residential Commercial Industrial • Major global players • Large projects • Focused on utilities Production Transmission Distribution Consumption • Global and regional players • Equipment and product sale • Multi-clients
  • 28.
    Distribution and userpointsGeneration & Transmission ● Two complementary actors for a unified answers which integrates and connects generation with the transmission network ● Takes into account the new generation sources thanks to optimized network management ● Innovative answers in order to propose integrated solutions Alstom with Areva T ● Consolidation of 2 actors in: - Primary and secondary Distribution - Automation and substations ● An answer to the challenge posed by Smart grids with a flexible interface between user points and the distribution network Schneider Electric Medium Voltage with Areva D The Alstom – Schneider Electric offer: an answer to energy strategic challenges…
  • 29.
    … To createtwo global leaders ABB Production High Voltage Medium Voltage Low Voltage Siemens Areva T&D Schneider Electric GE Cooper Crompton Greaves XD Group Alstom GeneralistsSpecialistsEmerging 3rd 2nd 1st 1st 2nd 3rd 4th 1st 2nd 4th 3rd 2nd 3nd 1st 4th Integrated player in Production and Transmission New n 1 in Medium and Low Voltage
  • 30.
    General Scheme: amulti-stage Project Power 1 Areva Activities T&D Trans- mission Distribu- tion T&D Separation Areva T&D Separation 2 Business Energy 3 Separation of Activities with Medium Voltage 4 2Separation of Activities with High Voltage
  • 31.
    Activity Separation Principles,in line with Alstom and Schneider Electric Strategic Interests Trans- mission Distribu- tion Transmission Ultra- High Voltage & High Voltage Primary and Secondary Distribution General Principles
  • 32.
    Integration of ArevaTransmission within Alstom A new Sector, represented by the President of the Sector at the Executive Committee Located in Paris region Preservation of the industrial base Preservation of the ISO commercial network Organisation by Sector of the future combined Group Alstom Power Transmission Transport
  • 33.
    A new Energybusiness focused on utilities and electro-intensive industries Key market segments Key product lines • Utilities • Oil and gas Areva D € 1.7 bn IT Power (MV +LV ) Buildings IT Power Industry Buildings Energy 5 Businesses critical power & cooling LV Power Industrial automation Building automation & security MV distribution IS&C Grid Automation • Retail • Hotels • Hospitals • Offices • Data centers • Bank / Insurance • Residential • Marine 4 Businesses € 4.6 bn Industry • OEMs • Water • Mining CST
  • 34.
    Objective Prior to thefinal offer, Alstom and Schneider Electric have entered into a Consortium Agreement setting out the key principles of: The joint acquisition of Areva T&D The allocation and separation of T and D activities The management of each activity during the transition period
  • 35.
    Joint Acquisition At Closing,acquisition of Areva T&D by a joint acquisition vehicle (“AS5”) AS5 financed by Alstom and Schneider Electric pro-rata to the respective contribution of T and D activities to the EBITDA (i.e. approximately 2/3 for T and 1/3 for D) Then, progressive transfer of D activities to Schneider Electric
  • 36.
    Allocation All Areva T&D’sactivities allocated to either Alstom or Schneider Electric and no “orphan” employees Provisional allocation agreed upon between Alstom and Schneider Electric, and to be confirmed/adjusted based on further exchanges with Areva T&D Such provisional allocation to be discussed separately through a tri-partite working group
  • 37.
    Separation Transfer of Dactivities to Schneider Electric as soon as feasible/practicable, taking into account the need to: Ensure business continuity Preserve the value of each of T and D activities Respect the rights of employee representatives Make this transfer compliant with social legal requirements
  • 38.
    Management during TransitionPeriod From Closing: T activities exclusively managed by Alstom D activities exclusively managed by Schneider Electric Management Committee to manage/coordinate joint decisions regarding both T and D activities during the transition period until their transfer to either Alstom or Schneider Electric
  • 39.
    Industrial base High Voltageproduct lines remain with Alstom Medium voltage product lines are transferred to Schneider Electric - Either through the transfer of a legal entities or sites - Or through the transfer of carved-out elements Employment contracts will be transferred accordingly When sites will be shared, common services could be maintained Alstom Schneider Electric
  • 40.
    Commercial network The majorityof employees in local teams are in effect specialized in T or D – their allocation is natural For the employees which are not specialized in T or D, in particular within commercial functions : Power generation, Transmission, rail transportation and aluminum activities remain with Alstom Distribution, oil & gas, mining and heavy industries will be transferred to Schneider Electric The management of these teams will be associated to the allocation process of the employees who are not specialized Alstom Schneider Electric
  • 41.
    R&D The majority ofemployees in local teams are in effect specialized in T or D – their allocation is natural The management of the R&D teams will be associated to the allocation process of the employees who are not specialized
  • 42.
    Support Functions andShared Services (at Corporate / Country level) Support functions will be allocated to Alstom and Schneider Electric based on their respective weights. The management of the T&D teams involved will be associated to the allocation process For Shared Services, an option will remain to maintain service to transferred activities, which is made possible as there is no overlap between Alstom and Schneider Electric
  • 43.
    For the majorityof activities, « natural separation » basing on activity predominance = ~ 85% of Areva T&D employees A Allocation by reporting Units following Economic rationales B Allocation principally linked to competences and Market Segments C Support Functions ISO (Global Sales Force): • Allocation by Country • Majority of Sales Force actually specialized in T or D • Link to Market Segments : o Within Alstom: Power Generation, Transmission, Rail, Aluminium o Within Schneider Electric: Distribution, Oil&Gas, Mining and Heavy Industry Service : • Allocation linked to technical competences and product knowledge R&D: • Natural allocation for the majority of R&D activities Shared Services : • As much as possible, keep Shared Services unity, to avoid value destruction and disorganisation: either within Alstom or within Schneider Electric Support Functions to Regions & to BU, ISO and R&D : • Study to identify the main activities served (T or D) • On a case by case basis, keep integrity and operational consistency Support Functions based in La Défense HQ: • Separation based on activities needs of the two Groups, based on a 70% - 30% ratio • Proposal for a Pilot Project limited to HQ-based HR and Finance (~100 employees) : use of simple allocation principes, to be validated in view of their extension on larger scale Impact on Employment: 3 Different Situations
  • 44.
    A coherent splitof the activities Secondary Distribution Ultra High Voltage Transmission High Voltage Transmission Primary Distribution Products Services GIS & Circuit breakers MV switchgears Power transformers HV substations Proximity business EMS / DMS SAS MV installed baseHV installed base Power electronics Distribution transformers HV relays MV relays Prefabricated substationHV instrument transformers Disconnectors Primary substation Alstom Schneider Electric Under review Automation Systems
  • 45.
    Impact on Employment:3 Different Situations 220 3 90017 580 JV Protection 1 070 NMS 520 1 180 2 090 7 330 250 10 000 2 830 320 740 590 1 870 1 180 2 090 0 % 3 350 100 %20 % 40 % 60 % 80 % 3 270 8 070 + PACIS 14 490 29 970 Total To be allocated Pure SEI Pure Alstom Products Automation Systems Service s Support FunctionsISOTotal PACIS SEI mix JV Protection Alstom mix SDSU
  • 46.
    What about me? AtClosing, all employees remain employed by the same legal entities. The acquisition vehicle is the new shareholder of legal entities Employment contracts remain unchanged Social commitments become effective
  • 47.
    Sound social commitments Alstomand Schneider do not foresee any restructuring linked to this acquisition Alstom and Schneider will propose a professional future to each and every employee. All employees will have a proposal of an equivalent position (same geographical area, grade, seniority, remuneration) Until early 2013, there will be no site closure in Europe (except plans communicated to the employees before the sale agreement) and no mass redundancy departures other than voluntary (except in the case of a significant downturn in the general economic conditions) Alstom and Schneider are working closely with the management of AREVA T&D, in order to lead to a rapid integration
  • 48.
    Overall timetable Comex meeting Top60 meeting EWF / Works councils Antitrust Preparation of separation with Areva and PMI* PMI* workgroups kick off PMI* India (Public offer) Business Continuity Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 05/01 ClosingSigningKey milestones 01 December Dec 15/12 17/12 (Areva) and 18/12 (T&D) Disposal Separation / Integration *PMI: Post Merger Integration Jan. 5
  • 49.
    Majority of legalseparations completed. Effective transfer dates below 2010 2011 Letters available for communicating legal entity name changes to stakeholders. See Regional Communications and Regional Legal.
  • 50.