Corporate and Investment Banking Teaching Program 2015-2016 April 7, 2016

Case Study – Poste Italiane Initial Public Offering

Marco Morelli – Vice Chairman Europe, Middle East & Africa GCIB, CEO BofAML Italy

Gianluca Iuliano – Director Investment Banking BofAML Italy

Key Facts of Poste Italiane IPO

1

Transaction Highlights Key Terms

Offering Structure

Issuer / Listing Poste Italiane SpA / Borsa Italiana

Selling Shareholder

Pricing and Valuation

Offering Size

Execution Timetable

Lock-up

Secondary shares: 453m Greenshoe: 45.3m (10% of the offer), 100% secondary Institutional offering (70% of the offer) outside the U.S. under Reg S, in

the U.S. to QIBs only pursuant to Rule 144A Retail offer in Italy (30% of the offer) through local Italian syndicate,

including ability for retail to subscribe at Company’s post office branches “Bonus Share” incentive for employees and retail investors who

subscribe at IPO and retain stock for at least 12 months post-IPO

BofAML Role

Company / Selling shareholder: 180 days (subject to customary exceptions and waiver by the Joint Global Coordinators)

Italian Ministry of Economy and Finance

Offer price: €6.75 vs. initial range of €6.00 – 7.50 per share Implied equity value: €8.8bn Implied Dividend Yield: ~5% (1)

Investor education: 28 September – 9 October 2015 Price range announcement: 8 October Management roadshow: 12-22 October Pricing and allocations: 23 October First day of trading: 27 October

Base offer size: 453m shares, €3.1bn Full offer size: 498m shares, €3.4bn Free float: up to 38.2% post greenshoe

Italy Oct 2015

Joint Global Coordinator & Joint Bookrunner

IPO

€3.1bn

Joint Global Coordinator and Joint Bookrunner

The transaction represents a milestone for the Italian Government in the context of a wave of reforms

Poste Italiane is the largest IPO completed in Italy since BofAML-led Enel in 1999 and one of the largest global IPOs of the year; the stock is expected to be a constituent of the Italian large cap index FTSE MIB

Offer launched capitalizing on increasingly positive sentiment for Italian macro; Poste Italiane revenues are almost entirely generated in Italy

Books opened on October 12th, and were covered after two full days of bookbuilding. The offer priced at the mid-point of the price range, with a total oversubscription of 3.3x

Early-stage investor meetings, including some of the most prominent SWFs, were organised to familiarize investors early with the Poste Italiane business model and to gather feedback ahead of launch

Poste Italiane represents BofAML’s fifth landmark IPO of a European issuer just in October, following the Covestro, Schaeffler, Worldpay and Ferrari offerings

Moreover, it cements BofAML leadership in the Italian IPO market, having executed the highest number of IPOs among international banks in the past 10 years (2)

In addition, Poste Italiane IPO demonstrates BofAML strong relationship with the Italian Ministry of Economy and Finance and extends its long-term track record of leading privatizations across the globe

BofAML acted as a Joint Global Coordinator and Joint Bookrunner on the up to €3.4bn IPO of Poste Italiane

Poste Italiane is the historical postal services operator in Italy and runs a diversified business model including financial, insurance and mobile services

The Company relies on the scale and proximity of its network to serve households. In addition, the Group offers a wide range of activities to corporations and is the main channel for payment collection and communication between the public administration and households / companies

____________________ (1) Based on mean of syndicate research analyst estimates for 2015 net income from Il Sole 24 Ore dated October 13th: “L’AD Caio: nel piano-Poste crescita dell'utile”, and 80% payout ratio as stated in the Prospectus. Refers

to dividend to be paid in 2016. As per usual IPO black-out period practice, BofAML research has not published and will not publish further research updates until 40 days after the closing date. (2) Source: Dealogic.

66%

19%

15%

Insurance

Financial Services

Postal

An Integrated Service Infrastructure With Distinctive Competitive Assets

2

Brand

#33m Customers

€28.5bn Revenues2

#1.5m Customers

Served Daily1

€469bn Client Assets

Mail & Parcels

Transaction Banking &

Asset Gathering

Insurance & Asset

Management

Retail Network 13.2k Post Offices

Web / Mobile IT Platforms

____________________ Note: data as of June 2015 ,unless otherwise stated. (1) Related to post offices only. (2) FY 2014.

Business Contribution

EBIT Margin

2.2%

14.3%

n.m.

3

Investment Highlights

A combination of strategic and financial levers to deliver value growth

Financial

Strategic

Brand Synonymous of Trust, Reliability and Customer Retention

1

Leading Positioning across Markets Served

4

Uniquely Positioned to Capture Macro Growth Trends

5

High Visibility on Top Line

6

Robust Balance Sheet with Solid Capital Structure

8

Solid Cash Generation to Support Dividend Policy and

Investments for Transformation

9

Broad Range of Products Targeting Diversified Customer Needs

Potential Upside from New Regulation and Reorganization

7

Vast, Capillary and Integrated Multichannel Network

2

3

Well Balanced Organization with Highly Experienced Management

10

Execution Timetable

4 H1 2015 Results Filings with Consob

April May June July August September OctoberWeek [...] [...] 1 8 15 22 29 6 13 20 27 3 10 17 24 31 7 14 21 28 5 12 19 26

Onboarding of Advisor

Business Due Diligence

Legal Due Diligence

Drafting of Prospectus /IOC

Filing with Borsa/ Consob ●Consob Istruttoria

Admission to listing & Nulla Osta Consob ●Prospectus/IOC Publication ●Contratto di Collocamento Signature ●Underwriting Agreement Signature ●

Analyst Presentation Drafting

Analyst Presentation Based on 2014A Financials ●Update to Analysts on H1 2015 Drafting

Update to Analysts on H1 2015 ●Research Report Preparation

Research Report Publication ●Pre-marketing

Price Range Definition ●

Meetings with Selected Investors

Roadshow

Institutional Offer

Retail Offer

Bookbuilding

Pricing and Allocations ●First Day of Trading ●

Prep

arat

ion

Rese

arch

Road

show

5

Investors Met Throughout the Early Look Process

New York

Boston London

Milan

Rome

Italy

Azimut Eurizon Generali

Kairos Pioneer

United Kingdom

Amber BlackRock

Capital Research Capital World

Fidelity International Fidelity M&R

JP Morgan AM Paulson

Peninsula Schroders

TCI Threadneedle

TT International

United States

Artisan Citadel

Discovery Fir Tree

Highbridge KKR

Lazard Mason

Neuberger Berman Soros

Wellington Zimmer

SWFs Meetings / Calls

ADIA BTG Pactual

CPPIB Fosun

GIC KIO

Norges QIA

SAFE Temasek

Over half then provided an order in the offer period

6

Summary of Management Roadshow Activity

UK

5 (10%)

IT

22 (9%)

6 (12%)

FR

29 (12%)

14 (29%)

US

63 (25%)

1 to 1 meetings (incl. conference calls) Investors met in group meetings

24 (49%)

136 (54%)

New York

Boston London

Paris Milan

Rome

Investors met 299

49

250

Roadshow activity details in 4 countries and 6 different locations:

Investors meet during group meetings

1 to 1 meetings

Italy 18 7%

Cont. Europe 60

22%

UK 111 42%

US 53

20%

RoW 23 9%

Long Only 107 43%

SWF 5

2%

Hedge Fund 135 55%

Tier 1 71

29%

Tier 2 80

32%

Tier 3 91

37%

SWF 5

2%

By geography By type By tier

Roadshow Feedback details: 510 lines from 247 different investors

____________________ Note: Feedback as of 20 October.

Summary of Management Roadshow Activity and Order Conversion

Milan London London Boston NYC Investor Order Investor Order Investor Order Investor Order Investor Order Azimut Blackrock Alken Adage Appaloosa Eurizon Capital World Artemis Grantham Mayo Citadel

Generali FMR Caxton Hardvard Mgmt Franklin Pioneer GLG Egerton Capital Highfields Mason Capital

Henderson FIL Pioneer Soros Paris JPM AM GIC Wellington Zimmer

Investor Order Lansdowne Marshall Wace

Amundi Lazard AM Pelham AXA Millennium Pictet

DNCA New Peak TCI

Generali Norges Threadneedle Verrazzano Och Ziff TT Int

Hit ratio - One-to-one meetings(1)

Hit ratio - Group meetings

Hit Ratio 78%

Hit ratio - Early-look meetings

Investors met 40

21 Investors in the book

Hit Ratio 53%

Investors met 250

115 Investors in the book

Hit Ratio 46%

7 ____________________ Note: As of 21 October feedback. (1) Physical meetings only, excluding conference calls

Main Investor Feedback Themes

Unparalleled Company distribution network and client reach

Clear national brand leader with a profile and history that is part of the “fabric of Italy”

BancoPosta seen as a unique asset gatherer, with a capital light, highly profitable and sound leverage ratio model

Insurance services, with PosteVita at its core, is an extremely attractive growth engine for the Group

Expansion into asset management (via Anima partnership) and welfare seen as credible and attractive, also given past successes

The offering plays well to market receptivity to domestically focused European financial institutions

Acknowledgment that restructuring of Mail & Parcels is supported by a robust regulatory framework and plan to transition into parcels

Perception of finally improving macro backdrop in Italy, to which Poste is highly levered

Universal appreciation of management, a first-class team having been assembled to lead the Company

Investor reaction has been positive, with universal appreciation of the Poste story, prospects and management

8

• Volatile equity markets condition not very supportive for IPOs

• Execution risk on the Mail & Parcel division restructuring plans, given also potential socio-political considerations

• Pace of structural decline in Mail & Parcel

• The need to understand better the net impact of Mail & Parcel division price increases (J+1, other products etc.) vs. volumes

• Consistency between dividend policy and Free Cash Flow in the mid/long term

• Future sustainability of the Net Interest Margin on the banking book in a low interest rate environment and given a rollover scenario of the BTP portfolio

• Complexity of the group and inter-division flows

• Limited of visibility on management incentive schemes

Key Investor Highlights Primary Investor Discussion Points

0.4x

0.9x

1.0x

1.8x

2.4x

2.7x

3.0x

3.6x

3.8x

0.2x

0.4x0.5x

0.7x

1.3x

1.5x

1.7x

2.7x

3.6x

0.1x

0.3x 0.5x

0.7x

1.1x

1.2x

1.3x

1.7x

3.1x

0.1x

0.3x 0.4x

0.6x

0.9x

1.0x

1.1x

1.4x

1.8x

0.1x

0.3x 0.4x

0.6x

0.8x0.9x

1.1x

1.3x

1.7x

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1,800

1,900

2,000

12-Oct 13-Oct 14-Oct 15-Oct 16-Oct 19-Oct 20-Oct 21-Oct 22-Oct

Dem

and

(m s

hare

s)

@6.00 @6.50 @6.75 @7.00 @7.50

Daily Evolution of Total Demand

9

____________________ Note: Based on end of each day, syndicate wide book.

No. of Shares

Base Deal Size 453,000,000 Full Deal Size 498,300,000 Greenshoe 45,300,000

Coverage Evolution on Full Deal Size (Including greenshoe)

Full deal size (498.3m shares)

387 387 387 387 387 387 387

1,5141,389

1,171 1,139 1,147

519 460

1,901

1,776

1,558 1,526 1,534

906847

0100200300400500600700800900

1,0001,1001,2001,3001,4001,5001,6001,7001,8001,9002,000

@6.00 @6.50 @6.60 @6.70 @6.75 @7.00 @7.50

Dem

and

(m s

hare

s)

Share Price (€)

Retail Demand Institutional Demand

Total Demand Waterfall at Various Prices

10 ____________________ Total Offer Size: 498.3m shares. Note: Based on end of each day, syndicate wide book.

Total Demand

Coverage on Full Deal Size

€11.4bn €11.5bn €10.3bn €10.2bn €10.4bn

3.8x 3.6x 3.1x 3.1x 3.1x

2.9x Coverage at 30%

€6.3bn

1.8x

€6.4bn

1.7x

(303k Retail Investors)

Overview of Book Concentration

Allocation Overview

Demand Overview at €6.75 per Share

37%

53%

85% 97%

Top 10 Top 20 Top 50 Top 100

18%

34%

63%

81%

Top 10 Top 20 Top 50 Top 100

25%

33%

18%

8%

11% 4%

27%

34%

12%

10%

11% 6%

27%

45%

27%

25%

33%

41%

11

____________________ (1) As proportion of total institutional demand / allocation.

Retail

UK US

Italy

RoE

RoW

Italian Retail

UK

US

Italy

RoE

RoW

Italian Retail

Italian Retail

LO

LO

HF

HF

Institutional Order Concentration (1)

Institutional Order Concentration (1)

Geographic Split Split of Investor Type

Geographic Split Split of Investor Type

14.5

x

13.8

x

11.8

x

9.9x

9.6x

9.6x

7.9x

7.5x

6.5x

13.0

x

12.8

x

11.0

x

9.5x

8.6x

9.3x

7.4x

7.1x

6.1x

19.7

x

15.7

x

13.8

x

18.1

x

13.9

x

12.8

x

16.9

x

13.6

x

13.0

x

12.9

x

12.7

x

6.2x

16.3

x

13.2

x

11.9

x

12.7

x

11.7

x

6.0x

14.7

x 12

.3x

Valuation Benchmarks

12

____________________ Source: Bloomberg and Factset as of October 21st , 2015. Note: dividend yield based on cash dividend paid in 2016 and 2017. (1) Based on mean of syndicate research analyst estimates for net income 2015 - 2017, and 80% payout ratio as stated in the Prospectus.

As per usual IPO black-out period practice, BofAML research has not published and will not publish further research updates until 40 days after the closing date.

P/E 2016E P/E 2017E

Mail and Parcel Financial Services Insurance Services Poste

(1)

Peer

s P/E

201

6-17

E Pe

ers D

ivid

end

Yiel

d 20

16-1

7E

6.1%

5.7%

5.0%

4.9%

4.9%

4.8%

4.7%

4.4%

4.1%

6.1%

6.1%

5.4%

5.3%

5.3%

5.2%

5.0%

4.7%

4.5%

4.6%

4.4%

3.9%

5.2%

4.7%

4.3%

6.2%

5.8%

5.1%

5.1%

3.7%

2.3%

6.4%

6.0%

5.3%

5.4%

4.0%

7.2%

4.8%

5.

4%

(1)

Dividend Yield 2016E Dividend Yield 2017E

Book of Demand – Allocation Principles

13

Allocation process rewarding those accounts who helped support successful execution of the Poste IPO and were most able to guarantee long term support and a productive aftermarket for the Company

General Allocation

Criteria

Objectives

Maximize the level of sustainable valuation to be achieved at IPO (taking into consideration prevailing market conditions and investor demand)

Create a long-term ‘core’ base of shareholders for Poste whilst seeking a positive aftermarket performance for the shares post-IPO

Facilitate sufficient post-IPO liquidity to allow for potential secondary sell-downs should they ever by required or desired by the MEF

Factors taken into consideration in the allocation process included:

Overall subscription levels

Price sensitivity of orders and general support

Participation in the marketing (e.g. investors that have put in a significant amount of time and effort into analysing the company, as evidenced by attendance at pre-launch meetings, roadshow meetings, analyst meetings and feedback provided)

Timing of the order, relative to the final management meeting for that investor

Quality of feedback provided during the marketing process

Holding in comparable companies, behaviour in precedent IPOs and potential order inflation

Concentration (e.g. top 20 investors allocation in the offering)

Investor type (e.g. balance between SWFs, Long Only and Hedge Fund accounts)

Investor tiering (to reflect previous discussions on the subject between the MEF, Poste management, the advisers and the banks)

Geography (e.g. allocation to any particular country or region)

Retail treatment considerations

i

ii

Book of Demand – Allocation Principles (Cont'd)

14

Quantitative Allocation Principles

In light of the institutional demand received, and in line with best market practice for similar transactions, the Global Coordinators suggested the following quantitative allocation principles:

Splitting the total institutional demand in four main buckets, namely

1) "Super long only investors", i.e. top quality and supportive long only investors and global SWFs

2) Italian high quality investors, which have demonstrated limited price sensitivity early-on in the bookbuilding process

3) Other high quality long only investors

4) Supportive hedge funds which have provided early momentum and constructive feedback

− other investors

Suggested indicative allocation as percentage of demand:

− Super long only investors: c. 70%

− Italian high quality investors: c. 60%

− Other high quality long only investors: c. 40–50%

− Supportive hedge funds: c. 30%

Individual exceptions were contemplated to allow for specific investor feedback or circumstances, discussed with the MEF's advisors

Indicative target splits of institutional allocation were as follows:

− by type: long only vs. hedge funds: c. 65% vs. 35%

− by region: Italy, UK, US and others respectively c. 10–15%, 45–50%, 15–18% and 20–25%

iii

Process

The banking syndicate made an allocation proposal to the MEF, Poste management and their respective advisers shortly following formal closure of the IPO bookbuild

The MEF, Management and syndicate of advisers went through this suggestion in detail to discuss rationale and strategic scope based on the final order book

MEF (and Poste management) ultimately had final sign-off on the allocations

iv

0

800

1,600

2,400

3,200

4,000

4,800

5,600

6,400

7,200

8,000

6.60

6.65

6.70

6.75

6.80

6.85

6.90

6.95

7.00

08:00 09:12 10:24 11:36 12:48 14:00 15:12 16:24

15

Price (€)

Day One Aftermarket Trading Confirming Fairness of Offer Price

____________________ Source: Bloomberg, public available information.

Open: €6.95 Close: €6.70 High: €6.95 Low: €6.65

Share Price

Volume (k shares)

Value Weighted: €719.5m Shares: 106.5m % Float 21% % Company 8%

Volumes

Poste, 300,000 Retail Investors Participate to Offering “It has been a great success, which confirms market’s support of the transaction” said the Italian Ministry of Finance Pier Carlo Padoan. […] It is clear that the Poste Italiane privatisation has been a successful credibility test for the Government. Poste Italiane will start trading at the IPO price of €6.75 on Tuesday, which has been defined as ‘in line’ by several research analysts of the syndicate.”

Corriere della Sera, 27 October 2015

Caio: Market Confirms IPO Price, Great Transaction “Poste Italiane’s listing has been a “great transaction - the market confirmed the IPO price, with performance stabilising around the issue price”, said Caio, CEO of Poste Italiane.”

Il Sole 24 Ore Radiocor, 27 October 2015

Jerusalmi: One of the biggest European transactions of 2015 “Raffaele Jerusalmi, CEO of Borsa Italiana commented “we are very proud to welcome on our exchange Poste Italiane, one of the biggest European IPOs of 2015. The listing has been a great success, ending up more than three times oversubscribed, with a highly diversified and international investor base.”

Il Sole 24 Ore Radiocor 27 October 2015

Volume ('000 shares) Eurostoxx 50 Ftse Mib Poste

IPO Price

Poste: (0.74)% FTSE MIB: (1.15)% EuroStoxx 50: (0.98)%

Performance

Poste experienced low volatility, outperforming the market on its first day of trading

European IPOs test investors’ risk appetite “Poste Italiane, the Italian post office and bank that priced last week and began trading on Tuesday, barely moved, with its share price falling 0.5 per cent after the start of trading. The company priced at €8.8bn, which was below the figure of €10bn reported in the Italian press as a potential valuation of the company, although a market participant dismissed that valuation as “aspirational”. While initial shareholders got no return on the first day of trading, the fact that Poste Italiane’s share price did not jump avoided the political controversy that surrounded the privatisation of Britain’s Royal Mail. [...] British share registrar Equiniti’s share price fell about 8.5 per cent in the first day of trading on the London stock market after pricing at the bottom of its range in its initial public offering. The company, was priced at £1.65 a share [the bottom end of price range], but by the close of trading had fallen to £1.51 — the latest example of what has been a difficult few months for initial public offerings. [...] IPOs have been pulled or repriced across Europe and the US. Financial Times, 27 October 2015

Italy to launch biggest privatisation in more than a decade “Italy will this week launch its biggest privatisation in more than a decade with the partial sale of Poste Italiane — an initial public offering on which the government of prime minister Matteo Renzi has staked its reformist reputation.”

Financial Times, 11 October 2015

16

Poste Performance vs. Comparable Clusters Poste Italiane Trading Since IPO (Cont’d)

27-Oct 10-Nov 24-Nov 08-Dec 22-Dec 05-Jan 20-Jan 03-Feb 17-Feb 02-Mar 16-Mar 31-Mar4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

(12.8%)

(7.2%)

(1.5%)(0.6%)

Insurance Services (3) Mail and Parcel (2) Financial Services (1) Poste Italiane

Price (€) Rebased to Poste (4)

China-led market drop

____________________ Source: Factset as of March 31st, 2016. (1) Including Fineco, Mediolanum and Banca Generali. (2) Including Austrian Post, Belgian Post, CTT, Deutsche Post, PostNL, Royal Mail group. (3) Including Aegon, CNP, Legal & General, Generali, Mediolanum, NN, Old Mutual, Standard Life, Swiss Life. (4) Rebased to Poste closing price on October 27th.

Poste has outperformed, since its listing, most of key clusters of comparables

(1.5%)

Poste Italiane Financial Services (1) Mail and Parcel (2) Insurance Services (3)

Last Month +7.8% +7.1% +9.2% +3.6%

2016 YTD (6.3%) (5.5%) (3.0%) (11.8%)

Since Poste IPO (1.5%) (0.6%) (7.2%) (12.8%)

17

What Next – Follow-On Due Soon?

The business is attractive; its main shareholder less so It is not a good time to be an Italian financial institution. Profitability is low. Non-performing loans are at high levels. Raising capital is difficult. The economic outlook is uncertain. These are the same reasons that Poste Italiane, floated last October, has been the country’s least awful big financial stock. Its shares are down 4 per cent this year. The MSCI Italy banks index is down a quarter. Ignore the name — Poste Italiane is a financial services group with a sideline in postal services. The letter business gives it access to 13,000 branches that it uses to harvest Italians’ considerable savings and sell them insurance policies and debit cards. It extends no loans, though — so it has no bad debts and enjoys limited capital requirements. Deposits are invested in EU sovereign bonds that have low risk weights and have generated strong capital gains thanks to loose monetary policy. Full-year pre-tax profits, announced after the close on Tuesday, are up substantially. Deposits have risen as retail customers withdrew savings from banks perceived as weak. Four-fifths of net income is paid out as dividends, giving the shares a yield of 5 per cent. One black spot is its profit-munching postal business, where losses widened by more than a tenth to €568m. But profits from booming insurance and financial services look sustainable enough to offset this in the short term. The company says it will continue to cut costs and focus on more profitable parcel delivery (as the UK’s Royal Mail has done). Capital gains in the bond portfolio can prop up the dividend for now. Longer term, though, record-low rates mean lower returns from bonds. The biggest risk is the state, which still owns 65 per cent, and in the past tried to steer financing towards pet projects. Further, it would be no surprise to see the cash-strapped Treasury sell more shares. This could create selling pressure. As the government’s grip loosens, however, Poste’s valuation should rise.

Financial Times 23 March 2016