Joseph V. Rizzi March, 2013 2 Market Overview Underlying Focus Framework Fin M&A Spring 2007 3 Market Overview Underlying Focus Framework Fin M&A Spring 2007 Issuer Objectives Driven by the Market 1960s and 1970s The Age of the Conglomerate 1980s The Age of The Financial Buyer Early 90s Fixing The Mistakes Mid 90s Age of the Strategic Buyer 2000 2003 Correction ? U.S. Catalysts for strategic M&A Value gaps/low market valuation Lack of top line growth Declining cost reduction opportunities Increasing importance of scale Capital availability Strong cash flow/under-leveraged balance sheets Shareholder value pressure Future Cyclical M&A moves with stock prices/economic cycle Re-regulation Mistakes Financial failures/liquidity crisis Style Bigger Hostile Faster Convergence 5 Value Gaps Expectations Strategy 6 Maximum Market Value Potential Value With Internal Improvements Current Market Value Internal Improvements External Improvements e.g. M&A 7 TacticalStrategicFinancial Proactive Voting Provisions Staggered Board Poison Pill Sale of Block Joint Venture Acquisitions Leveraged Acq. Vehicle Divestures Leveraged Disposition Monetize Undervalued Non-Strategic Assets Cost Restructuring ESOP Spin Off LBO Recapitalization Full or Partial Reactive Stock Repurchase Block Repurchase Voting Provisions Poison Pill Sale of Block White Squire Preferred Divestitures Acquisitions ESOP LBO Recap Sale Institutional Barriers/Protection Decline over time No defense to a fully priced/financed bid Economic Indicators ROE Ke < 0 Dividends/FOCF < 50% (Cash is building) Cash + Marketable Securities/Market Value > 5% Debt/Cap < 20% (Under leveraged) Relative lagging stock price performance Value Gaps Expectations Strategic Map Responses Buy (3 rd Party or Self) Stock repurchase 8 Growth Neg FCF Winners +/- FCF Losers +/- FCF LBO Pos FCF Market Growth ROE Ke Market Position + - > 1 < 1 MV/BV 9 Potential Premium/ Value Gap Stupidity Competitive Necessity Outlook/Information Adv. Synergies Buyer has lower WACC Under Valuation Current Price 10 Market Overview Underlying Focus Framework 11 Strategic Issues Do I make the acquisition? Valuation How much do I pay? Transaction Does the deal design make sense? Tactics How do I make the offer? Financing How do I pay? Integration Implementation of acquisition 12