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The Practical Side of Investment Banking

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1 The Practical Side of Investment Banking
October 10, 2006

2 Table of Contents 1. Citigroup’s Investment Banking Michigan Team 2.
Structure of an Investment Bank 3. Deal Teams and the Role of an Associate 4. Why Citigroup?

3 1. Citigroup’s Investment Banking Michigan Team

4 Citigroup’s Investment Banking Michigan Team
Managing Directors Randy Barker Co-Head, Global Fixed Income John Ciolek Energy James McCummings Global Communications Timothy Devine FIG Stephen Schiller Client Strategy Hugo Verdegaal Latin America Directors Nathan Eldridge Mergers & Acquisitions Jodi Schenk Mergers & Acquisitions Victor Voorheis FIG Peter Kapp FIG Vice Presidents Rich Harding Healthcare Daniel Lee Global Communications Jas Singh Energy Keith Anderson London Ramon Gonzalez Global Communications Susan Manuelle Global Industrial Christa Volpicelli Global Industrial Associates Ben Riback (A4)* Global Consumer Arun Prasad (A3) Health Care Owen Bittinger (A3) Palo Alto Benjamin Carpenter (A3) Los Angeles Paul Croci (A3) Pablo Pallas (A3) London Martin Valdes (A3)* Latin America Sarah Ransdell Bayer (A2) Palo Alto Patty Yang (A2) Hong Kong Jason Godley Generalist Julius Peter Generalist Harsh Singh Generalist 1 * Team Co-Captain

5 2. Structure of an Investment Bank

6 What is an Investment Bank?
An “investment bank” typically consists of three distinct, but related businesses: Traditional Investment Banking Sales & Trading Research Capital raising Debt Equity Strategic advisory services Mergers & acquisitions Restructuring Takeover defense Distribution and execution arm of the investment bank Sells and trades stocks and bonds Manages the firm’s risk and makes markets for the securities underwritten by the investment bank Analysis and recommendations of stocks and bonds Includes company coverage and sector coverage 2

7 Who are the Leading Investment Banks in the United States?
Large / Global Small / Regional 3

8 Structure of an Investment Bank — Conduit to the Corporate Client
Private Side Public Side Client Sales & Trading Corporate Banking Investment Banking Coverage Groups Capital Markets Bank Loans Inv. Grade Debt High Yield Equity “Chinese Wall” Research Other Product Groups M&A Financial Strategies Derivatives Liability Management Pensions 4

9 Products and Services An investment bank provides numerous corporate finance functions. Balance Sheet Management Hedging Capital Raising Equity Share and Debt Repurchases Investment Grade Debt Debt Exchanges High Yield Debt Consent Solicitations Syndicated Loans Bridge Commitments Advisory M&A Restructuring Financial Strategy 5

10 Industry Coverage Groups
Consumer Financial Institutions Communications Energy, Power & Chemicals Health Care Real Estate Financial Entrepreneurs Industrials Technology 6

11 3. Deal Teams and the Role of an Associate

12 Structure of a Typical Deal Team
The Coverage Officer has primary client responsibility and the Associate ensures that all members of the working party, both internal and external, are informed and working together. Client Accountants Investment Banking Coverage Officer Attorneys Capital Markets Associate IBD Support Analysts Compliance/ Legal 7

13 Strategic Advisory A good investment banker is a trusted advisor to their client – a CEO’s first call for strategic advice Investment bankers are most valuable when they can provide unique insight regarding a company’s operations or strategic direction As part of a normal client dialogue, investment bankers will show clients strategic ideas that may or may not be obvious to their client CEOs often use their bankers to approach potential counterparties on an informal basis Investment bankers typically handle negotiations and most other aspects of the M&A process, allowing management to focus on running their business Valuation Process management Structuring Fairness opinion Purchase/Sale documentation “Whatever else it takes” 8

14 Strategic Advisory – M&A
Purchasing other companies Friendly Mergers Hostile Takeovers Leveraged Buyouts Selling companies Selling entire companies Spin-off of subsidiaries Defending Company Buyouts Poison Pill 9

15 Life of an M&A Transaction
The Pitch The Mandate: Deal is Live Announcement Closing: It’s Official! Specific pitch ideas Beauty contests Preparation Solicitation of preliminary bids Solicitation of binding bids Negotiations Contract Signing Preparation for announcement Press release Q&A script Week of announcement Market reaction Roadshow? Banker’s work is largely done once the deal is made public Between announcement & closing SH vote HSR Other regulatory approvals Closing Lucites Dinner 10

16 Valuation: The Foundation of Every Deal
Primary Valuation Techniques Discounted Cash Flow Analysis Public Market Analysis (Comparable Companies) Private Market Analysis (Precedent Transactions) LBO Analysis Secondary Valuation Techniques Pro Forma Consequences Analysis Accretion/dilution Capital Structure EPS Growth Rates Relative Contribution Analysis Liquidation Analysis How is my client trading relative to peers? WHY is it trading this way? Growth? Margins? “Hot” market versus fundamentals HOW can the company improve its valuation? Does an acquisition make sense? What is an appropriate price? Is cash or stock a better choice? What is appropriate leverage? How would the market value the company in a public offering? How long will a company take to pay back debt holders? Do cash flows support an LBO? 11

17 Valuation and the Associate
The associate is responsible to ensure numbers are accurate and assumptions are realistic. Valuation is NOT . . . Valuation is . . . A single, quantitatively derived answer A precise number A static number Lots of number crunching More art than science Heavily dependent on judgment 12

18 Raise Capital for Clients
One of the most common functions of investment bankers is to assist companies in raising capital Investment banks are the intermediaries between users of capital and providers of capital Equity IPO Secondary Offering Preferred Stock Debt Investment Grade High Yield Debt Structured & New Product Financing 13

19 Capital Raising Assignment
The associate manages the flow of information and therefore must be organized and anticipate everything. Pitching Pre-Filing Preparation Marketing Post-deal follow-up Pricing / Closing 14

20 Capital Raising: Pre-Filing
Screen the Deal Internally Put together all internal memos and coordinate meetings Commitment Committee Investor Issues Committee Organizational Meeting Establish agenda, timetable, information request list and working group list Due Diligence Meetings Drafting of Registration Statement Development of business section and positioning Participation in drafting sessions Work with underwriters’ counsel on underwriting agreement Marketing Preparation Prepare roadshow presentation with company Coordinate for reds to be delivered as necessary 15

21 Capital Raising: Marketing
Prepare memos for sales forces Institutional sales memo Retail Sales Memo Coordinate dry-run (company presentation to sales force) Roadshow: Responsible that ALL logistics run smoothly Accompany company to investor meetings—keep meetings on time Feedback to Capital Markets desk: know how the book is building ANTICIPATE everything Denver Minneapolis Milwaukee Chicago Toronto Montreal 3 one-on-ones 1 one-on-one 2 one-on-ones 1 one-on-one 5 one-on-ones 1 group mtg 1 group mtg Boston 7 one-on-ones 1 group mtg New York 6 one-on-ones 1 group mtg Philadelphia 6 one-on-ones San Francisco 4 one-on-ones 1 group mtg Europe San Diego Kansas City 1 group call 1 one-on-one 1 group call 2 one-on-ones 16

22 Capital Raising: Pricing/Closing
Pricing: Handled by ECM Coordinate bring down due diligence call prior to pricing Finalize registration statement Meet with lawyers and printers to add in final pricing information Closing: Help coordinate wiring of funds to company How much? Where? When? Wire instructions via memo to syndicate Post-deal client relationship Create post-mortem book Organize closing dinner Design Lucite 17

23 Keys to Success as an Associate
Goals Develop credibility early with team, especially analysts Leadership: Delegating authority Time management skills: Balance multiple projects Understand the transaction and communicate both up and down Develop a rapport with the analysts and communicate the big picture Manage expectations and define responsibilities Get your hands dirty Don’t be afraid to ask questions Proactive client interaction Educate senior bankers and exceed expectations Pitfalls Presenting materials with mistakes or typos Waiting to get involved Failure to anticipate Not leveraging firm’s resources appropriately Getting lost in the detail and missing the big picture Insubstantial interaction with clients Does not properly delegate work Losing confidence under pressure Lack of attention to detail Lack of follow through Lack of involvement in recruiting and training activities 18

24 4. Why Citigroup?

25 Citigroup is the #2 Global M&A Advisor YTD
U.S. Europe Volume ($B) Rank 769.5 1 437.9 326.1 5 714.7 2 315.1 3 440.9 664.3 315.3 384.9 592.2 4 260.4 371.0 524.2 185.0 7 344.8 472.9 6 166.5 8 279.6 452.8 297.6 175.3 13 Source: Securities Data Company, Inc. Note: Data as of September 30, 2006, based on rank date. 19

26 We Advised on 7 of the 10 Largest Deals YTD
Deal Size Companies $89 Billion $71 Billion $44 Billion $41 Billion $38 Billion Deal Size Companies $32 Billion $30 Billion $28 Billion $27 Billion $26 Billion Source: Securities Data Company, Inc. Data as of September 30, 2006, based on rank date. 20

27 We Have Advised on Many Landmark, Cross-Border Deals
Pending Advised on Mittal Steel’s proposed offer to acquire Arcelor US$43,632 mm January 2006 Pending Advised on Autostrade SpA’s merger of equals with Albertis Infraestructuras US$28,389 mm April 2006 Announced Cross-Border (2004–YTD 2006) Volume (US$bn) Pending Advised on NYSE’s proposed merger with Euronext US$10,203 mm May 2006 Completed Advised on Bavaria’s sale of a 71.8% stake owned by Santo Domingo to SABMiller US$5,227 mm July 2005 International (1) Client Advisory (2004–YTD 2006) Volume (US$bn) Completed Advised on G-TECH Holdings sale to Lottomatica SpA US$4,736 mm January 2006 Completed Advised on CNPC International’s acquisition of PetroKazahkstan US$3,957 mm August 2005 Source: Securities Data Company, Inc. (1) Advising a non-U.S. or non-European client in a cross-border transaction. M&A deals rank-eligible 2004-YTD 2006 (as of August 31st). 21

28 Citigroup’s Dominance in Capital Raising
Citigroup is a leading bookrunner in Global Capital Markets. C12 MONDAY, OCTOBER, 1, 2006 THE WALL STREET JOURNAL. R10 TUESDAY, JANUARY, 3, 2006 THE WALL STREET JOURNAL. SCORECARD OF WALL STREET UNDERWRITING: FIRST NINE MONTHS YEAR-END REVIEW OF MARKETS & FINANCE Global Stocks and Bonds Global Stocks and Bonds In the U.S. public, Rule 144a, domestic and international equity and Euro markets, ranked by first nine months proceeds. U.S. public, Rule 144a, domestic and international equity and euro-market issues, ranked by 2005 proceeds. Who's No. 1? Who's No. 1? Leading stock-and-bond underwriters, by volume, third-quarter 2006. Leading stock and bond underwriters, by 2005 proceeds. 22

29 So What Does This Mean For You?
$1,310,000,000 June 2006 Acquisition of Vincor International Advisor to Constellation Acquisition of American Household Inc. Buy-Side Advisor Acquisition Finance $890,000,000 January 2005 Acquisition by Constellation Brands Inc. Advisor to Mondavi $1,355,000,0000 December 2004 $4,400,000,000 September 2004 New Credit Facility in Connection with Acquisition of Grey Goose Joint Book-Runner €1,850,000,000 February 2006 Financing of Acquisition by Blackstone and Lion Capital Joint Book-Runner European Beverages 7.250% Senior Notes due 2016 Joint Book-Runner $700,000,000 July 2006 ¥18,200,000,000 July 2006 Sale of Tohato, Inc. to Yamazaki Baking Co, Ltd. Advisor to Unison Capital Partners $555,000,000 April 2004 Acquisition by GTCR Buy-Side Advisor Acquisition by GTCR Buy-Side Advisor $240,000,000 January 2004 $1,600,000,000 Pending Acquisition of FileNet Corporation Advisor to IBM $400,000,000 May 2006 Senior Notes Sole Bookrunning Manager $190,000,000 May 2006 Convertible Senior Subordinated Notes Sole Bookrunning Manager $600,000,000 January 2006 Senior Subordinated Notes Joint Bookrunning Manager $300,000,000 July 2004 Senior Notes Joint Bookrunning Manager 23

30 [TRADEMARK SIGNOFF: add the appropriate signoff for the relevant legal vehicle]
© 2006 Citigroup Global Markets Inc. Member SIPC. All rights reserved. CITIGROUP and the Umbrella Device are trademarks and service marks of Citigroup or its affiliates and are used and registered throughout the world. © 2006 Citigroup Global Markets Limited. Authorized and regulated by the Financial Services Authority. All rights reserved. CITIGROUP and the Umbrella Device are trademarks and service marks of Citigroup or its affiliates and are used and registered throughout the world. © 2006 [Name of Legal Vehicle] [Name of regulatory body]. All rights reserved. CITIGROUP and the Umbrella Device are trademarks and service marks of Citigroup or its affiliates and are used and registered throughout the world. 24


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