1. M & A Session at MDI Date 310110 --Due Diligence --Deal Structuring Manoj Mishra, CEO, Gen Next Business Consultants

2. Structure Recap of last session for due diligence and Deal structuring –Merger Motives and Drivers –Key Success Factors and contributors –Key aspects in M&A –Learning from International Researches Last sessions uncovered- –Indian examples and learning from each case –Other examples –Some Indian Deals

3. Merger Motives/ Drivers Growth stagnating in home market Accelerated Growth –revenue, price range, cost, mkt. share, reach, Mfg. reach Market Reach Competitiveness Buyer-Supplier power R&D/ Technology Product access, Cross selling Diversification Long term RM access De-risk Buy underperforming brands Tax savings Talent Pool Exit Asset Monetization

4. KSF & Success Contributors KSF Due diligence Integration Deal structuring cost of acquisition Profitable company Size which you can swallow Speed of integration Risk Mitigation Quick Turnaround Management Bandwidth War- chest: Funding, etc Contributors to Success Synergy Evaluation- 28% Selecting Mgmt Team 26% Integrating project planning 13% Internal/External Communication 13%

5. Some Key aspects Takeover-Acquisition, In-Out-CB acquisition Deal Phases– Pre-During and Post Deal Structuring- SPV, Subsidiary, Holding company, Takeover, Reverse Merger Deal Funding- LBO, Debt funding, Deferred Payout, Equity Swap Merger Motives/Drivers Good will/IP Valuation- Price, Brand, IP, Talent Due diligence scope-Mkt., Product, Legal, IT, Environment, HR, Taxes, Goodwill, IP Legal and Tax regulations Risk Synergy assessment (Economic, Buying power, Operations,Financial) Integration- HR/Cultural/Legal/Environment Degree of relatedness and speed of integration

6. Some Key aspects Timing of deal Agency problem – Manager and Stake holder White Knight, Platinum, Golden and Silver parachute Poison Pill Green mail– proposal to prohibit or restrict repurchase of stocks/company by any other e.g. sale only to Manager Competition Commissioner of India Strategic Fit- Success and divestments are proportional to degree of fit: –Related supplementary-similar product, new customer –Related complimentary-new product, similar customer) –Identical-similar product and customer –Unrelated-new product, new customer Integrative theory of M&A –Complimentary is proportional to success –Similarity attracts more resistance –Integration is most important for synergy realisation

7. Learning from International M&A researches Divestment in 20 yrs period— New Business Entry done through USA, n=2500) by Porter –Unrelated field74% –Start ups44% –JV46% Higher the % of Acquirer’s value to acquired, higher chances of divestment/ un-success (n=1103) Reasons for Divestments: –Change in Strategic Focus43% –Mistake/ Unprofitable22% –Sale to finance further acquisition thru leveraged restructuring29% Higher similarity =lower chances of divestment/un-success (n=271) ---86% success if highly related field acquisition Integration: –Market related integration reduces Financial Performance –Speed is proportional to success Serial M&A for face saving or Corp. strategist or Agency formation For better deals (Premium,Valuation, Payout, Deal Structure) M&A to be cold blooded Range of Association Hostile Tender offer-  Tender offer  Friendly Tender  Acquisition  Friendly Merger  Amalgmn

8. Few Indian Cases and Learning Sona-Thyssen- Growth, Integration, Synergy M&M-Systech- Inorganic accelerated growth, Integration BFL- Duel shoring, Growth-top line Amtek- Duel Shoring, New business entry Motherson Sumi- Top and Bottom line growth GE– Invest-Divest-New areas, diversify Tata Corus- Deal Heat, Gut feel, Global size aspiration, Long term vision Mico- Kill competitors Kingfisher-Air Deccan- LCC Entry and Kill competitor UB-Whitnet Scotch- Catch Them young, product range LNM– Global and Areclor-Mittal- Low cost acquisition RIL- preparing war chest Eicher-Volvo, PTL,Mphasis- Asset Monetisation Kinetic Mahindra- Low Entry gestation Ranbaxy-Daichi- Asset Monetisation, Diversification Rico auto- Global Reach, De-risk

9. Other Examples (## learning) Biocon M&M-Aircraft parts mfg Renault- Nissan Tata Docomo 2.7 Bn Vodafone-Essar Amtek-KTM castings Rs 1700 Crs M&M-VCST Belgium Gr Mfg 275 Mn Euro ONGC Videsh- Imperil Energy 2.8 Bn Bharti –MTN Sterlite-Asarco, US 1.7 Bn (Cash 1.1 Bn and Deferred Payout 9 yrs 0.6 Bn) ## Examples from Participants

10. Big Indian Deals Tata -Corus 12.7 Bn $ AB Nuvo-Novelis 6.1 Bn $ Ranbaxy -Terepia Romania 372 Mn $ Dr Reddy-Betaform Germany 571 Mn $ Tata Motors-JLR 2.4 Bn

11. Due diligence Objective: –Assess Legal/Techno/Economic/Cultural/Political/ Environmental/IP/Financial/Marketing/Supplier –Find data for base and help in valuation, deal structuring –Sources of value –Integration issues expected –Assess time-resources-strategy needed for integration and post integration –Restructuring & way ahead for combined entity –Strategic Fit assessment –Performance projections –Valuation –Synergy evaluation –Assets –Capabilities –Competencies –Business stats. –Fund requirement assessment –Data for Business Plan post merger –Divesture potential

12. Due diligence Scope: NPV of future cash flowsProfitAssetHuman Capital Network valuesMkt. SharePotential to expand CapacitiesCapabilitiesCompetencies IPBond valueGoodwill Expected synergy benefits to Acquirer and Target(80% goes to target) MIS & System Pitfalls: Serial M&A, Mgr. Hubris, Integration problem, Incomplete DD Legal issues: Corporate entityCapitalisationEnvironment Employee agrmt.IPTaxes Real estateConsent for Share transfer Employee benefitsLitigation (retirement plans/welfare/deferred benefit plans) Synergy evaluation: Production capacity sharing Knowledge sharing Umbrella branding of products Market channel sharing Resource sharing Network sharing

13. Due diligence Essentials of DD ThoroughnessIntegrityFocused ConclusiveExpose illegal/unethical/ineffective practices Examples of DD –Sona Thyssen –Renault selling AMC to Chrysler –Daimler aborting Nissan buy –Renault –Nissan alliance –Daimler-Chrysler acquisition –Kraft-Cadbury

14. Deal Structuring Financing Options: –Cash: 35% (Avg 20 Yrs) -----60%(1986) ----55%(1997) –Stock swap: 4015 35 –Combination –Debt: Normal, LBO –Pooling of interests (in proportion to shares value of joint entity) –Earn-outs-pay from future earnings to seller,exit when paid in full –ESOP– in case of employee buyout (borrow from lender, pay to mgmt) –Tax shelters –Government guarantees –Distributor/supplier/franchisee financing –Strip financing: When Manager and VC hold disproportionate equity Large deals—stock swap or combination to reduce burden--- better if cash due to low cost Consideration for option: TaxAccountingManagerial Control Financial return to share holderFree cash avl. Tax- If >50 % is in stock transfer, it is taken a sbusiness continuity thus no tax (e.g. 83Bn City-Traveller deal or 5.3 Bn UHC-Humana Deal –no tax)

15. Deal Structuring Why share swap: Cover over valuationLoss offset-tgt.with bidder PAT No cash outflowTax benefit to Target co. share holder Risk assurance of future cash-flows Can buy high value acquisitions with less funds Benefits: –For target– tax, cash, synergy, goodwill (premium) –For Acquirer: Depreciation, Losses accounting in consolidation of business post complete integration Tips for successful acquisition –Don't be white knight unless strategic(Nippon-Posco) – Keep cool, No deal heat –Keep low premium for Viability and Avoiding devaluation of acquirers stock –Keep low advisor fee –Debt and share swap reduce agency cost and improve efficiency –Seek Private company as target –Keep eye on accounting manipulation –Plan large post acquisition expenses –Keep debt at Manageable levels(##Tata Corus ) –Consider cash purchases if free cash is available

16. Tata Corus Example Tata #56 with 5.3 Mn Ton, 5 Bn $ sales Corus #9,18.2Mn Tons,18Bn $ sales Combined entity will be #5 globally, 27.7 Mn Ton with just 5 Mn gap to be #2 Tata preparing for 55 Mn ton by 2015 with organic/domestic and inorganic Strategic fit-Long term focus, Long growth cycle, R&D, Market Tata Group sales 2 Bn $ with 50 Bn $ assets EBIDTA Tata 30%, Corus 8%, Savings of 1300 Mn $ in 3 yrs to Corus, 2/5 mfg facilities sold Why Corus sold—High Debt 18Bn $,Low EBIDTA (626Mn PAT of 18.6Bn sales while Tata is 824mn$ PAT on 4.8Bn sales) Why Tata buy- Deintegration, R&D access, Mkt access, High end products, Size and scale, Speed of growth, Low value deal 1.2-1.4 Bn/Mn Ton new plant v/s acquired at 75- Mn $/Ton), Ready to meet global demand of 3.2 Tn Ton from 1.5 Tn now and 2.3 Tn in 2010 Price @9 multiple to EBIDTA of 2006 and 7 times of 2005 v/s Mittal- Arcelow 4.5-6 multiple EV/ton of Corus deal 710$/ton= Mittal-Arcelor Nippon-Posco has White night agreement CSN involvement – deal at 608pence v/s CSN 605 pence

17. Tata Corus Example Deal structure –12.5 Bn $-- 4.1 Bn equity, 9.4 Bn debt –All Cash, no equity SWAP –Refinancing of debt and cash available –Deferred payout of retiral benefits of 200Mn –Debt servicing @ 7% interest, is 1.5 Bn $/yr for 10 yrs(650 Mn $ interest and 10 yrs repayment) –25% combined EBIDTA expected will serve debt well –Additional funds for up-gradation –Funding by Tata sons through SPV –Tata Steel UK –Junk Bond debt to SPV –Tax breaks of approx 725 Mn $/yr –Current EBIDTA of Corus of 1.45 Bn to cover the payout need of interest and repayment –4.1 Bn equity funding by Tata—2.3 from TISCO reserve and balance 1.8 Bn from Tata sons through options like a) Tata sons equity b)TISCO borrowing but has own green field project need of 20 Bn $ c)TISCO diluting equity to Tata sons –Valuation- 710 Mn$/Mn Ton against 1100-1300 Mn $/Ton capacity 9* EBIDTA DCF @ 7% for 11 yrs payback D/E of 0.25 thus can be LBO or seek more debt Huge synergy benefits expected to raise combined EBIDTA to 25% Payout 12.5 Bn $ +200 Mn $ Debt transfer of 18Bn

18. M & A Session at MDI 170110 Manoj Mishra, CEO, Gen Next Business Consultants

19. Structure M&A Scenario- Indian and Global Merger Motives and Drivers Assessing performance of M&A Success Rates Key Success Factors and contributors Key aspects in M&A Learning from International Researches Indian examples and learning from each case Some Indian Deals Other examples Valuation methods-brief

20. Industry Verticals  Transportation –Automobile- OEM, Assembly/aggregates and Component manufacturer –Earth moving and construction equipments  Engineering, Metal & Infrastructure –Metal ( Ferrous-Non Ferrous) –Capital Goods, Machines –Consumer durable-home appliances –Infrastructure  Retail –Space design –Facility/fixture/infrastructure support –Franchisee support-identification (MBO/EBO), contract, setting up, Software & IT, Warehousing, Logistics support,  Energy, Oil and Gas –Energy audits and conservation –Downstream and retail operation establishing –Renewable energy (Solar, Wind, Thermal, Biomass, waste recycling) –CDMA, Carbon Credits –Bio fuel  Trading –LCC/ EEC, Global Sourcing ( In & Outbound), Export support, Global Foot print

21. Service domains  Business Strategy and Growth  New Business/ Plant establishment  Competitiveness Building, Performance excellence and monitoring  IT Consulting  Materials and Purchasing  Strategic HR and Support  Recruitments-CxO, Senior- Middle and Junior mgmt.  Business Intelligence and knowledge resource  Corporate Training  Wealth Management and Corporate Finance Advisory

22. Our Network and Locations India: GurgaonIndorePune Overseas:SingaporeMalaysia Opening soon:India: Chennai Overseas: DubaiKenya Hong Kong 1) Corporate Office Gen Next Business Consultants-Gurgaon 402, Ramses Tower, Omaxe The Nile, Sector 49, Sohna Road, Gurgaon(Haryana)122002 Phone-+91-124-6787003, Cell:+919899996287 Contact: Mr. Manoj Mishra Email- ceo@gennextconsultants.co.in gennextbv@yahoo.co.in manoj_mishra_ind@yahoo.com

23. Structure M&A Scenario- Indian and Global Merger Motives and Drivers Assessing performance of M&A Success Rates Key Success Factors and contributors Key aspects in M&A Learning from International Researches Indian examples and learning from each case Some Indian Deals Other examples Valuation methods-brief

24. M&A scenario-India Indian M&A stats 2003200420052006200720082009 Deals #87103158225676454267 Value, Bn$0.9101.2003.60020.30051.13110 Inbound, Bn$ 15.512.63.1 Outbound, Bn$ 32.813.21.1 Domestic, Bn $ 2.95.25.8 Sectors wise B/up-% 2009 IT/ITES7 Real estate8 Pharma10 Telecom18 Oil & Gas25 Others32

25. M&A scenario-Global Global M&A 2003200420052006200720082009 Deals #22765288843153430109303693800022000 Value, Bn$996144019082556282550002400 USA Bn$/# 1432/134591445/12156 Europe 1162/118721491/12863 Asia-Pacific 458/8935551/9340

26. Top 10 M&A Advisors and fees-2008 JP Morgqan818 Bn $ Goldman Sachs 755 Citi Group 671 Marril Lynch 580 UBS 576 Morgan Stanley 543 Deutche Bank503 Credit Suisse453 Barclays 273 Lazard 266

27. Merger Motives/ Drivers Growth stagnating in home market Accelerated Growth –revenue, price range, cost, mkt. share, reach, Mfg. reach Market Reach Competitiveness Buyer-Supplier power R&D/ Technology Product access, Cross selling Diversification Long term RM access De-risk Buy underperforming brands Tax savings Talent Pool Exit Asset Monetization

28. Assessing performance of M&A Share prices of acquirer Joint Mkt. Cap Combined revenue Combined PAT Combined EBIDTA Combined Market Share

29. Success Rates Overall 33% EU 47% US 49% Asia Pacific 39% Value errossion in few big ticket M&A 40 to 79% –Vodaphone-Mannesman 190Bn –AOL-Time Warner 160Bn –Worldcom-Sprint 100Bn –Daimler-Chrysler 38Bn –Deutche Telecom-Voice stream 51Bn –French Telecom-Orange 37Bn

30. KSF Low cost of acquisition Profitable company Size which you can swallow Speed of integration Risk Mitigation Quick Turnaround Management Bandwidth War- chest: Funding, etc Contributors to Success Synergy Evaluation- 28% Selecting Mgmt Team 26% Integrating project planning 13% Internal/External Communication 13%

31. Some Key aspects Takeover-Acquisition, In-Out-CB acquisition Deal Phases– Pre-During and Post Deal Structuring- SPV, Subsidiary, Holding company, Takeover, Reverse Merger Deal Funding- LBO, Debt funding, Deferred Payout, Equity Swap Merger Motives/Drivers Good will/IP Valuation- Price, Brand, IP, Talent Due diligence scope-Mkt., Product, Legal, IT, Environment, HR, Taxes, Goodwill, IP Legal and Tax regulations Risk Synergy assessment Integration- HR/Cultural/Legal/Environment

32. Some Key aspects Integration- HR/Cultural/Legal/Environment Insurance-Warranty-Liability Timing of deal Agency problem – Manager and Stake holder White Night, Platinum, Golden and Silver parachute Poison Pill Competition Commissioner of India HHI -Harbinder Index– Industry concentration, sum of square of market share of top 3, (In US, HHI of,1000 is perfect competition, 1000-1800 Oligopoly and.1800 is monopoly/ highly concentrated

33. Learning from International M&A HHI -Herfindhal Index– Industry concentration, sum of square of market share of top 3, (In US, HHI of,1000 is perfect competition, 1000-1800 Oligopoly and.1800 is monopoly/ highly concentrated Divestment stats-20 yrs period— New Business Entry done through  USA, n=2500) Porter –Unrelated field74% –Start ups44% –JV46% Strategic Fit- Success and divestments are proportional to degree of fit: –Related supplementary –Related complimentary –Identical –Unrelated

34. Learning from International M&A researches Higher the % of Acquirer’s value to acquired, higher chances of divestment/ un-success (n=1103) Reasons for Divestments: –Change in Strategic Focus43% –Mistake/ Unprofitable22% –Sale to finance further acquisition thru leveraged restructuring 29% Higher similarity =lower chances of divestment/un-success (n=271) ---86% success if highly related field acquisition Integration: –Market related integration reduces Financial Performance –Speed is proportional to success Serial M&A for face saving or Corp. strategist or Agency formation For better deals (Premium,Valuation, Payout, Deal Structure) M&A to be cold blooded Range of Association Hostile Tender offer-  Tender offer  Friendly Tender  Acquisition  Friendly Merger  Amalgmn

35. Few Indian Cases and Learnings Sona-Thyssen- Growth,Integration, Synnergy M&M-Systech- Inorganic accelerated growth, Integration BFL- Duel shoring, Growth-top line Amtek- Duel Shoring, New business entry Motherson Sumi- Top and Bottom line growth GE– Invest-Divest-New areas, diversify Tata Corus- Deal Heat, Gut feel Mico- Kill competitors Kingfisher-Air Deccan- LCcEntry and Kill competitor UB-Whitnet Scotch- Catch Them young, product range LNM– Global and Areclor-Mittal- Low cost acquisition RIL- preparing war chest Eicher-Volvo,PTL,Mphasis- Asset Monetisation Kinetic Mahindra- Low Entry gestation Ranbaxy-Daichi- Asset Monetisation, Diversification Rico auto- Global Reach, De-risk

36. Big Indian Deals Tata -Corus 12.7 Bn $ AB Nuvo-Novelis 6.1 Bn $ Ranbaxy -Terepia Romania 372 Mn $ Dr Reddy-Betaform Germany 571 Mn $ Tata Motors-JLR 2.4 Bn

37. Other Examples Biocon M&M-Aircraft parts mfg Renault- Nissan Tata Docomo 2.7 Bn Vodafone-Essar Amtek-KTM castings Rs 1700 Crs M&M-VCST Belgium Gr Mfg 275 Mn Euro ONGC Videsh- Imperil Energy 2.8 Bn Bharti –MTN Sterlite-Asarco, US 1.7 Bn (Cash 1.1 Bn and Deferred Payout 9 yrs 0.6 Bn)

38. Valuation methods for Payout DCF Mkt. based-competitors and bench mark co. Budget IRR Multiple of PE/BV/Revenue/EBIDTA