Joseph V. RizziMarch, 2013

2

Market Overview

Underlying Focus

Framework

Fin 70410 M&A Spring 2007

3

Market Overview

Underlying Focus

Framework

Fin 70410 M&A Spring 2007

4Fin 70410 M&A Spring 2007

0

2000

4000

6000

8000

10000

12000

Issuer Objectives Driven by the Market

1960’s and 1970’sThe Age of the Conglomerate

1980’s – The Age ofThe Financial Buyer

Early 90’s – Fixing The Mistakes

Mid 90’s – Age of the Strategic

Buyer

2000 – 2003 Correction

2004 - ?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

MaximumMarket Value

Potential ValueWith Internal Improvements

Current MarketValue

Internal Improvements External Improvementse.g. M&A

7

Tactical Strategic Financial

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 (3rd Party or Self)◦ Stock repurchase

8

Growth

Neg FCF

Winners

+/- FCF

Losers

+/- FCF

LBO

Pos FCF

Mar

ket

Gro

wth

ROE – KeMarket Position

+

-

> 1

< 1

MV/BV

9

PotentialPremium/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

Mean abnormal announcement returns

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5CAR