EURO TAKEOVERGROUP one: Euroland Bank

Table of Content

Background

Our Goal and Assumptions

Negotiation—White Knight

Negotiation—Target and Raider

Negotiation—LBO

Summary

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Background

HoogenFood N. V.

Alimentos Globales

S. A.

Lanza e Compagnia

Finance Mondiale

S. A.

EurolandBank

OmniGroup

Raider

LBOWhite knight

Our Goal and Assumptions

Assumptions

• Senior credit: a spread over 3.31%

Risk Control

• The lending amount of senior credit: <= 60% of enterprise value

• EBITDA coverage ratio: for senior debt: >=2.3x for total debt: >=1.6x

• The minimum credit rating acceptable: “B”

• The total debt we could lend: <= €4 billion

Profit Requirement

• Minimum pre- tax IRR: 6%

Goal: Finance most of the potential clients; Keep our business profitable; Control risk.

Approach

Client’s Needs

Transparent

Detailed

Competitive

Flexible

Negotiation--White Knight

IRR earning: should between 5.5%-6.5%

Big chance to win, try the best to make the deal.

Transaction value might reach €1,695 million

Estimated valuation of the food division: €1.3 billion, estimate the premium would be at least 30%

Negotiation Strategy

If still no agreement, offer the reservation price

Agree to provide lower interest, but ask for more revolver

White knight ask for lower interest

Give the initial offer (Second move advantage)

White knight make the first move

Conflict During the Negotiation

Based on our calculation, they are only between B and BB If they want more than €1.6 billion.

White Knight believes they are still BBB level

The range of the interest rate should be between 6.51% ~ 8.11%.

They think a lower interest rate should be given. 4% ~ 6% in anticipation

Negative bargaining zone

Financing structure

Interest rate: 6.5% (7.8% from initial)

Revolver :20%

Advisory fee: €18 Million

Final Offer

No Agreement Received.

Negotiation -- Target

Objective:1. Finance MBO, or;2. Become a deal maker.

Approach:Target: take chemical segment into private.Our offer: BBB bank loan; or become deal maker bringing more value

Result:Target sold the whole company instead.

Raider --Transaction Objectives

Adhere to Bank’s Overall Risk policies.

Boost Profitability through interest rate spread and fees.

Increase firm’s IRR.

Build bank’s reputation through participation.

Financing Criteria

Senior Credit – maximum 60% of Target’s enterprise value. Revolving Credit Senior Credit

Risk Control Interest Coverage Ratio

Senior Credit – minimum 2.3xAND

Overall Credit – minimum 1.6x Bank Credit Limit

Maximum of 10% of bank’s BV of Bank’s equity or €4 billion for a single deal.

Offer Response

Loan Amount EUR 3 Bn

Loan Type Amount ( EUR Mn) Pre-Tax (%) Post - Tax (%)Blended Cost of all Funds 3000 8.23 4.94

Revolving Loan 1000 6.92 4.15Senior Term Loan 1250 7.35 4.41

Subordinated Bonds 750 11.46 6.88

Fees

Commitment fees on Revolving Loan (% of commitment, per year) 1.25%Agency fees on Revolver and Senior Term Loan (% of outstandings) 1.75%Syndication fees on Revolver and Senior Term Loan (% of initial balance) 2.50%Advisory and other fees ( € millions) 10

Cost of Financing

Offer Response

Loan Amount EUR 1.25 Bn

Loan Type Amount (EUR Mn) Pre-Tax (%) Post - Tax (%)Blended Cost of all Funds 1250 6.58 3.95

Revolving Loan 500 5.25 3.15Senior Term Loan 500 5.47 3.28

Subordinated Bonds 250 11.46 6.88

Fees

Commitment fees on Revolving Loan (% of commitment, per year) 1.25%Agency fees on Revolver and Senior Term Loan (% of outstandings) 1.75%Syndication fees on Revolver and Senior Term Loan (% of initial balance) 2.50%Advisory and other fees ( € millions) 10

Cost of Financing

Final Offer - Calculations

LIBOR = 3.31%Revolving Loan spread over LIBOR (in basis points) = 480.0Term Loan spread over LIBOR (in basis points) = 540.0Amount of Revolving Loan (€ millions) € 1,072.50Amount of Senior Term Loan (€ millions) € 1,365.00Percentage of loans sold through syndication 80.0%Tax Rate 40.0%Commitment fees on Revolving Loan (as percent of commitment, per year) 1.25%Agency fees on Revolver and Senior Term Loan (as a percent of outstandings) 1.75%Syndication fees on Revolver and Senior Term Loan (as a percent of initial balance) 2.50%

Key Assumptions for Senior Bank Credits

AAA AA A BBB BB B CCC------------Non-investment Grade-----------

Key Industrial Financial Ratios (Three-year medians 2001-2003)Source: Standard & Poor's Corporation .

EBIT Interest coverage (x) 23.8 13.6 6.9 4.2 2.3 0.9 0.4

EBITDA Interest coverage (x) 25.3 17.1 9.4 5.9 3.1 1.6 0.9

Funds from operations/total debt (%) 167.8 77.5 43.2 34.6 20.0 10.1 2.9

Free operating cash flow/total debt (%) 104.1 41.1 25.4 16.9 7.9 2.6 (0.9)Total debt/ EBITDA (x) 0.2 1.1 1.7 2.4 3.8 5.6 7.4 Return on capital (%) 35.1 26.9 16.8 13.4 10.3 6.7 2.3 Total debt/capital (%) 6.2 34.8 39.8 45.6 57.2 74.2 101.2

Spread over LIBOR for Syndicate-Funded Fully-Secured Senior Revolving and Term Debt (quoted in basis points)Source: casewriter's estimates.

Term of 1 year or less 10.0 20.0 50.0 100.0 200.0 300.0Term of 2 years 11.0 22.0 55.0 110.0 220.0 330.0Term of 3 years 12.0 24.0 60.0 120.0 240.0 360.0Term of 4 years 14.0 28.0 70.0 140.0 280.0 420.0Term of 5 years 16.0 32.0 80.0 160.0 320.0 480.0Term of 6 years 17.0 34.0 85.0 170.0 340.0 510.0Term of 7 years 18.0 36.0 90.0 180.0 360.0 540.0

Credit Rating

-----------------------Investment Grade-------------------------

Transaction requirements

Total lending debt

Senior credit amount

Debt credit rating

EBITDA Coverage ratio

Pretax IRR

Bank’s criteria

Less than 4B

No more than €2.89B

Not lower than B

minimum 2.3 for senior credit , minimum 1.6 for total debt

Pretax IRR higher than 6%

Deal

3.25 B

2.43 B

B Senior credit, B subordinated debt

2.3 for senior credit, 1.6 for total debt

Pretax IRR is around 9.64%

Decision -- Raider

Good Deal ！

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Final Offer

Loan Amount EUR 3.25 Bn

Loan Type Amount (EUR Mn) Pre-Tax (%) Post - Tax (%)Blended Cost of all Funds 3250 9.6 5.76

Revolving Loan 1072.5 8.62 5.17Senior Term Loan 1365 9.26 5.55

Subordinated Bonds 812.5 11.46 6.88

Fees

Commitment fees on Revolving Loan (% of commitment, per year) 1.25%Agency fees on Revolver and Senior Term Loan (% of outstandings) 1.75%Syndication fees on Revolver and Senior Term Loan (% of initial balance) 2.50%Advisory and other fees ( € millions) 10

Cost of Financing

Outcome

Exclusive Agreement with Finance Mondiale NV

Provide Finance for €3.25 Billion

IRR (Pre-tax) : 9.64 %

ROA (Pre-tax) From Credits : 4.79% From Fees : 4.85%

Adobe Acrobat Document

Negotiation -- LBO

Whole company

Chemical segment

Food segment

2.Plans

1.Commitment letter

3.Negotiation on financing structure,

term, interest rate, payment schedule

Deal

• Takeover whole company• No strong will for segmentActual goal

• €2,977M to €3,429MTransaction value

• 25% revolver, 35% term loan• 20% subordinated debtFinancing structure

• 5 years for senior credit Term

• Roll interests to principle• Repay all fees, interests, principle when exit in 2009Payment schedule

Negotiation -- LBO

Original provisions

a. 6.51% for revolverb. 6.91% for term loanc. 1.25% Agency feed. 1.75% Commitment feee. 2.5% Syndication feef. €10M Advisory feeg. 5% Underwriting fee

Adjusted provisions

a. 6.85% for revolverb. 7.25% for term loanc. €38.6M- €44.4M Agency feed. 3.5% Commitment feee. 5% Syndication feef. €20M Advisory feeg. 10% Underwriting fee

Negotiation -- LBO

Senior credit: €1786 M to €2057M→ Credit rating BB

Subordinated debt:€595 to €686,Interest coverage ---1.6 to 1.8→ Credit rating B

Service contract

Interest rate AAA AA A BBB BB BTerm of 3 years 3.43% 3.55% 3.91% 4.51% 5.71% 6.91%Term of 4 years 3.45% 3.59% 4.01% 4.71% 6.11% 7.51%Term of 5 years 3.47% 3.63% 4.11% 4.91% 6.51% 8.11%Term of 6 years 3.48% 3.65% 4.16% 5.01% 6.71% 8.41%Term of 7 years 3.49% 3.67% 4.21% 5.11% 6.91% 8.71%

EBIT: 343.5AAA AA A BBB BB B

EBIT Interest coverage (x) 23.8 13.6 6.9 4.2 2.3 0.9 Interest limit 14.4 25.3 49.8 81.8 149.3 381.6DebtTerm of 3 years 420.7 711.4 1,273.1 1,813.3 2,615.3 5,522.9Term of 4 years 418.3 703.5 1,241.3 1,736.3 2,444.1 5,081.6Term of 5 years 415.9 695.7 1,211.1 1,665.5 2,293.9 4,705.7Term of 6 years 414.7 691.9 1,196.6 1,632.3 2,225.5 4,537.8Term of 7 years 413.5 688.1 1,182.4 1,600.3 2,161.1 4,381.5

Transaction requirements

Total lending debt

Senior credit amount

Debt credit rating

EBITDA Coverage ratio

Pretax IRR

Bank’s criteria

Less than 4B

No more than €2.89B

Not lower than B

minimum 2.3 for senior credit , minimum 1.6 for total debt

Pretax IRR is higher than 6%

Deal

2.4B to 2.7B

1.8B to 2.1B

BB Senior credit, B subordinated debt

2.7 to 3.1 for senior credit, 1.7 to 2 for total debt

Pretax IRR is around 11.3%

Negotiation -- LBO

Good Deal ！

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Result:

LBO

Raider

Dutch auction between our clientsOur business is guaranteed

Learning and Experience

Clear Objectives

Understanding Business Needs

People Skills

Approach

Thank you!

Group Member:

Ke LiKaushik ThosaniMengsu LiaoZhi LiYajing QiYanfang FanTing Wu