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Lecture 3 – Mergers & Acquisitions

1

Mergers & Acquisitions

Introduction to M&A

Global M&A Trends

Regional M&A Themes

M&A Regulatory Context

2


Lesson 3.1 – Introduction to M&A

3

Firm Growth & Range of Transactions

4

Bolt-on Acquisitions

(i.e.: within the realm of a company’s existing operations)

Alliances and Joint Ventures

Strategic Acquisitions

Business Strategy

Organic

Diversify or Expand the Business

Internal Investment: “make”

Restructure, Redeploy Assets, or

Exit from Business

Inorganic

Minority Investment

Outbound Joint Venture

Strategic Alliance

Contractual Relationship

Liquidate

Inbound JV

Sale of Minority Interest

Spin-off

Carve-out

Split-off

Tracking Stock

Divest

Financial Restructuring

LBO/go private

Third-party Sale

Total

Organic Growth

(i.e.: investing in technology, new products, new people)

Merger or Acquisition

Source: Bruner, Perella, 2004. Applied Mergers and Acquisitions. Wiley Finance: Ch. 6

M&A Strategic Objectives

Economies of Scale

In an acquisition of one company and a competitor, economies of scale can be achieved where the acquisition results in lower average manufacturing costs or by elimination of redundancies in the organization

Time to Market

A variant on economies of scale is extending a product line and/or enhancing a particular business function - for example, sales and marketing

Combination of Customer and Supplier

A company buys a supplier, or a supplier acquires a customer; e.g. in order to reduce the risk of dependence on an outside supplier or to eliminate the risk of price gouging

Product Line Diversification

Diversify a business into other areas to change its risk profile

Defensive Acquisitions

The acquirer may be facing a severe downturn in its business, and the acquisition will alleviate the cause of the severe downturn

New and Better Management

An acquirer may think it can enhance the value of an acquired business by replacing its management

Acquisition of a Control Premium

The rationale is based on the belief that the public trading markets misprice publicly held stocks because the value of the stock in the market is that of the individual holder who is not in a control position. Bidders may bid for companies simply to capture the control premium inherent in the stock, which they then can cash out by selling the control premium to another purchaser

5

Global M&A Waves

Global M&A Historical Trends Overview

Year Wave Description

1893

1904

First

Wave Horizontal mergers

1919

1929

Second

Wave Vertical mergers

1955

1973

Third

Wave

Diversified

conglomerate

1980

1990

Fourth

Wave

Hostile takeovers;

Junk bonds; LBO

1993

2000

Fifth

Wave

Mega-deals; Cross-

border mergers

2003

2008

Sixth

Wave

Shareholder Activism,

Private Equity, LBO

M&A Waves

“Mergers are an integral part of market capitalism and we have had a continuous wave of merger activity […]

since the evolution of the industrial economy in the latter part of the 19th Century.” (Lipton, 2006)

6 Source: Thomson SDC from 1980 through 1995; Dealogic, from 1996 through 2006; Mergermarket for 2007 and 2014 Note: M&A volumes refer to

announced deals.


Lesson 3.2 – Global M&A Trends

7

Inbound $512.2bn 54.3%

Outbound $269.0bn 27.6%

Pharma, Medical

& Biotech$215.9bn 85.2%



Energy, Mining

and Utilities

$142.6bn 50.7%



Consumer $13.7bn 57.2%



Pharma, Medical

& Biotech$14.6bn 2468.0%



Financial

Services

$13.7bn 340.8%



Pharma, Medical

& Biotech$296.9bn 28.8%

Total $4,280bn 30.4%

Energy, Mining

and Utilities$636.9bn 5.5%

^

^

^

2015 Regional M&A Volume Comparison

8 Source: Global and regional M&A: 2015 www.mergermarket.com.

* The % value on the map indicates the total value change from last year.

Global M&A

^

US

Europe

^

^

Asia-Pacific (excl. Japan)

^

^

^

Central and South America

^

Africa and Middle East Japan

^

^

v

^

^

40.6% US$1.97tn

52.3% US$62.5bn

US$1.10tn

(20.9)% US$47.3bn 43.7% US$927.8bn

US$61.6bn 91.6%

v

^

v

v

v

22.4%

http://www.mergermarket.com/

800.6

593.3

421.0

460.9

613.8

464.0

446.8

568.7

791.3

1,278.5

678.1

396.3

432.8

585.8

565.6

559.2

963.1

1,050.6

852.0

684.7

327.5

492.9

599.3

523.2

644.9

842.1

1,058.7

734.4

458.8

569.6

711.2

478.2

756.4

571.6

904.4

1,375.8

3,665.5

2,414.8

1,714.4

2,097.8

2,277.0

2,309.2

2,222.5

3,278.3

4,276.3

2007

2008

2009

2010

2011

2012

2013

2014

2015

Q1 Q2 Q3 Q4

673.7

380.3

333.8

242.4

407.1

224.1

223.9

792.8

636.9

574.6

516.5

496.4

474.8

422.5

260.1

894.6

Energy, Miningand Utilities

Pharma, Medicaland Biotech

Consumer

Financial Services

Industrial andChemicals

Technology

Telecommunication

Other

Global M&A Overview

9

2015 Global M&A Themes

Quarterly M&A Activity

Value of Deals (US$bn)

Sector Breakdown in 2015 vs. 2014

(US$bn) (1)

Private Equity Buyout and Exit Activity

2015 was a record year for global M&A with several regional records being broken, such as US and Asia posting their highest values, and some of the largest deal announcements. The

total value of M&A reached a record level in late-November 2015, after the announcement of the world’s third largest M&A transaction in history. Pfizer’s US$ 183.7bn purchase of

Allergan boosted total M&A values to US$ 4.28tn in 2015, 16.6% higher than the previous 2007 peak and 29.9% above 2014.

Despite a rise in interest rates, the war on terror, Gr/Brexit and upcoming US elections, the steam for dealmakers billowed particularly hard during Q2-Q4. For a third quarter in a row, Q4 2015

hit a value above US$ 1tn with transactions amounting to US$1.38tn, the highest valued quarter on record. The surge of activity during the last three quarters was the first of its

kind, with both 2006 and 2007 only posting one quarter above US$ 1tn.

With cash to spend, bank's continued appetite to lend, high board confidence and shareholders pushing for more M&A, deal values above US$ 50bn were abundant. There have only ever

been six transactions above US$ 100bn, two of which were announced in 2015 (Pfizer/Allergan, Ab InBev/SABMiller). There were a total of 10 transactions above US$ 50bn that

amounted to US$ 814.6bn, a lot higher than 2014’s US$ 245.9bn. As a result, these >US$ 50bn announcements contribute a record share toward global M&A at 19.0%, up from 10.4%

during the peak for in 2007.

Last year saw some high profile transformational deals across a variety of sectors. Seven industries have reached an all-time record value in 2015, driven by global as well as sector

specific influences. The sectors were Pharma, Medical & Biotech (US$ 574.6bn), Consumer (US$ 516.5bn), Technology (US$ 422.5bn), Business Services (US$ 238.3bn), Real Estate (US$

221.8bn), Transport (US$ 127.4bn) and Defence (US$ 15.7bn). Divestments and cost saving strategies in the Energy, Mining & Utilities sector led to it taking the highest market share by value at

14.9%.

20.6%

14.9%

11.6%

13.4%

10.2% 12.1%

7.4%

11.6%

12.4%

11.1%

6.8%

9.9%

6.8%

6.1%

24.2%

20.9%

Source: Global and regional M&A: 2015 www.mergermarket.com. Note: (1) % indicates market share.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0

100

200

300

400

500

600

700

800

900

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Deal c

ount

Valu

e o

f D

eals

(U

S$bn)

Buyout Value Exit Value

Buyout Deal Count Exit Deal Count


Deal

Value

(US$bn)

Ann.

Date

Bidder

Company

Bidder

Country

Target

Company

Target

Country

Target

Sector

Seller

Company

183.7 23-Nov-15 Pfizer Inc Allergan plc

120.3 11-Nov-15

Anheuser-

Busch

InBev NV

SABM iller Plc

81.2 08-Apr-15Royal Dutch

Shell P lcBG Group Plc

77.8 26-M ay-15

Charter

Communica

tions Inc

Time Warner Cable

Inc

77 11-Dec-15

E. I. du Pont

de Nemours

& Company

The Dow Chemical

Company

2015 2014 Company NameValue

(US$bn)

Deal

Count

Value

(US$bn)

% Value

change

1 1 Goldman Sachs 1,659.6 349 928.5 78.7%

2 3 M organ Stanley 1,340.5 329 677.2 97.9%

3 4 JPM organ 1,281.2 303 625.6 104.8%

4 2 Bank of America M errill Lynch 954.1 218 691.7 37.9%

5 5 Citi 787.3 222 605.1 30.1%

6 9 Credit Suisse 728.8 191 426.6 70.8%

7 7 Lazard 720.8 207 469.2 53.6%

8 6 Barclays 621.7 173 498.6 24.7%

9 8 Deutsche Bank 600.3 191 431.9 39.0%

10 14 Centerview Partners 482.3 35 152.7 215.8%

11 10 UBS Investment Bank 468.5 154 325.2 44.1%

12 45 Guggenheim Partners 356.6 24 27.2 1213.1%

13 35 M oelis & Company 327.3 102 46.5 604.1%

14 17 Evercore Partners 301.3 128 119.0 153.2%

15 11 Rothschild 296.5 280 234.2 26.6%

16 16 RBC Capital M arkets 227.9 113 128.4 77.5%

17 12 BNP Paribas 210.3 84 181.6 15.8%

18 82 Robey Warshaw 202.0 3 11.4 1669.8%

19 20 HSBC 185.8 68 99.3 87.1%

20 53 Allen & Company 157.1 18 21.7 623.0%

Ranking 2015 2014

Global M&A Overview (Cont’d)

10 Source: Global and regional M&A: 2015 www.mergermarket.com.

Top Deals League Table by Value

Industrials & Chemicals Consumer Energy, Mining &Utilities Pharma, Medical & Biotech


265.5

296.0

122.6

127.6

184.5

171.9

136.2

178.5

188.2

583.1

203.2

77.8

114.8

243.4

187.8

199.0

309.2

257.9

384.0

287.679.1

152.2

167.0

112.0

147.9

199.7

184.7

286.6

217.2

188.4

243.3

134.5

251.1

158.3

210.5

468.2

1,519.3

1,003.9

467.8

637.8

729.4

722.8

641.4

897.8

1,099.0

2007

2008

2009

2010

2011

2012

2013

2014

2015

Q1 Q2 Q3 Q4237.9

259.1

96.7

136.8

257.0

220.1

190.2

305.6

512.2

396.7

211.5

122.1

180.9

151.0

171.6

126.1

339.4

269.0

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

116.6

94.7

104.1

99.9

79.2

94.8

34.9

273.7

215.9

199.9

144.3

110.8

92.6

75.2

69.9

190.6

Pharma, Medicaland Biotech

Consumet

Energy, Miningand Utilities

Industrial andChemicals

Financial Services

Telecommunication

Technology

Other

Europe M&A Overview

11 Source: Global and regional M&A: 2015 www.mergermarket.com. Note: (1) % indicates market share.

2015 Europe M&A Themes

Quarterly M&A Activity

Value of Deals (US$bn)

Sector Breakdown in 2015 vs. 2014

(US$bn) (1)

Cross-border Analysis

Inbound and Outbound (Value of Deals US$bn)

Europe experienced a strong Q4 (1,360 deals worth US$ 468.2bn), representing the second highest quarterly deal value on record following Q2 2007 (1,746 deals, US$ 583.1bn). As a result,

2015 activity (US$ 1.10tn) reached its highest since 2007 (US$ 1.52tn), and was up 22.4% by value compared to 2014. Flagship deals - such as US-based Allergan’s US$ 183.7bn

acquisition of Ireland-based Pfizer and Anheuser-Busch InBev’s US$ 120.3bn acquisition of UK-based SAB Miller - dominated deal activity in Q4.

It was a record-breaking year for inbound activity targeting the region, with 1,230 deals worth US$ 512.2bn announced overtaking all annual deal values on record. There were

three mega-deals (>US$10bn) with a combined total of US$ 217.2bn announced during 2015, up 126.7% by value compared to the four deals worth US$ 95.8bn recorded in 2014, and the

highest annual value for this deal size bracket on record.

Stringent US tax laws as well as a weakened Euro drove US companies to invest in Europe, seen through the high profile Pfizer/ Allergan tax inversion deal accounting for 52.5%

of the US's investment into Europe in 2015. As a result, deal value from US companies targeting Europe reached US$ 350.0bn, up 61.2% by value compared to 2014 (US$

217.1bn).

The UK has attracted the lion’s share of investment within the region (1,370 deals, US$ 425.3bn), accounting for a 38.7% share in European dealmaking, up from 17.5%

in the previous year, and its highest share on record. Q4 deal value peaked at US$ 169.8bn, the UK’s highest quarterly deal value on record, bolstered by Anheuser Busch InBev’s US$

120.3bn acquisition of SAB Miller.

The devaluation of the Euro against the Dollar may have been one factor that held back European companies from investing abroad. Europe’s outbound activity (897 deals, US$

269.0bn) is still 27.6% behind Europe’s total 2014 deal value (998 deals, US$ 371.7bn).

13.0%

19.6%

10.5%

18.2%

11.6%

13.1%

11.1%

10.1%

8.8%

8.4%

10.6%

6.8%

3.9%

6.4%

30.5%

17.3% 842 D

eal

s

990 D

eal

s

768 D

eal

s

873 D

eal

s

493 D

eal

s

540 D

eal

s

786 D

eal

s

757 D

eal

s

947 D

eal

s

837 D

eal

s

944 D

eal

s

813 D

eal

s

1,0

01 D

eal

s

823 D

eal

s

1,0

70 D

eal

s

847 D

eal

s


2015 2014 Company NameValue

(US$m)

Deal

Count

Value

(US$m)

% Value

change

1 1 Goldman Sachs 719,915 143 475,475 51.4%

2 2 JPM organ 665,210 133 382,506 73.9%

3 3 M organ Stanley 598,301 124 358,611 66.8%

4 4 Bank of America M errill Lynch 434,963 96 327,275 32.9%

5 6 Lazard 330,289 131 279,094 18.3%

6 5 Deutsche Bank 305,385 87 280,286 9.0%

7 11 Barclays 299,491 83 168,020 78.2%

8 35 Guggenheim Partners 231,532 6 17,666 1210.0%

9 9 Rothschild 226,239 242 202,626 11.7%

10 68 M oelis & Company 215,802 25 6,426 3258.0%

11 48 Robey Warshaw 202,038 3 11,416 1670.0%

12 18 Centerview Partners 199,840 9 74,711 167.5%

13 10 BNP Paribas 198,821 68 169,944 17.0%

14 8 Credit Suisse 177,169 67 247,943 (28.5)%

15 7 Citi 170,440 101 255,523 (33.3)%

16 13 UBS Investment Bank 126,839 68 131,173 (3.3)%

17 142 Standard Bank Group 125,507 7 1,128 11027.0%

18 12 Perella Weinberg Partners 82,906 12 134,986 (38.6)%

19 16 HSBC 70,584 39 80,771 (12.6)%

20 21 Greenhill & Co 60,969 20 37,516 62.5%

Ranking 2015 2014Deal

Value

(US$bn)

Ann.

Date

Bidder

Company

Bidder

Country

Target

Company

Target

Country

Target

Sector

Seller

Company

183.7 23-Nov-15 Pfizer Inc Allergan plc

120.3 11-Nov-15

Anheuser-

Busch

InBev Plc

SABM iller Plc

81.2 08-Apr-15Royal Dutch

ShellBG Group Plc

19 05-M ay-15BT Group

plcEE Limited

Orange SA; and

Deutsche

Telekom AG

18.2 02-Nov-15 Visa Inc Visa Europe Ltd

HSBC; Lloyd's

Banking Group;

Barclays; Royal

Bank of

Scotland Group;

Worldpay Ltd;

and PKO BP SA

Europe M&A Overview (Cont’d)

12

Top Deals League Table by Value

Source: Global and regional M&A: 2015 www.mergermarket.com.

Consumer Energy, Mining &Utilities Financial Services Pharma, Medical & Biotech Telecommunications


EMEA M&A Activity

13

37.4%

47.8%

38.0% 36.9%

54.8% 50.0% 50.2% 49.1%

42.3% 47.1%

58.8%

46.6% 46.6% 49.9%

42.6%

55.3%

13.3%

11.2%

16.7% 17.9%

9.6% 15.6%

12.5%

6.5%

7.5%

8.9%

6.8%

7.3% 6.2%

6.2%

10.4%

10.3% 13.4%

9.3% 14.5% 15.0%

9.9% 6.5% 10.7%

4.1%

7.1%

10.7%

6.3%

10.1%

3.3%

15.4%

12.2%

7.1%

35.9% 31.6% 30.8% 30.3%

25.7% 27.9% 26.6%

40.2% 43.2%

33.2% 28.1%

36.0%

43.9%

28.5%

34.8%

27.4%

651

566 556 778

1,062

1,482

1,607

1,056

499

694

770

776

705

959

1,146

728

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016YTD

Cash Stock Cash&Stock Not Disclosed Total Volume

‘01 – ‘16 YTD M&A Volume by Financing Source ($bn)

Source: Thomson Reuters and Mergermarket as of 27 September 2016.

EMEA M&A Activity (Cont’d)

14

‘01 – ‘16 YTD M&A Volume Domestic vs. Cross-border Transactions ($bn)

‘01 – ‘16 YTD M&A Volume Friendly vs. Hostile Transactions ($bn)

61.2% 66.9% 75.4%

60.8% 47.5%

59.0% 50.0%

62.4% 63.9%

33.5% 32.7% 41.5% 37.0%

22.9% 15.2% 20.2%

38.8% 33.1% 24.6%

39.2% 52.5%

41.0% 50.0%

37.6% 36.1%

66.5% 67.3% 58.5% 63.0%

77.1% 84.8% 79.8%

651

566 556

778 1,062

1,482

1,607

1,056

499

694 770 776

705

959

1,146

728

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016YTD

Domestic Corss-border Total Volume

98.5% 98.3% 98.4%

91.2%

98.4% 98.1%

94.7%

99.6% 99.7% 100.0% 99.8% 100.0% 99.7% 99.1% 99.9% 98.5%

1.5% 1.7% 1.6%

8.8%

1.6% 1.9% 5.3%

0.4% 0.3% 0.0% 0.2% 0.0% 0.3% 0.9% 0.1% 1.5%

651 566 556

778

1,062 1,482 1,607 1,056

499

694

770 776 705 959

1,146

728

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016YTD

Friendly Hostile Total Volume


Southern Europe(1) M&A Activity - Overview

15 Source: Thomson Reuters and Mergermarket as of 27 September 2016. Notes: (1) Including: Greece, Italy, Portugal and Spain

38.557.6

35.8 30.5

80.2

151.8

255.8

92.9

39.562.6 61.4

36.6 49.869.1 67.1

50.2

12.417.4

23.92.2

31.6

70.2

26.0

15.0

4.3

10.2 16.8

6.5

22.35.5 16.2

23.14.82.3 28.9

29.1

5.1

2.0

11.6

4.5

3.3

29.4 20.5

2.01.5

17.3 9.5

0.756.5

34.844.6 88.4

148.5

157.2

214.1

112.6

53.3

81.561.4 176.7

50.2

72.6 75.1

15.9

112.2 112.2

133.1150.2

265.3

381.2

507.5

225.1

100.4

183.7

160.1

221.9

123.8

164.5 167.9

89.9

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016YTD

Cash Stock Cash&Stock Not Disclosed


Southern Europe(1) M&A Activity - Overview (Cont’d)

16


49.4 60.493.3

64.7 57.5

185.6

142.7

85.9

43.0 56.8 64.4

154.5

31.2 22.3 35.7 29.2

62.7 51.7

39.8 85.5

207.8

195.6

364.8

139.1

57.3

126.995.7

67.4

92.6142.3

132.2

60.7

112.2 112.2

133.1150.2

265.3

381.2

507.5

225.1

100.4

183.7

160.1

221.9

123.8

164.5167.9

89.9

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016YTD

Domestic Corss-border

Source: Thomson Reuters and Mergermarket as of 27 September 2016. Notes: (1) Including: Greece, Italy, Portugal and Spain

Italy M&A Activity - Overview (Cont’d)

17


34.7 40.0

65.350.7

32.0

85.9 87.6

26.0 21.3 16.327.6 23.0 17.7

5.319.9 16.2

26.028.7

22.7

23.3

96.6

64.7

159.2

50.6

17.538.0

35.8

27.8 32.547.1

62.0

25.5

60.7

68.7

88.0

74.0

128.7

150.7

246.8

76.6

38.8

54.3

63.4

50.8 50.2 52.4

81.9

41.7

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016YTD

Domestic Corss-border


Italy M&A Activity - Overview

18

21.6

37.723.0

6.7

35.150.4

113.3

29.818.9

9.4 22.3 19.2 18.2 13.2

23.3 21.5

10.9

11.2

14.8

1.7

27.8

57.1

13.8

1.7

2.57.1

3.12.7 7.9

0.7

7.414.8

1.4

0.128.6

28.8

3.6

1.8

0.7

0.5

1.824.6

18.50.3 0.2

14.9

0.70.5

26.8

19.8

21.6

36.7

62.1

41.4

119.0

44.7

15.6

13.319.5

28.6 23.9 23.6

50.5

4.9

60.768.7

88.0

74.0

128.7

150.7

246.8

76.6

38.8

54.3

63.4

50.8 50.252.4

81.9

41.7

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016YTD

Cash Stock Cash&Stock Not Disclosed



Italy M&A – Key Themes

19

Italian M&A reached a post-crisis high during 2015 with 432 deals worth $81.9bn announced, a 156% increase by value

compared to 2014 ($52.4bn, 413 deals)

As a result, Italy took a 7.5% share of total M&A activity across Europe, up from 5.8% in 2014. The recent economic reforms

carried out by Italian Prime Minister Matteo Renzi have increased foreign investor confidence, with inbound dealmaking reaching 212

deals worth $54bn, both the highest deal value and count on Mergermarket record (since 2001)

This all-time high was driven by US and Asian investors, with 2015 recording the highest level of US inbound activity on

record with 49 deals worth $12bn announced. US investments included a record four deals from above $1bn, up from just one

acquisition during 2014

Dealmaking by Asian bidders also reached its highest level on record, amounting to $17bn with 26 deals. Unlike US investment

which saw a spread of deals, the majority of the deal value consisted of the acquisition of Pirelli & C. by China-based China National Chemical

Corporation and Italy-based Camfin SpA for €8.1bn, accounting for ca. 65% of the total Asia’s inbound M&A activity into the country

Energy, Mining & Utilities came in third position by value, with 31 deals worth $10bn announced, representing an 12% share

of total M&A activity targeting the country, up from 5% in 2014. According to Mergermarket Intelligence, the recent growth of the

renewable energy sector within the European Union has been followed by favorable reforms in the area, paving the way for more

consolidation. The top deal within this sector during 2015 was the €3.2bn acquisition of 30.8% stake of Enel Green Power SpA by Enel SpA.

The most targeted sector during 2015 was Industrials & Chemicals (€29bn, 134 deals), which achieved an all-time high both

in deal value and count

This was followed by Telecommunications with two deals worth $16bn representing the highest annual deal value since

2010 ($22bn, four deals). The majority of this total was taken up by the highest valued Italian deal of the year - the €10.9bn joint venture

between 3 Italia and Wind Telecomunicazioni announced in August, part of a global trend currently taking place within the sector as

companies increasingly consolidate in an attempt to cut costs

Despite outbound activity ($17bn, 94 deals) seeing a 34% drop in value compared to 2014 ($26bn, 78 deals), it amounted to

16 more deals. The €6.7bn acquisition of PartnerRe, the US-listed company that provides multiline reinsurance to insurance companies, by

Exor, the listed Italian investment vehicle of the Agnelli family, was the highest valued outbound deal of the year - accounting for 55% of total

Italian outbound activity

Italy M&A – Key Themes (Cont’d)

20

Domestic activity experienced a resurgence in dealmaking with 229 deals worth $30bn marking the highest annual value

since 2010 ($38bn, 178 deals). This followed a lacklustre 2014, where a significant 209 deals totalling only €11bn marked the lowest annual

deal value on record. Deal activity was heavily influence by the previously mentioned €10.9bn joint venture between 3 Italia and Wind

Telecomunicazioni, accounting for 50% of overall domestic deal value

Goldman Sachs ranked first on the financial advisor league table by value, advising on $41bn-worth of deals, increasing its

position by eight places compared to 2014. Having advised on 40 deals valued at $18bn, Unicredit Group topped the financial advisor league

table by deal count

Freshfields Bruckhaus Deringer led the legal advisor tables by value reaching $28bn-worth of deals for 17 transactions. Italian legal advisors

accounted for the top seven positions on the legal advisor table by deal count, with Chiomenti Studio Legale ranking first

having advised on 54 deals valued at $22bn

Emerging Markets M&A Activity - Overview

21

32.8%

37.5%

34.2%

40.5% 51.1% 41.6%

46.5%

37.5%

37.5% 36.3%

48.6% 53.6% 50.4%

44.0% 46.3%

49.2%

15.5%

15.0%

16.8%

8.4% 16.4%

10.2%

14.1%

18.2%

20.1% 15.5%

14.2% 7.8% 11.2%

10.0% 18.7%

14.7%

14.0%

3.2%

10.4% 6.5%

4.7%

11.4%

5.1% 8.9%

4.8% 4.9% 3.7%

7.9% 3.7%

11.1% 9.2% 7.6%

165 161

166

181

361

496 452

389

329

503

481 525 511

647

1,326

809

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016YTD

Cash Stock Cash&Stock Total Volume



Emerging Markets M&A Activity – Overview (Cont’d)

22


‘01 – ‘16 YTD M&A Volume Friendly vs Hostile Transactions ($bn)

57.4% 62.9% 64.1% 44.0% 50.1% 45.2% 55.4% 54.1% 68.2%

57.4% 52.8% 54.6% 61.0% 64.6% 69.7% 66.0%

6.7% 9.9% 8.7% 8.6% 10.7% 11.6% 12.3% 15.1% 11.0%

52.4% 58.9%

56.1% 49.1% 42.4%

37.6% 41.1%

165

161 166 181

361 496 452

389

329

503 481 525 511

647

1,326

809

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016YTD

Domestic Corss-border Total Volume

100.0% 100.0% 100.0% 100.0%

99.5%

96.3% 100.0% 99.6% 100.0%

100.0% 99.9% 100.0% 100.0% 98.9% 100.0% 100.0%

0.0% 0.0% 0.0% 0.0% 0.5% 3.7% 0.0% 0.4% 0.0% 0.0% 0.1% 0.0% 0.0% 1.1% 0.0% 0.0%

165 161 166 181

361

496

452 389

329

503

481 525 511

647

1,326

809

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016YTD

Friendly Hostile Total Volume


Emerging Giants’ Approach to M&A

23

Traditional

Approach to M&A

Emerging Giants’

Approach to M&A

Rationale

The aim of a takeover is usually to lower costs,

though some companies use acquisitions to

obtain technologies, enter niches, or break into

new countries.

The aim is to obtain new technologies, brands,

and consumers in foreign countries.

Synergy Levels

The acquirer and the acquisition usually have

the same business model. Even when a company

takes over a startup, the approach to market is

the same.

The acquirer is often a low cost commodity

player, while the acquisition is a value added

branded-products company.

Integration

Speed

The buyer makes several changes in the

acquisition soon after the takeover. It slows the

quest for synergies thereafter.

Integration is slow-moving at first. After a while,

the buyer starts pulling the acquisition closer.

Organizational

Fallout

High executive turnover and head-count

reduction are likely at first. Culture clashes

occur and productivity declines, but things

settle down over time.

Little interference, executive turnover, or head-

count reduction occurs right after the

acquisition. Although it’s too soon to tell as of

now, tensions could simmer over the long run

and blow up.

Goals The buyer has clear short term aims but may

not have thought through long-term goals.

The acquirer’s short-term objectives may be

fuzzy, but its long-term vision for the acquisition

is clear.

Source: Nirmalya Kumar, 2009. How Emerging Giants Are Rewriting the Rules of M&A. Harvard Business Review


Lesson 3.3 – M&A Regulatory Context

24

M&A Regulatory Context

Corporate Governance

Tender Offer Rules

Bankruptcy Procedures

25

M&A Approval Process

26

Board of Directors

Shareholder General Meeting

Regulatory Approval

(e.g. Antitrust)

Signing of

Merger

Agreement

Closing

• Shareholder Approval

• Proxy Voting

Source: Miller, E.L.J., 2008. Mergers and Acquisitions: A Step-by-Step Legal and Practical Guide. Wiley, Ch.1

Corporate Governance in M&A

Fiduciary Duties of the Board of Directors (US)

27

First Standard of Review: Business Judgment Rule

Duty of Loyalty: directors are required to make decisions in the interest of shareholders

and avoid conflicts with other parties (US case: Guth vs. Loft)

Duty of Care: directors have to be well informed and diligent in considering all aspects of

issues before them, including relevant materials and the opinions of advisers (US case:

Smith vs. Van Gorkom)

Second Standard of Review: Enhanced Scrutiny

In certain instances (such as hostile tender offers and auctions) some business problems

may warrant a higher level of scrutiny - two tests (US case: Unocal Corporation vs. Mesa

Petroleum Co.)

Third Standard of Review: Entire Fairness

The highest level of court intervention occurs when an actual conflict of interest affects a

majority of directors approving a transaction. The directors must show that the

challenged action was entirely fair to the corporation and its shareholders: fair in terms of

fair dealing and fair price (US case: Weinberger v. UOP Inc.)

The possible need to establish entire fairness motivates boards to obtain fairness opinions

from competent outside experts

Corporate Governance in M&A

Fiduciary Duties of the Board of Directors (Italy)

28

Duty of managing the company with diligence and to be properly informed

Directors’ duty to disclose their interests in individual transactions

Duty to pursue the company’s purposes

Business Judgment Rule : In general, directors cannot be held liable for losses or

damages resulting from business decisions when such decisions do not also constitute

a violation of any of the directors’ obligations.

Securities Law and Takeover Regulation

29 Source: Bruner, 2004. Applied Mergers and Acquisitions. Wiley Finance: chapter 27

US European Union UK

Form Legislation and SEC rules;

case law

“Directives” yet to be implemented

uniformly by member states

“City Code” that does not have the

force of law

Authority Congress, SEC, states, courts European Commission and E.U.

member states

Panel on Takeovers and Mergers

Aim Fairness; market efficiency

Flexibility, certainty, speed

Equity for

Shareholders

All shareholders of same

class must be treated similarly

by buyer

All shareholders of same class must

be treated similarly by buyer

All shareholders of same class must

be treated similarly by buyer

“Oppression of minority is

wholly unacceptable”

Disclosure Full disclosure by published

proxy/prospectus

Full disclosure by published

proxy/prospectus

Full disclosure by published

proxy/prospectus

Insider Trading Prohibited Prohibited Prohibited

Merger Approved by

Target Shareholders

51% unless bylaws or state law

require more

66% 51%

Employee

Rights Protected

No Yes Not specified

Fairness

Opinion Obtained

Yes, in response to case law Yes, by directive Yes, if a valuation is given in

connection with an offer

Shareholders have

Appraisal Rights?

Yes, under Delaware and other

states’ law

Securities Law and Takeover Regulation (Cont’d)


US European Union UK

Time to evaluate a

Tender Offer

20 business days 2–10 weeks 21 days

Must be

Fully Financed?

Not required Yes Yes

Right of Selling

Shareholders to

Withdrawn Shares

form Tender?

Yes Yes Yes

Mandatory Bid for

all Shares?

No Yes Yes, if acquire 30%+ of

voting rights

Restrictions on Target None, within bounds of directors’

duties of loyalty, care, and the

enhanced business judgment rule

(Revlon duties)

Target can seek alternative bids, but

can take no other actions to frustrate

the tender offer

Target cannot issue new shares or sell

assets

Restrictions on Buyer None If offering illiquid securities, must

offer a cash alternative

Must offer to all shareholders the

highest price paid to any

Must offer cash or cash alternative to

a securities-based bid

Target Board Duties of loyalty, care and enhanced

business judgment

Not specified Must opine on the offer

Must act only in the interest of

shareholders as a whole

International Comparison of Securities Law and M&A

Reasonable similarity in corporate disclosure obligations and shareholder rights

One important difference is in employee rights

In the European Union, employees retain protections against layoffs and restructurings

In the U.S., there are few such protections

Other important difference is in treatment of minority shareholders in a takeover

In the U.S., the standard practice is to conduct a two-step strategy in which the buyer acquires voting control, and then completes a full merger with the target through a freeze-out of remaining target shareholders (typically this leaves the minority with shares in the buyer, or other securities)

The EU and UK require a full mandatory bid which leaves no minority (these countries prohibit a two-step transaction)

A different approach is defined also for the takeover defense measures

The target in the U.S. is permitted a wide range of evasive maneuvers including asset sales, recapitalization, and restructuring

In the EU and UK, a target may seek alternative bids from other firms, but otherwise may take no other actions to frustrate the bid


Disclosure Thresholds under Italian Law

32

Actual Shareholdings (“Partecipazioni Rilevanti”)

Ownership of the company’s share capital represented by voting shares

Shareholders are required to disclose shareholdings when exceed 2% or when reach or exceed 5%, 10%, 15%, 20%, 25%, 30%, 35%,

40%, 45%, 50%, 66.6%, 75%, 90% and 95% of the company’s voting share capital

Disclosure is required also when shareholdings are reduced below the thresholds indicated above

Potential Shareholdings (“Partecipazioni Potenziali”)

Potential ownership of the company’s share capital represented by financial instruments or agreements that give the holder, upon his

exclusive initiative by virtue of a legally binding agreement, the unconditional right, or the discretion, to purchase the underlying shares

(instruments / agreements with physical delivery)

Disclosure required when potential holding reaches, exceeds or falls below the 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% thresholds

Consolidated Long Position (“Posizione Lunga Complessiva”)

Consolidated long position is equal to the sum of: i) actual shareholdings, ii) potential shareholdings (instruments / agreements physically

settled) and iii) all cash settled derivatives (to the extent underlying shares represent more than 2% of the company voting capital)

Disclosure required when potential holding exceeds or falls below the 10%, 20%, 30%, and 50% thresholds

Under Italian law, different disclosure thresholds apply for actual and potential shareholdings and consolidated long positions in Italian listed

companies

Disclosure needs to be provided to Consob (Italian Stock Exchange regulator) and the issuer within 5 business days after reaching,

exceeding or falling below the relevant threshold, as applicable

The review of the relevant scenario with the support of a legal counsel is advisable

Relevant Disclosure Thresholds

Disclosure Thresholds under Italian Law (Cont’d)

33

Additional disclosure requirements exist for “relevant parties” under the internal dealing regulation

The definition of “relevant parties” includes, among others, a shareholder holding 10% or more of the voting

share capital of a listed company and any shareholder deemed in control of the company, irrespective of its

voting shares ownership

“Relevant” parties are required to disclose to Consob any acquisition, sale, subscription or swap of shares or

financial instruments linked to shares (e.g. derivative instruments, convertible bonds) within the 15th day of

the month following the one when shares were bought, sold, subscribed or swapped, as applicable

Internal Dealing Disclosure Requirements

Tender Offer Rules in Italy

A voluntary public takeover offer is the most frequent, whereby a bidder offers to acquire all

the target's securities that are not already held by that bidder. Alternatively, subject to certain

conditions, the takeover offer may be aimed at purchasing at least 60% of the target's

securities with voting power

A bidder can also acquire a controlling interest in the target company. Once the bidder has

purchased more than 30% of the target's securities, a mandatory public offer must be made to

acquire all of the target's remaining securities

The mandatory public offer rules do not apply if voting power is below 30% after an

acquisition, although other rules, such as the requirement to declare substantial shareholdings,

do apply

34

Method and Types of Takeover in Italy:

Source: Legislative decree no. 58 of 24 February 1998 – Consolidated Law on Finance (Testo unico delle disposizioni in materia di intermediazione

finanziaria) and Consob Regulation concerning the regulation of issuers

Tender Offer Rules in Italy: Mandatory Public Offer

Mandatory Public Offer Triggers:

A public offer must be made by any person who has acquired securities of an Italian listed company

whereby it:

Increases its voting power to more than 30% of the target's securities

Holds more than 30%, but less than 50%, of the target's securities and increases its voting power by

more than 3% over a twelve-month period

If certain conditions for offers concur at least 60% of each class of the securities of the target are not

met (see next slide “voluntary public offers”)

Exemptions from Mandatory Offers:

One or more security holders collectively exercise the majority voting rights at an ordinary shareholders’

meeting of the target

The threshold is exceeded because of the transfer of securities among related entities

The threshold is exceeded as a consequence of the exercise of pre-emptive or conversion rights

The threshold is exceeded as a result of subscribing capital increases after notifying both CONSOB and the

market that these are aimed at rescuing a company in financial crisis

The triggering threshold is exceeded as a result of mergers or demergers, approved by the shareholders of

the target company on the basis of actual, justified industrial needs

The 30% threshold is exceeded by no more than 3% and the acquirer undertakes to sell the excess

shareholding within 12 months without exercising voting rights on the excess securities

35 Source: Legislative decree no. 58 of 24 February 1998 – Consolidated Law on Finance (Testo unico delle disposizioni in materia di intermediazione


Tender Offer Rules in Italy: Voluntary Public Offer

Additional Exemption from Mandatory Offers

In addition to the exemptions from mandatory offers, the acquisition of more than

30% of the target's securities with voting power does not trigger the obligation to

launch a mandatory public offer if that threshold is exceeded as a result of a public

offer launched on 60% or more of the securities of each existing class of securities

with voting power of the target company (offerta pubblica di acquisto preventiva) and

other conditions are met:

The majority of the target company security holders have approved the public offer

(excluding the bidder and security holders who hold an absolute or relative majority

holding greater than 10% and persons acting in concert with the bidder)

The bidder (directly or indirectly and persons acting in concert) has not acquired a stake

representing more than 1% of the target company in the preceding 12 months (including

securities acquired under forward contracts maturing at a later date)

CONSOB confirms that a mandatory public offer need not be made after receiving

satisfactory evidence of compliance with the two preceding conditions



Tender Offer Rules in Italy:

Eliminating the Minority after a Takeover

The Right of Sell-out

This right is available to security holders where the bidder following a bid for all of the target company’s securities acquires not less than 95% of them. Under these circumstances and at the request of any security holder, the bidder must acquire his/her securities at a fair price

This right is also available to the holders of a company’s securities where a person holds more than 90% of the relevant securities and the same person has not floated the minimum amount of the same securities on a regulated market to ensure their regular trading, within 90 days of the end of the time allowed for acceptance of the bid. The security holders can require all the persons holding more than 90% of the relevant securities to purchase their securities at a fair price

Where the target company has issued more than one class of securities, the right of sellout can be exercised only in the class in respect of which the applicable 95% or 90% threshold has been reached

The price shall take the same form as the consideration offered in the bid or shall be in cash at the request of the security holder where:

the offer was mandatory; or

the offer was voluntary and the bidder reached or passed the threshold of 90% of the target company securities as a consequence of that offer

In any other circumstance, the price shall be set by CONSOB which will take into account the securities prices over the last six months and the consideration offered in the takeover bid



Tender Offer Rules in Italy:

Eliminating the Minority after a Takeover (Cont’d)

The Right of Squeeze-out

This right is available to the bidder following a bid made for all of the securities of the

target company and the bidder has acquired not less than 95% of them. The bidder has

the right to require all the holders of the remaining securities of the target company to

sell him/her those securities at a fair price

Where the target company has issued more than one class of securities, the right of sell-out can

be exercised only in the class in which the 95% threshold has been reached

If the bidder wishes to exercise the right of squeeze-out he/she shall do so within three months

of the end of the time allowed for acceptance of the bid and disclose in the offer document

his/her intention to exercise that right

The price shall take the same form as the consideration offered in the bid or shall be in cash at

the request of the security holder where:

The offer was mandatory; or

The offer was voluntary and the bidder reached or passed the threshold of 90% of the target

company securities as a consequence of that offer

In any other circumstance, the price shall be set by CONSOB which will take into account the

securities prices over the last six months and the consideration offered in the takeover bid



Bankruptcy Procedures in Italy:

The Ordinary Bankruptcy Proceedings (Fallimento) Voluntary or Involuntary (by creditors or public prosecutors) petition for bankruptcy

After the filing of a bankruptcy petition, a debtor loses control over its assets (debtor-not-

inpossession proceeding) and a bankruptcy court-appointed receiver administers the

proceeding under the supervision of the bankruptcy court, which also appoints a creditors’

committee (consisting of three to five creditors)

An Ordinary Bankruptcy Proceeding terminates with the distribution to the creditors of the

proceeds derived from liquidated bankruptcy estate assets and proceeds from any legal

actions, according to the order of priority imposed by law:

1. Secured claims (e.g., claims secured by a pledge or mortgage)

2. Administrative claims (e.g., claims due for the management of the bankruptcy and the continuation of

the enterprise)

3. Priority claims (e.g., claims for salaries, social security contributions and taxes)

4. Unsecured claims

5. Subordinated claims (e.g., equity and certain intercompany loans)

Alternative: Concordato Fallimentare. Can be proposed at any time by any party-in-interest,

except for the debtor. May encompass any kind of transaction to effectuate the liquidation of

a debtor (e.g., debt-equity swap, sale of assets, business assignments)

Special Liquidation Procedure for Financial Institution and Insurance Companies: Compulsory

Administrative Liquidation

39 Source: Manganelli, P., 2010. The Evolution of the Italian and U.S. Bankruptcy Systems—A Comparative Analysis. Journal Of Business & Technology

Law

Bankruptcy Procedures in Italy:

Extraordinary Administration

Can only be filed by an insolvent company meeting the specific requirements provided by

Italian law (either by Prodi-bis Law or by the Marzano Law)

Debtor not-in-possession proceeding: one or more extraordinary commissioners are

appointed by the Ministry of Economic Development to administer the proceeding and

manage the company’s business under the supervision of a designated judge and the Ministry

The extraordinary commissioner must file a reorganization plan to be implemented either

through a financial restructuring or an assets sale

The extraordinary commissioner may also propose a composition (similar to a plan of

reorganization) with creditors (i.e.: Concordato)

Creditors are divided into classes, subject to different treatments and to cram-down

The Concordato may expressly contemplate, among other things, mergers, business assignments, debt-

equity swap transactions, and issuance of securities for the reorganization of the debtor business

This instrument has been successfully used and modeled upon the Parmalat case for the first time


Law

Bankruptcy Procedures in the US

Chapter 7: Court-supervised liquidation proceeding (similar to Italian Fallimento)

Chapter 11: debtor-in-possession proceeding for the reorganization of commercial

enterprises and repayment of creditors through a court-approved plan of reorganization

Chapter 15: rules for cross-border insolvency proceedings

Chapter 11

Designed to preserve the going-concern value of business and allow a debtor to continue its

business while restructuring its debt and/or operations

Financial institutions are not eligible to file for Chapter 11 and are usually liquidated through

other federal or state wind-up laws

In Chapter 11, a debtor remains as a debtor in possession and continues to manage its own

business in the ordinary course, provided that any transaction made outside of the ordinary

course of business, any major settlement, or any payment on a pre-petition claim must be

approved by the bankruptcy court. A trustee is generally not appointed

A debtor in possession in Chapter 11 ultimately seeks to confirm a plan of reorganization

Prepackaged Plan of Reorganization: a potential debtor proposes, negotiates, and solicits votes

on a reorganization plan before the filing of a Chapter 11 petition


Law

Resources

Bower, J. L., 2001. Not All M&A Are Alike - and That Matters. Harvard Business

Review, March, p. 93

Bruner, 2004. Applied Mergers and Acquisitions. Wiley Finance: chapters 36, 26-29

Fleuriet, 2008. Investment banking explained, McGraw-Hill: chapters 14, 15

KPMG, March 2013. The Emerging Markets International Acquisition Tracker (EMIAT)

Kumar, N. ,2009. How Emerging Giants Are Rewriting the Rules of M&A. Harvard

Business Review

Liaw, 2011. The Business of Investment Banking: A Comprehensive Overview, Wiley:

chapter 7

Lipton, M., 2006. Merger Waves in the 19th, 20th and 21st Centuries. The Davies

Lecture, Osgoode Hall Law School, York University

Miller, E.L.J., 2008. Mergers and Acquisitions: A Step-by-Step Legal and Practical Guide.

Wiley

42

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