,Merger Integration,Table of contents,Executive Summary Our Understanding of Your Situation A.T. Kearneys Perspective on Merger Integration Proposed Overall Approach Realizing Integration Synergies Integration Management A.T. Kearney Qualifications,Executive Summary This section is tailored to the client situation and summarizes the approach proposed in the document,Our Understanding your Situation This section is tailored to the client situation and summarizes the key drivers of the merger. It should highlight relevant quantitative and qualitative analysis that demonstrate our insight into the clients particular challenges and drivers of success for the integration,A.T. Kearneys Perspective on Merger Integration,The best value-builders combine organic growth with mergers and acquisitions,Source: A.T. Kearney Monograph on Value-Building Growth 2001,Revenue Growth,Value Growth,Under performers,Profit Seekers,Simple Growers,Value Growers,Growth Matrix (CAGR 1988-2000),Value Growers Follow Conscious, Constant Process To Growth,Mergers and acquisitions are key growth drivers,What really matters in “acquisition for growth” strategies is execution,Source: A.T. Kearney Monograph on Value-Building Growth 2001,Sources of Growth,40% of Growth Is From Acquisitions,Value Growers Manage Both Well,Few mergers actually create shareholder value,Source: A.T. Kearney Analysis 2001, SDC database, Global Worldscope,Acquirers Value Growth Following a Merger,Top performing mergers create significant shareholder value,Value growth,3%,8%,12%,27%,21%,16%,3%,Underperformance compared to industry average,Overperformance compared to industry average,-100%,-60%,-30%,30%,60%,150%,-15%,15%,0%,Average: 2.8%,49.5%,50.5%,Top-Performing Mergers,10%,Business Integration issues require “usual” management decisions while four main factors add another level of considerable complexity,Scope,High number of decisions to be made in all operational and functional areas Dozens of projects/initiatives and risks to be managed,Time pressure,All stakeholders expect rapid execution (shareholders, employees, management, regulation committees, government,) Decisions need to be made without delay,Simultaneity,Co-existence of strategic, tactic and operational decisions Strong inter-dependence of the decisions Short term and strategic decisions may seem incompatible,Human component,High number of people potentially involved (operational, functional and executive people) Risk of cultural mismatch Scarce resources to bridge between merged companies, explaining why only few mergers and acquisitions succeed fully,Note: (1) Shareholder returns from buyer divided by shareholder returns (industry average) after the merger Sources : A.T. Kearney analysis, Global PMI Survey, 1998 ; Datastream,Higher,No change,Lower,100% = 230 companies,Only 29% of Companies Realize an Increase in Aggregate Profitability,Top performers across most industries can create significant shareholder value,Note: (1) Total shareholder returns percentage over/under performance relative to industry index in the timeframe between 3 months before and 24 months after merger announcement; total shareholder returns defined as the tangible returns investors receive through dividends and stock price appreciations Sources: Datastream; A.T. Kearney Analysis 2001,Retailers,62.5%,64.5%,32.3%,44.2%,26.6%,49.9%,34.2%,26.6%,36.1%,25.1%,16.0%,43.3%,26.0%,27.5%,17.2%,17.4%,31.9%,22.4%,18.0%,40.4%,17.4%,14.8%,4.0%,-6.5%,-31.5%,-38.9%,-10.8%,-25.9%,-11.0%,-35.0%,-20.6%,-17.6%,-28.8%,-18.0%,-9.7%,-39.6%,-22.7%,-24.9%,-17.4%,-20.3%,-35.3%,-26.7%,-24.1%,-46.8%,-26.5%,-27.2%,-19.4%,-24.1%,Recreation,Chemicals,Metal Producers,Paper,Transportation,Diversified,Drugs, Cosmetics & Health Care,Utilities,Automotive,Printing and Publishing,Electronics,Financial,Beverages,Metal Products Manufacture,Food,Tobacco,Machinery & Equipment,Electrical,Miscellaneous,Oil, Gas, Coal & Related Services,Construction,Textiles,Aerospace,Industry Specific Ranges of Value Creation(1),Once the deal is closed, the principal problems relate almost entirely to failures in merger management, rather than to the underlying strategic rationale,Problems Identified in Merger Integration,Under-communication,Financial/synergy Expectations Unrealistic/Unclear,New Org. Structure With Too Many Compromises,“Master Plan” Missing,Missing Momentum,Missing Top Management Commitment,Unclear Strategic Concept,Missing Pace of Project,IT Issues Addressed Too Late,Source: A.T. Kearneys Global Merger Integration Survey 1998,Percent of Respondents,To manage inherent risks, “critical success factors” can be distilled from successful large-scale mergers to guide value creation,Critical Success Factors from Large-Scale Mergers,Source: A.T. Kearney Merger Integration,Source: A.T. Kearneys global PMI survey 98,Value Capture of Top Performers Over Time,15%,Year 1,Year 2,Cumulative Value Capture After Two Years,