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Page 1: Bloomberg - 2011 M&a Outlook
Page 2: Bloomberg - 2011 M&a Outlook

Table of Contents * 1

Foreword ………………………………………………………………………………………02

Executive Summary ………………………………………………………………………03

2011 Global M&A Outlook ……………………………………………………………04

Private Equity Review ……………………………………………………………………10

Americas M&A Review …………………………………………………………………14

APAC M&A Review ……………………………………………………………………… 18

EMEA M&A Review ………………………………………………………………………22

The Year In Opinions …………………………………………………………….. 26

Page 3: Bloomberg - 2011 M&a Outlook

The 2011 M&A Outlook report is a compilation of key M&A activity statistics from various perspectives. The report presents in-depthdata on deal-making activity across a broad array of deal types, regions, and industry sectors.

Historical data cited in the report represents M&A transactions that Bloomberg was made aware of between January 1, 2010 andNovember 30, 2010. Aggregate M&A data is comprised of mergers, acquisitions, divestitures, spin-offs, debt-for-equity-swaps, jointventures, private placements of common equity and convertible securities, and the cash injection component of recapitalizationsaccording to Bloomberg standards. The announced total value represents the price paid, and not the value of individual companiesor their assets.

Bloomberg delivers real-time coverage of the M&A market around the world. We provide a global perspective and local insight intounique deal structures in various markets through a network of over 800 financial and legal advisory firms, ensuring an accuratereflection of key market trends. Our quarterly league table rankings are a leading benchmark for legal and financial advisoryperformance, and our DealSpace and Brief newsletters provide daily and weekly summaries of M&A activity.

Visit NI BRIEF<GO> or NI DEALSPACE<GO> or NI LEAG CRL<GO> on the Bloomberg Professional to download copies of the reportand a full range of market-specific league tables. Visit MA <GO> and PE <GO> for related data and functionality.

Edited By: Uvarshanie Nandram, Mariana Trindade, Iyan Adewuya, and Carol Chuang

For queries please contact:

Uvarshanie [email protected]

Iyan [email protected]

Humphrey Johandy [email protected]

Carol [email protected]

Mariana [email protected]

The BLOOMBERG PROFESSIONAL service and data products are owned and distributed by Bloomberg Finance L.P. and its subsidiaries (BFLP) except in Argentina, Bermuda, China, India, Japan andKorea (where Bloomberg L.P. and its subsidiaries (BLP) distribute these products ). BLP provides BFLP with global marketing and operational support and service for these products. BFLP and BLPbelieve the information herein came from reliable sources, but do not guarantee its accuracy. No information or opinion herein constitutes a solicitation of the purchase or sale of securities orcommodities.

Foreword * 2

Jon [email protected]

Page 4: Bloomberg - 2011 M&a Outlook

Executive Summary * 3

Executive Summary

The results of the Bloomberg Global Poll of over 1,000 financial market professionals show a tempered optimism about acontinuing rebound of dealmaking activity in 2011.

Survey respondents expect attractive target valuations to be the primary driver that will present M&A opportunities in2011. While domestic competition is perceived as another strong catalyst for M&A activity, respondents saw market volatilityas the most significant potential obstacle to global deal-making in 2011.

Asia Pacific companies are expected to be the most acquisitive buyers in 2011, while respondents expect the mostattractive targets to continue to be found among firms based in the North American region.

Global M&A activity witnessed a strong comeback with aggregate volume and deal count figures surpassing 2009 levels.Through the end of November 2010, over 21,000 deals were announced with more than $1.9 trillion in total volume. Thisrepresented a 12% increase from 2009 volume levels, and marked a sharp reversal in the two-year decline of dealmakingactivity that began in 2008.

Dealmaking opportunities are expanding beyond domestic borders, with over 8,100 cross border deals worth roughly$945 billion announced in 2010, a 41% increase in volume compared to last year. On average, targets of cross bordertransactions are receiving slightly higher premiums, 24% on average compared to the 22% for all deals. Roughly 52% of allcross border volume is in the form of a company takeover, with 22% in asset sales, 14% in minority stake purchase, and 9% inmajority stake purchases. Tender offers comprise 8% of cross border deals in 2010.

Asia Pacific experienced a significant growth in M&A activity, reporting over 8,700 deals that involved an Asian company asthe target, seller, or buyer, eclipsing Europe as the second most active region, following North America. Fueling this growth isacquisition opportunities in China, with approximately 2,500 deals worth $110 billion, a 29% increase in deal activity and 15%increase in volume from 2009, and a staggering 108% increase in deal volume since 2005. China’s appetite for buyingopportunities is also increasing, with $145 billion worth of deals announced in 2010, a 453% increase from 2005 levels.

Brazil M&A is at a 10 year high, with over $130 billion in announced M&A activity. This includes deals such as the sale ofBrasilcel NV to Telefonica SA, and the sale of Repsol YPF Brasil to China Petroleum & Chemical company. Energy &communications were the top industries undergoing consolidation in the country.

Lastly, Private Equity players are on the comeback, with more than 1,700 deals announced. The Carlyle Group in particular,announced 33 deals year to date worth $16 billion in transactions, the highest number of deals since 2007. Top buyers andtargets remain in the U.S. and U.K., with Canada and Australia emerging as attractive countries for private equity dealmaking.The majority of transactions are below $500 million, with 58 deals in the $1-5 billion range and 53 deals in the $500 million to$1 billion range. Overall, while deal activity and deal volume has increased substantially from 2009 levels and is on track tosurpass 2008 levels, there is still quite a way to recovery.

Page 5: Bloomberg - 2011 M&a Outlook

2011 GLOBAL M&A OUTLOOK

Page 6: Bloomberg - 2011 M&a Outlook

0% 20% 40% 60% 80% 100%

US

EUR

ASIA

Large Increase

Small Increase

No Change

Small Decrease

Large Decrease

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Large Increase Small Increase No Change Small Decrease Large Decrease

TRADER RESEARCH ANALYST PORTFOLIO MANAGERS SALES

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Volume % Growth

Compared to 2010, what do you expect to happen to the volume of mergers andacquisitions in 2011?

M&A Sentiment

2011 Global M&A Outlook * 5

M&A Sentiment

This year’s survey respondentswere slightly less optimistic thanlast year, with approximately70% expecting an increase inM&A volume overall comparedto 90% in 2009.

Of the different roles in thefinancial industry, researchanalysts and traders were lessbullish than PM’s and Sales, withroughly 60% expressing positiveresponses compared to 80% ofthe PM community.

Overall, 2010 M&A activity turned out to be largely in-line with expectations expressed in the2010 M&A sentiment survey conducted last year.

In 2009, 60% of survey respondents expected a small increase in global M&A volume, with the most optimistic group being on the buy-side. In fact, global volume increased by 5%.

Page 7: Bloomberg - 2011 M&a Outlook

0.0%

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Target Finances

Unrealistic Valuations

Government Regulation

Market Volatility

Slow Economic Growth

Domestic Competition

17%

Shareholder Demand

10% Financing16%

Market Stability

11%

Foreign Players

23%

Target Valuations

23%

0.0%

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> 5bln 5bln-1bln 1 bln-250mln <250mln

What do you think will be the mostsignificant obstacles to the global deal-making in 2011?

Which type of firm do you think will be themost frequent target in 2011?

What ranges will most M&A deals fall withinin 2011?

Macro Trends & Drivers

Target Profile

In your opinion, what will be the primarydrivers of M&A activity in 2011?

Attractive target valuations continue to be the primary driver that will present M&A opportunities in 2011.Domestic competition is perceived as another strong catalyst for M&A activity for the upcoming year.Market volatility is seen as the most significant obstacle to global deal-making in 2011, which is consistentwith last year’s results.

Billion-dollar deals are expected to make a comeback in 2011, with roughly 35% of survey respondentsexpecting to see deals within the $1-$5 billion range, compared to 25% of respondents last year. Themajority of deals are still expected to fall within the $250 million -$1 billon range. All eyes are still ondistressed companies as the most frequent target in 2011, followed by public mid-cap companies.

2011 Global M&A Outlook * 6

Page 8: Bloomberg - 2011 M&a Outlook

North America

25%

South & Central America

15%

Eastern Europe

6%

Western Europe

18%

Africa / Middle East

7%

Asia Pacific23%

Central Asia6%

In which regions do you think that the mostattractive acquisition targets will be based in2011?

In which region do you expect the mostactive buyers to be based in 2011?

Looking ahead, Asia Pacific companies are expected to be the most acquisitive buyers in 2011, followedclosely by North American firms. In terms of attractive buyout targets, the global respondents are lookingto North America & South and Central America in 2011, as opposed to Asia Pacific (projected target regionfor 2010).

The market was very optimistic about M&A growth in the Asia Pacific region. While the region didexperience moderate growth compared to other regions, it was Latin America M&A activity that jumped themost, followed by North America.

2011 Global M&A Outlook * 7

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North America

Western Europe

Asia Pacific

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Eastern Europe

Middle East & Africa

North America

22%

South & Central America

7%

Western Europe

7%

Africa / Middle East

3%

Asia Pacific45%

Central Asia13%

Regional Expectations

Page 9: Bloomberg - 2011 M&a Outlook

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Energy

Consumer Staples

Telecom

Materials

Health Care

Utilities

Industrials

FIG

Consumer Discretionary

IT

$-$50

$100 $150 $200 $250 $300 $350 $400 $450 $500

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North America Western Europe Asia Pacific Latin America & Caribbean Eastern Europe Middle East & Africa

The energy industry was projected to experience the heaviest consolidation in 2010; in reality, mergers in thefinancial industry overtook M&A volume in the energy industry, reporting a total of $328 billion worth ofdeals compared to $300 billion. This year, survey respondents expected the utilities and energy industries toundergo more consolidation in 2011.

From 2009 to 2010, North America, Western Europe, and Asia Pacific experienced the most growth inprivate equity deal volume. Next year, private equity players are expected to be the most active withinNorth America and Asia Pacific.

Which industry sectors do you expect to contain the most M&A activity in 2011?

North America

31%

South & Central America

8%Eastern Europe

3%Western Europe

9%

Africa / Middle East

1%

Asia Pacific36%

Central Asia12%

In which regions do you expect privateequity/venture capital firms to be the mostactive in 2011?

Global M&A Volume By Top Industries

2011 Global M&A Outlook * 8

Industry & Private Equity Outlook

Energy Financials Telecom Healthcare Materials Utilities

2000 $146.67 $506.91 $526.11 $20.76 $118.69 $97.242001 $139.62 $408.24 $140.81 $17.37 $94.75 $108.892002 $74.26 $260.77 $91.15 $24.03 $50.50 $95.302003 $73.59 $347.89 $105.64 $52.29 $63.81 $47.012004 $186.05 $522.14 $220.69 $55.03 $105.19 $68.432005 $215.18 $581.61 $269.44 $90.48 $149.37 $123.952006 $252.45 $940.56 $281.37 $133.68 $283.92 $249.332007 $279.54 $1,016.80 $205.93 $118.66 $296.35 $304.522008 $235.33 $724.34 $175.35 $63.53 $184.88 $121.102009 $223.14 $422.55 $98.40 $25.96 $81.73 $103.012010 $300.10 $328.86 $162.71 $56.05 $134.42 $127.08

Page 10: Bloomberg - 2011 M&a Outlook

Equity44%

Debt27%

Cash29%

Domestic25%

Cross border

75%

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What deal type will present a moreattractive proposition for buyers in2011?

Cross-border deals are also looking increasingly attractive,with 75% of survey respondents favoring these deals overdomestic M&A.

Cross-border deals were deemed as the most attractive deal type for 2010, according to 68% of therespondents. This proved to be true with 49% of global M&A volume being cross-border transactions, asignificant hike up from 39% in 2009, and 30% six years ago.

What do you expect to be the major sourceof capital for M&A deal financing in 2011?

Doing The Deal

The majority of survey respondents expectequity to be the major source of capital forM&A deal financing, followed by cash, andfinally debt. This is in contrast with last year,when debt issuance was expected to be themain source of M&A financing.

2011 Global M&A Outlook * 9

Cross-Border Opportunities

Page 11: Bloomberg - 2011 M&a Outlook

PRIVATE EQUITY REVIEW

Page 12: Bloomberg - 2011 M&a Outlook

Chemicals -Diversified

$123.06

Consumer Non-Cyclical $224.65

Diversified Manufacturing

Operations $41.76

Chemical Services $33.10

Notable Highlights

Top Private Equity Company Takeovers

Top Industry by Volume

Top Countries by Volume

2010 Private Equity Review * 11

*All Total Value figures in USD Billions.*Data is as of November 30, 2010.

After hitting a seven-year low in total transaction volumein 2009, the Private Equity dealmaking firmly rebounded in2010.

With over 1,700 deals announced and an aggregatetransaction volume of $211 billion, this year’s activitymarked a stark 142% increase over 2009 levels.

Despite the uptick, Private Equity deal activity is still a longway off from its 2007 highs with this year’s transactionvolume still coming in 5% below 2008 levels.

Another sign of the fragility of the comeback of PrivateEquity dealmaking was the lack of deals larger than $10billion in size. Only the KKR-led buyout of Del Monte Foodsmanaged to crack the $5 billion ceiling.

The largest pool of deals were transacted within the $1billion to $5 billion range, with 58 deals having an aggregatevalue of $116 billion in this pool.

This year’s most popular targets were companies in theChemicals, Retail Restaurant, and Manufacturing Operationssectors and were primarily based in the US, UK, andAustralia.

United States

$104,690

United Kingdom $27,500

Australia $12,140

France $7,070

Spain $6,440

Deal Type Announce Date Target Name & Country Acquirer Name & Country Announced Total Value Target Business DescriptionAcquisition 11/25/10 Del Monte Foods Company Centerview / KKR / Vestar 5.10$ Private label food & pet product, producer,

United States United STates distributor, & marketerAcquisition 07/19/10 Thomkins PLC Pinafore Acquisitons Ltd 4.77$ Group of manufacturing co

United Kingdom CanadaAcquisition 04/22/10 Burger King Holdings 3G Capital Inc 3.93$ Fast-food hamburger chain &

United States United STates franchisorDivestiture 07/27/10 Extended Stay America Inc Blackstone / Centerbridge / Paulson 3.93$ Develops, owns, & operates

United States Russia extended long stay facilitiesAcquisition 07/15/10 NBTY Inc Carlyle Group 3.81$ Nutritional supplement manufacturer &

United States United States retailer in US & UKDivestiture 06/23/10 Cognis Holding GmbH BASF SE 3.80$ Chemicals holding co

Germany GermanyAcquisition 10/25/10 CommScope Inc Carlyle Group 3.79$ Hihg-performance electronic & fiber

United States United States optic cable operationsDivestiture 08/11/10 Albertis Infraestructers SA CVC Capital Partners Ltd 3.69$ Toll highway & parking garage operations

Spain United KingdomDivestiture 11/04/10 Eversholt Rail Group Eversholt Investment Group 3.41$ Diversified operations

United Kingdom United States & United KingdomDivestiture 11/05/10 High Speed 1 Ontario Teachers' Pension Plan 3.40$ Rail transportation

United Kingdom Canada

Page 13: Bloomberg - 2011 M&a Outlook

Notable Highlights Private Equity Target Multiples

Private Equity M&A Trend: 2009 -2010

Private Equity Announced Premiums

*All Total Value figures in USD Billions.*Data is as of November 30, 2010.

On average, firms paid a 27% premium for acquisitiontargets with median enterprise value EBITDA of 9x.

Evidence of Private Equity firms chasing healthy returnsoverseas could be seen in the significant amount of crossborder deals. Cross border transactions accounted for 40%of total deal count and 50% of aggregate deal volume.

The downstream effect of investors looking for higheryields and banks nearly doubling leveraged loans sales wasclearly felt with the announcement of 454 leveragedbuyouts having a total volume of $92 billion.

While some Private Equity firms sought to deploysignificant amounts of “dry powder” in their funds, othersdesperate sought exits. This caused a significant amount ofsecondary transactions with firms selling 14 portfoliocompanies to each other with a total value of $6 billion.

With 33 deals announced and an aggregate value of $16billion, The Carlyle Group was this year’s most acquisitivePrivate Equity firm.

Carlyle, which oversees $98 billion, participated in adiverse range of transactions ranging from its $3.8 billionleveraged buyout of vitamin maker NBTY Inc, to its purchaseof a $200 million stake in Shandong Aneng Conveyor RubberCo.

2010 Private Equity Review * 12

Target Multiples Deals Min - Max Median

FFO 1 99.31 - 99.31 99.31Free Cashflow 100 1.64 - 1925.25 28.77Income B/F XO 103 1.91 - 619.56 21.58Net Income 108 .46 - 619.56 21.47Net Income + Deprec 123 .46 - 1968.98 13.20EBIT 117 1.62 - 148.82 12.77Cashflow from Ops. 129 1.57 - 365.65 11.46EBITDA 114 .81 - 2653.18 8.81Stockholder Eqty 158 .00 - 224.93 2.56Book Value 155 .01 - 224.93 2.55Market Cap 136 .00 - 29.67 1.57Revenue 166 .01 - 70.81 1.37Enterprise Value 142 .00 - 11.39 1.28Total Assets 172 .00 - 1553.25 1.04

Premiums Paid # Deals Volume %

>100% 21 2.42B 0.975.01-100% 20 1.69B 0.6250.01-75% 36 11.38B 4.2225.01-50% 99 54.77B 20.2810.01-25% 92 35.34B 13.090-10% 3,594 164.45B 60.89

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Page 14: Bloomberg - 2011 M&a Outlook

$109.92

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(Bln

s) PRIVATE EQUITY LOSES FUND COMMITMENTS ASTONY JAMES WOOS OREGON(Aug. 26) -- A year after the financial crisis subsided, the$2.5 trillion private-equity industry is finding the easymoney may be gone. Managers saddled with $1.6 trillion inbuyouts made during a three-year boom have marked atleast 6 of the era’s 10 biggest deals at or below cost,according to data compiled by Bloomberg. About $470billion sits idle, according to London-based researcherPreqin Ltd. Announced purchases so far this year total lessthan a fifth of their volume at the peak in 2007. Pensions,endowments and mutual funds cut new commitments tobuyout funds by more than 50 percent, according to Preqin,questioning whether firms led by Blackstone Group LP havegrown too large to generate the returns that made theirfounders billionaires.

Private Equity Deal Type Summary 2010 Private Equity Capital Flow

Top Private Equity M&A News

MIDEAST PRIVATE EQUITY HAS ROOM TORUN(Dec. 7) -- Over the last decade, private equity in theMiddle East has gone from being virtually nonexistent tobecome a booming prospect and then an industry facinga shakeout. In 2004 the region was home to about 25funds with a total of around $3 billion undermanagement; as of this year, roughly 142 funds aremanaging more than $34.5 billion. The breakneckevolution of private equity has made it difficult forinvestors to obtain a clear picture of its fundamentals.They have thus been understandably cautious aboutdirecting funds to regional PE firms. In fact, it is nowbecoming clear that the Middle Eastern region's headygrowth over the last decade masked some criticalweaknesses in the PE industry.

BUYOUT BETS WANE AS ECONOMY KEEPS LBOS IN CHECK(Dec. 7) -- Buyout speculation that sent credit derivatives oncompanies from Cardinal Health Inc. to Dell Inc. soaring twomonths ago is waning as rising unemployment keeps thetakeover revival in check. The average cost of credit-defaultswaps on 15 companies including the Dublin, Ohio-baseddrug distributor and the computer maker founded byMichael Dell has declined 33 basis points to 148 basis points,compared with a drop of 2.5 for a benchmark swaps index.Contracts on Cardinal Health have plunged to 60 basis pointsfrom 148.3 on Oct. 25. Bets on a surge in leveraged buyoutsare diminishing as the sluggish recovery limits private-equityand bank deals.

FORTRESS’ $5 BILLION BUYOUT LOSS HAUNTSEDENS AS BLACK HAS GAIN(Jun. 16) -- Fortress Investment Group LLC has $5billion in unrealized losses from private-equity fundsstarted since 2005, the beginning of a two-year buyoutboom, more than its largest New York rivals combined.Blackstone Group LP, the biggest private-equity firm, hadan unrealized loss of $861 million in the period and KKR& Co.’s buyout funds are down $708 million, according toregulatory filings in the past six weeks. Funds at LeonBlack’s Apollo Global Management LLC posted a profit.The numbers, some disclosed for the first time, showhow the largest buyout firms have navigated the damagefrom investments made before the 2007 financial crisisand allow clients to compare performance as managersseek new money.

*All Total Value figures in USD Billions.*Data is as of November 30, 2010.

2010 Private Equity Review * 13

Deal Type Summary # Deals Volume %

Company Takeover 757 131.84B 62.42Cross Border 672 109.46B 51.82Leveraged Buyout 454 92.71B 43.9Asset sale 217 30.97B 14.66Minority purchase 618 33.2B 15.72Real Estate 12 7.22B 3.42Special Situations/Distressed 12 5.81B 2.75Venture Capital 270 4.18B 1.98Co-Investment 30 3.47B 1.64Mezzanine 6 3.03B 1.43

Page 15: Bloomberg - 2011 M&a Outlook

AMERICAS M&A REVIEW

Page 16: Bloomberg - 2011 M&a Outlook

Oil Exploration & Production

$99.84 Consumer Non-

Cyclical $224.65

Telephone Integrated

$50.40 Medical -

Biomedical $41.26

Notable Highlights

Top M&A Company Takeovers in the Americas

Top Target Industry by Volume

Top Target Countries by Volume

2010 M&A Review of the Americas * 15

*All Total Value figures in USD Billions.*Data is as of November 30, 2010.

US $675.36

Brazil $127.44

Canada $81.12

Mexico $51.19

UK $45.90

• The Americas region announced over $1.1 trillion intransaction volume in 2010. This represented of 12%increase from 2009.

The average deal size for transactions in the region for2010 was $264 million, and buyers paid 9.29x EBITDA onaverage for publicly traded targets.

Deals in the region were dominated by exploration &production oil companies, with an aggregate volume of$99.70 billion for targets and $74.85 billion for acquirers.The most prominent deal in this sector was the Petrobraspurchase of offshore Brazilian oil properties from theFederative Republic of Brazil for $42.5 billion.

Private Equity buyers were the second most activeacquirers in the Americas, announcing over $78 billionworth of deals.

Company takeovers (61.57% in 2010 and 62.2% in 2009),cross border deals (45.68% in 2010 compared to 39.88% in2009) & asset sales (24.45% compared to 23.5% in 2009)remain the top three M&A transaction types.

Deal Type Announce Date Target Name & Country Acquirer Name & CountryAnnounced Total Value Target Business Description

Acquisition 01/13/10 Carso Global Telecom SAB de CV America Movil SAB de CV 25.74$ Telecom holding companyMexico Mexico

Acquisition 04/22/10 Qwest Communications International Inc CenturyLink Inc 22.16$ Telecom provider in USUnited States United States

Acquisition 08/29/10 Genzyme Corp Sanofi-Aventis SA 18.24$ Biotechnology product developmentUnited States France

Divestiture 03/08/10 American Life Insurance Co MetLife Inc 12.59$ Insurance coverage providerUnited States United States

Acquisition 02/21/10 Smith International Inc Schlumberger Ltd 12.34$ Oil & gas exploration and production United States United States supplier

Divestiture 02/25/10 Coca-Cola Refreshments USA Inc Coca-Cola Co/The 12.24$ Drink bottling and distributionUnited States United States

Divestiture 01/19/10 Pipeline & Midstream Assets Williams Partners LP 11.81$ AssetsUnited States

Acquisition 01/14/10 Alcon Inc Novartis AG 10.57$ Develops, manufactures, & marketsUnited States Switzerland eye care & related products

Divestiture 05/11/10 Brasilcel NV Telefonica SA 9.56$ Telecom provider in BrazilBrasil Spain

Acquisition 02/11/10 Allegheny Energy Inc FirstEnergy Corp 9.22$ Electric utility holding companyUnited States United States

Page 17: Bloomberg - 2011 M&a Outlook

Notable Highlights Americas Target Multiples

Monthly M&A Trend in the Americas: 2009 -2010

Americas Announced Premiums

2010 M&A Review of the Americas * 16

Premiums Paid # Deals Volume %

>100% 34 4.5B 0.7975.01-100% 30 5.25B 0.9250.01-75% 63 40.28B 7.0925.01-50% 168 171.31B 30.1410.01-25% 89 86.52B 15.220-10% 5,787 260.61B 45.84

*All Total Value figures in USD Billions.*Data is as of November 30, 2010.

Target Multiples # Deals Min - Max Median

Free Cashflow 357 .01 - 1925.25 29.30Income B/F XO 366 .00 - 2300.54 22.40Net Income 374 .00 - 2300.54 22.34EBIT 399 .00 - 983.92 13.51Net Income + Deprec 452 .00 - 2300.54 13.43Cashflow from Ops. 446 .00 - 1821.27 12.18EBITDA 405 .00 - 394.75 9.30Book Value 639 .00 - 1391.42 2.23Stockholder Eqty 645 .00 - 811.87 2.15Revenue 626 .00 - 2193.78 1.57Market Cap 621 .00 - 824.00 1.36Enterprise Value 615 .00 - 62.52 1.26Total Assets 700 .00 - 1553.25 1.08

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North American and Latin American / Caribbeancompanies received the most capital from other NorthAmerican firms, totaling $611 billion in transaction volumeand 7,106 in deal count.

North American acquirers targeted firms in Europe morethan in any other region in 2010 while those in LatinAmerica / Caribbean looked to North America for attractivetargets.

Cash was the most prominent payment type, with morethan 70% of deals being paid in either cash alone, or a mixof cash and stock.

The majority of premiums paid were below 10%, with 15%of deals reporting announced premiums between 10-25%and nearly 30% of deals reporting premiums in the 25%-50%range.

Between 2000 and 2010, the oil & gas industry dominated.Its resilience from the 2003 low ($26 billion) is apparentwith its total volume reaching $176 billion in 2010. Thesecond best performer is the telecommunications industryreporting $87 billion in 2010 M&A activity. Commercialservices fell into third place with $47 billion worth of dealsannounced.

Page 18: Bloomberg - 2011 M&a Outlook

BHP SAYS WON’T CHANGE ACQUISITION PLAN AWAY FROM LARGE TARGETS(Nov. 16) -- "Urbanisation and industrialisation are the keydrivers that are transforming the lives of people in…fastdeveloping countries including Indonesia, Mexico andTurkey," Chief Executive Marius Kloppers said. BHPabandoned its US$39 bln bid to take over Potash Corp. ofSaskatchewan Inc. the world's largest miner of thecommodity used mainly in fertiliser, after the deal wasblocked by Canada's government. Kloppers said theCanada's minister for industry "would have requiredundertakings that would have been adverse to our strategyand counter to creating shareholder value…Now, thecombination of this simple company structure, anorganisation of talented people focused on what isimportant, & portfolio’s shape, enables our growth.“

Regional Deal Type Summary 2010 Regional Capital Flow

Top Regional M&A News

PETROBRAS TO PAY BRAZIL $42.5B IN STOCKFOR OIL RESERVES(Sept. 22) -- Petroleo Brasileiro SA, agreed to pay theBrazilian government $42.5 bln in new stock for theright to develop 5 billion barrels of offshore oil reserves.Petrobras will pay on average $8.51 a barrel for the oil.The value set for the reserves will determine how muchnew stock Petrobras must offer minority investors in arelated public offering to raise funds for a $224 bln planto develop offshore fields and boost refinery capacity.The price is “certainly at the high end” of what investorsand analysts were expecting, said Gianna Bern,president of Brookshire Advisory & Research Inc., basednear Chicago. “Market conditions right now are lessthan desirable, but Petrobras has a good long-termgrowth story.”

2010 M&A Review of the Americas * 17

PIMCO SAID TO SEEK $1B TO BUY TROUBLESASSETS FROM BANKS(Nov. 19) -- Pacific Investment Management Cois raising atleast $1 bln for a private fund to buy troubled loans frombanks divesting assets to meet new rules. Pimco plans towork with a loan servicer to renegotiate the terms of theacquired debt directly with creditors. Financial institutionsare selling assets after the 27-nation Basel Committee onBanking Supervision adopted standards in September thatwill more the double the ratio of capital banks must hold inrelation to the amount of risk on their balance sheets.Pimco’s institutional fund will target smaller lenders andcommunity banks, and won’t buy consumer debt such ascredit-card Pimco and auto loans.

DYNEGY MAY SELL IN PIECES AFTERBLACKSTONE BID FAILS(Nov. 24) -- Dynegy Inc. , the third-largest U.S.independent power producer, may need to sell itselfpiece by piece after Blackstone Group LP’s $604.5 millionoffer to buy the whole company was rejected. yesterdayvoted down the $5-a-share Blackstone bid. The companyis seeking a new buyer and proposed immediate talkswith Icahn and Seneca… and also said it would considerasset sales, cost cutting and debt restructuring to remaina standalone company. Dynegy may be worth $9 a shareif it’s broken apart, Fishman said. Selling off thecompany’s assets could take several years and providemore value to shareholders.

Deal Type Summary # Deals Volume %

Company Takeover 5,415 703.17B 62.03Cross Border 4,116 528.87B 46.65Asset sale 3,307 273.96B 24.17Private Equity 1,167 165.55B 14.6Additional Stake Purchase 542 143.03B 12.62Tender Offer 147 125.18B 11.04Minority purchase 907 106.32B 9.38Leveraged Buyout 325 86.00B 7.59Majority purchase 461 58.79B 5.19Joint Venture 254 21.42B 1.89*All Total Value figures in USD Billions.*Data is as of November 30, 2010.

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Page 19: Bloomberg - 2011 M&a Outlook

APAC M&A REVIEW

Page 20: Bloomberg - 2011 M&a Outlook

Oil Exploration & Production

$38.60

Consumer Non-Cyclical $224.65

Reasl Estate Operations

$29.36

Life/Health Insurance

$26.32

Notable Highlights

Top M&A Company Takeovers in APAC

Top Target Industry by Volume

The developed and emerging economies of Asia Pacificengaged in over 8,700 deals worth more than $594 billion.This is a 25% increase in volume compared to 2009, wherethere were 9,288 reported deals worth $477 billion.

The average deal size for transactions in the Asia Pacific for2010 was $95 million, and buyers paid 8.22x EBITDA onaverage for publicly traded targets.

The financial industry experienced the highest M&Aactivity, with acquirers paying over $150 billion to acquirecompanies located in China, Australia, Japan, India, and theUnited States.

The largest deal in the region was Bharti Airtel's purchase of Zain Africa BV from Mobile Telecommunications for $10.7 billion.

Cross border deals represented 61% of all APAC M&Avolume, with over 3,600 deals worth $362 billionannounced. This is an increase from 2009 cross border M&Aactivity, which took up 50% of overall M&A activity in theAsia Pacific region.

The top M&A targets in the Asia Pacific region werecompanies located in China, Australia, and Japan,announcing an aggregate of $259.95 billion in transactions.

Top Target Countries by Volume

2010 M&A Review of APAC * 19

*All Total Value figures in USD Billions.*Data is as of November 30, 2010.

China $110.31

Australia $84.07

Japan $65.57

US $37.21

Hong Kong

$35.12

Deal Type Announce Date Target Name & Country Acquirer Name & CountryAnnounced Total Value Target Business Description

Divestiture 03/30/10 Zain Africa BV Bharti Airtel Ltd 10.70$ African telecom operatorKenya India

Acquisition 08/24/10 Simotomo Trust & Banking Co Ltd Chuo Mitsui Trust Holdings 9.20$ Trust banking & commercial banking Japan Japan services

Acquisition 04/01/10 Lihir Gold Ltd Newcrest Mining Ltd 8.96$ Gold exploration & development Papau New Guinea Australia

Acquisition 10/25/10 ASX Ltd Singapore Exchange Ltd 8.28$ Operates Australia's national stock Australia Singapore exchange & equity derivatives market

Acquisition 11/28/10 Pan American Energy LLC Bridas Corp 7.06$ Holding co for oil & natural gasUnited Kingdom Argentina & China development cos in Argentina

Acquisition 11/15/10 AXA Asia Pacific Holdings Ltd AMPH Ltd 6.12$ Insurance & investment providerAustralia Australia

Acquisition 08/17/10 Pactiv Corp Rank Group Ltd 5.95$ Consumer & foodservice/foodUnited States New Zealand packaging producer

Divestiture 09/30/10 Mutiple Targets Prudential Financial Inc 4.80$ Multi-line insurance providerUnited States & Japan United States

Acquisition 07/15/10 Intoll Group Canada Pension Plan Investment Board 4.63$ Infrastructure investment groupAustralia Canada

Acquisition 03/08/10 Arrow Energy Ltd Multiple Acquirers 3.32$ Oil & gas exploration coAustralia China & Netherlands

Page 21: Bloomberg - 2011 M&a Outlook

Notable Highlights APAC Target Multiples

Monthly M&A Trend: in APAC 2009 -2010

APAC Announced Premiums

2010 M&A Review of APAC * 20

Premiums Paid # Deals Volume %

>100% 21 2.42B 0.975.01-100% 20 1.69B 0.6250.01-75% 36 11.38B 4.2225.01-50% 99 54.77B 20.2810.01-25% 92 35.34B 13.090-10% 3,594 164.45B 60.89

*All Total Value figures in USD Billions.*Data is as of November 30, 2010.

Asia Pacific targets received over 7,700 M&A offers withaverage premiums of 15.12%. The most foreign investmentcame from North America, in which buyers transacted over$47 billion worth of M&A deals.

Buyers in the Asia Pacific region have transacted over7,800 deals from January to November 2010. On average,they paid 16.96% in premiums for deals. The averagedisclosed size of deals is $89 million. There is a significantincrease in volume compared to 2009, with $517 billionworth of deals announced compared to $417 billion lastyear.

The most acquisitive country was China, which announcedover $144.52 billion of deals. Japan and Australia followed,with $85 billion and $58 billion worth of transactionsrespectively.

Top private equity deals within the region include thebuyout of Healthscope Ltd by TPG and Carlyle for A$2.5billion. The most acquisitive buyer in this category is SequoiaCapital, which announced 13 deals worth nearly $200million in M&A deals.

Target Multiples Deals Min - Max Median

Net Income 507 .00 - 2705.55 18.72Income B/F XO 506 .00 - 1812.96 18.38Free Cashflow 434 .01 - 1104.57 13.13EBIT 514 .00 - 4520.64 12.93Net Income + Deprec 561 .00 - 1968.98 11.00Cashflow from Ops. 578 .01 - 1115.75 9.24EBITDA 539 .00 - 2653.18 8.22Book Value 886 .00 - 3609.59 1.59Stockholder Eqty 889 .00 - 3609.59 1.54Market Cap 886 .00 - 135.46 1.22Enterprise Value 860 .00 - 148.56 1.15Revenue 849 .00 - 2193.78 0.99Total Assets 931 .00 - 1553.25 0.72

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Page 22: Bloomberg - 2011 M&a Outlook

Regional Deal Type Summary 2010 Regional Capital Flow

Top Regional M&A News

CHARLES RIVER YO BUY WUXI PHARMATECHFOR $1.6B(Apr. 26) -- Charles River Laboratories International Inc.agreed to buy WuXi PharmaTech (Cayman) Inc. forabout $1.6 billion to expand in China, where revenuefrom drug-testing services is growing as much as 30% ayear. Charles River will pay $21.25 a share, comprising$11.25 in cash and $10 in stock, for each WuXi Americandepositary share,. the deal would be the largest foreigntakeover of a Chinese company. It would give CharlesRiver testing facilities in Shanghai, Suzhou & Tianjin inChina, where cheaper labor and laboratory costs areluring the world's biggest drugmakers in search of newblockbuster medicines. "This is a vote of confidence thatChina will be the main location for drug R&Doutsourcing in the future,"�said Jinsong Du, an analyst atCredit Suisse Group AG.

THAILAND’S TAKEOVER SPREE SPREADS AS BAHTGAINS(Nov. 30) -- Thai companies have gone beyond their nation'sborders to buy assets at a faster pace than businesseselsewhere in Southeast Asia, spurred by the baht's surge to a13-year high. "It's an unimaginable wave of overseasacquisitions,"� said Vana Bulbon, CEO at UOB AssetManagement (Thai) Co., "There will be more overseasacquisitions with rising cash-flows at Thai companies and thestrengthening baht. Most companies were fighting to survivebankruptcy a decade ago, and now they are on a takeoverspree." Acquisitions announced or completed by Thaicompanies have totaled $8.38 billion so far this year,compared with $1.29 billion for all of 2009, the data show.PTT Exploration & Production Pcl this month agreed to buy40 percent of Statoil ASA's oil sands project in Canada for$2.28 billion, the biggest-ever Thai acquisition.

INDIAN BILLIONAIRES SAID TO WEIGH BIDSFOR EVONIK CARBON BLACK(Nov. 30) -- Companies controlled by Indian billionairesKumar Mangalam Birla and Rama Prasad Goenka areconsidering making offers for the carbon black unit ofGermany's Evonik Industries AG. Phillips Carbon BlackLtd., part of Goenka's RPG Group, and Aditya Birla Groupare among potential bidders for Evonik's carbon blackunit, which makes material used in tires and syntheticrubber. A deal would add to the record $26.9 billion ofoverseas acquisitions by Indian companies this year.Evonik is selling the carbon black unit and its real estateand energy businesses to concentrate on chemicals.

2010 M&A Review of APAC * 21

*All Total Value figures in USD Billions.*Data is as of November 30, 2010.

AIG MAY SELL JAPAN UNITS FOR $4.8B IN CASH(Sept. 29) -- American International Group Inc. may reach adeal as soon as today to sell two Japanese life insuranceunits to Prudential Financial Inc. for about $4.8 billion incash. An agreement would cap two years of intermittenttalks for Star Life Insurance Co. and AIG Edison LifeInsurance Co. between Prudential CEO John Strangfeld andNew York-based AIG, said the people who declined to beidentified because the negotiations are private. Thetransaction under discussion values the units at close totheir book value, a measure of assets minus liabilities.Prudential "is the most overcapitalized life insurancecompany that we cover"�Randy Binner, an analyst said in thesecond quarter, "they're the classic acquirer.”

Deal Type Summary # Deals Volume %

Cross Border 3,647 359.53B 60.76Company Takeover 2,897 278.36B 47.04Additional Stake Purchase 1,589 122.08B 20.63Asset sale 1,873 117.34B 19.83Majority purchase 1,217 92.47B 15.63Minority purchase 1,611 88.38B 14.94Private Placement 589 61.53B 10.4Tender Offer 240 55.62B 9.4Private Equity 346 32.86B 5.55Leveraged Buyout 47 14.84B 2.51

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Page 23: Bloomberg - 2011 M&a Outlook

EMEA M&A REVIEW

Page 24: Bloomberg - 2011 M&a Outlook

Oil Exploration & Production

$54.39

Consumer Non-Cyclical $224.65

Electric -Integrated

$41.33

Consumer Banks - Non-Us $35.75

Notable Highlights

Top M&A Company Takeovers in EMEA

Top Target Industry by Volume

Top Target Countries by Volume

2010 M&A Review of EMEA * 23

*All Total Value figures in USD Billions.*Data is as of November 30, 2010.

EMEA region reported over $787 billion in transactionvolume this year. This represented an 18% increase from2009, a total of $662 billion.

The average deal size for transactions in the region for2010 was $250 million, and buyers paid 6.98x EBITDA onaverage for publicly traded targets.

Financial companies and integrated electric companieswere the most acquisitive companies, with each totaling $61billion and $55 billion respectively. In comparison, 2009 wasdominated by sovereign acquirers ($90.59 billion) withinvestment companies totaling only $58 billion.

APAX Partners announced the most deals in 2010 (23) ; itpartnered with Bridgepoint Capital Ltd to acquire HistoireD’Or from One NFL LLP for €600 million in July .

Cross border (84.85% in 2010 and 65% in 2009), companytakeover (50.85% in 2010 compared to 36.52% in 2009) &asset sales (22.19% compared to 18.41% in 2009) remainthe top 3 M&A transaction types.

Acquirers paid smaller premiums for targets in 2010.8.85% of acquisitions have moved into of the 0 – 10% rangefor premiums paid from 2009 to 2010, 2,927deals to 3,186deals, respectively.

US $150.59

UK $123.10

Brazil $44.08

Italy $41.55 France

$28.89

Deal Type Announce Date Target Name & Country Acquirer Name & CountryAnnounced Total Value Target Business Description

Divestiture 08/10/10 GDF Suez Energy International International Power PLC 25.76$ Alternate sources of energyBelgium United Kingdom

Acquisition 10/04/10 Weather Investments SpA VimpelCom Ltd 21.99$ Telecom & internet service providerItaly Russia

Acquisition 08/29/10 Genzyme Corp Sanofi-Aventis SA 18.24$ Biotechnology product developmentUnited States France

Divestiture 03/30/10 Zain Africa BV Bharti Airtel Ltd 10.70$ African telecom operatorKenya India

Acquisition 01/14/10 Alcon Inc Novartis AG 10.57$ Develops, manufactures, & marketsUnited States Switzerland eye care & related products

Divestiture 05/11/10 Brasilcel NV Telefonica SA 9.56$ Telecom provider in BrazilBrasil Spain

Acquisition 11/28/10 Pan American Energy LLC Bridas Corp 7.06$ Holding co for oil & natural gasUnited Kingdom Argentina & China development cos in Argentina

Acquisition 02/28/10 Millipore Corp Merck KGaA 6.81$ Produces technology, tools, &United States Germany sevices for drug companies

Acquisition 09/10/10 Bank Zachodni WBK SA Banco Santander SA 5.35$ Commercial banking servicesPoland Spain

Acquisition 05/12/10 Sybase Inc SAP AG 5.32$ Computing solutions providerUnited States Germany

Page 25: Bloomberg - 2011 M&a Outlook

Notable Highlights EMEA Target Multiples

Monthly M&A Trend in EMEA: 2009 -2010

EMEA Announced Premiums

The European region kept most of its capital within theregion, paying $295 billion for other European targets in2010. The Middle East / Africa region acquired targets inNorth America for a total of $2 billion.

European targets were the second most pursued targets,attracting $45 billion in 311 deals in 2010.

2009’s economic slump severely affected the M&Amarket. It totaled only $663 billion as compared to over $2trillion in 2007. The 2010 exit from the global recessionpositively affected the M&A market. Deal volume increased19.5%.

2003 was the only other year between 2000 and 2010 thatmatched the M&A low of 2009 ($731 billion).

Over a ten year period, investment companies havemaintained a volume range between $8.9 billion and $2.7billion, reaching its lowest point in 2002. The oil & gasindustries, however, were much more volatile over thedecade moving from a peak in 2000 ($231.5 billion) itslowest in 2002 ($86.5 billion); it has pursued an upwardtrend and now accounts for $86.5 billion in M&A activity.

2010 M&A Review of EMEA * 24

*All Total Value figures in USD Billions.*Data is as of November 30, 2010.

Premiums Paid # Deals Volume %

>100% 34 4.5B 0.7975.01-100% 30 5.25B 0.9250.01-75% 63 40.28B 7.0925.01-50% 168 171.31B 30.1410.01-25% 89 86.52B 15.220-10% 5,787 260.61B 45.84

Target Multiples Deals Min - Max Median

Free Cashflow 272 .01 - 1821.27 22.19Net Income 352 .00 - 2749.56 17.74Income B/F XO 343 .00 - 2749.56 17.69EBIT 355 .00 - 2898.84 12.53Net Income + Deprec 395 .00 - 2300.54 11.33Cashflow from Ops. 353 .00 - 1821.27 11.26EBITDA 355 .00 - 2653.18 8.28Book Value 513 .00 - 811.87 2.11Stockholder Eqty 515 .00 - 811.87 2.06Revenue 499 .00 - 3372.09 1.52Market Cap 471 .00 - 154.47 1.20Enterprise Value 456 .00 - 74.19 1.13Total Assets 539 .00 - 154.83 0.87

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Page 26: Bloomberg - 2011 M&a Outlook

BARCLAYS SETPS UP IN HIRING RUSSIA IN LEADERSHIP BID(June 18) -- Barclays Plc, the U.K.'s third-largest lender, willhire dozens of bankers in Russia as it seeks to become theleading foreign investment bank in 2 to 3 years, local chiefBob Foresman said. "We will need to have over 100 peoplejust in the broker-dealer,"�Foresman. He is overseeing "veryaggressive strategy" in Russia. Barclays of London isstepping up hiring as the economy of the world's biggestenergy exporter rebounds from a record 7.9% contractionlast year, bolstered by higher oil and metals prices.Barclays rival VTB Group is looking to recruit 250 bankers asit merges its investment and corporate units, Yuri Soloviev,CEO of the state-run bank's investment arm. “We haveevery intention to set up a sales, trading & research team onthe equity side & build our own platform,” said Foresman.

Regional Deal Type Summary 2010 Regional Capital Flow

Top Regional M&A News

ALBERTIS LOAN SHOWS BANK APPETITE FORMERGERS(July 7) -- Banks committed as much as €7 billion ($8.8billion) in loans to fund the acquisition of Spain's AbertisInfraestructuras SA as lenders boost financing fortakeovers and shrug off concern that a slowing economywill weaken credit markets. Its two main shareholders &CVC Capital Partners Ltd. are in talks with banks for thebiggest leveraged buyout financing commitment sinceMay, when Blackstone LP lined up $10 billion of debt toback a failed takeover bid of Fidelity NationalInformation Services Inc. The transaction may signal thatbanks from around the world have diminished concernthat Europe's fiscal crisis will slow the global economicrecovery or that stress tests on the region's financialinstitutions will reveal inadequate capital.

SANOFI SID TO WEIGH HIGHER TAKEOVER BIDFOR GENZYME(Sept. 29) -- Sanofi-Aventis SA is weighing whether to makea sweetened takeover offer for Genzyme Corp. as soon asnext week, said people with knowledge of the matter.France's largest drugmaker is leaning toward raising thecurrent $69/share offer by $1 or $2. Genzyme rejectedSanofi's Aug. 29 offer, which valued the U.S. biotechnologycompany at $18.5 billion, as too low. Sanofi hasn't ruled outmaking a hostile offer, though would prefer friendlynegotiations with Cambridge. An increased bid would comeafter Sanofi CEO Chris Viehbacher held meetings in the pastmonth with Genzyme investors. Sanofi has the financing itneeds for an offer. It lined up about $10 billion of loans fromJPMorgan Chase & Co., BNP Paribas SA, and SocieteGenerale SA.

2010 M&A Review of EMEA * 25

*All Total Value figures in USD Billions.*Data is as of November 30, 2010.

Deal Type Summary # Deals Volume %

Cross Border 4,620 662.44B 84.82Company Takeover 3,239 396.82B 50.81Asset sale 1,591 173.78B 22.25Additional Stake Purchase 621 108.67B 13.91Minority purchase 886 104.93B 13.43Tender Offer 169 93.73B 12Private Equity 699 92.42B 11.83Majority purchase 649 70.67B 9.05Reverse Merger 28 29.91B 3.83Leveraged Buyout 171 27.92B 3.58

BAIN CAPITAL SAID CLOSE TO PURCHASERBS’S PRIORY GROUP(Nov. 30) -- Bain Capital LLC may be close to a deal toacquire Priory Group Ltd., the U.K. operator of mental-health and addiction clinics being sold by RBS Group. RBSwent back to previous bidders including AdventInternational Corp. & Blackstone Group LP last weekafter Bain sought a lower purchase price. Priory attractedoffers of less than £1 billion ($1.55 billion), and RBS hadbeen seeking about £1.1 billion pounds. RBS took overPriory, from ABN Amro Holding NV when it bought theDutch bank in 2007. RBS is selling assets including bankbranches and its credit card payment processing unitafter taking £45.5 billion of U.K. government fundingduring the global financial crisis, more than any otherbank in the world.

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Page 27: Bloomberg - 2011 M&a Outlook

THE YEAR IN OPINIONS

Page 28: Bloomberg - 2011 M&a Outlook

Ingrassia Sees More Optimism in Corporate BoardroomCommentary by Michael J Moore & Jeffrey McCracken

(Sept. 30) -- Corporate boards are more optimisticabout prospects for the U.S. economy than the generalpublic is, said Timothy J. Ingrassia, head of mergers andacquisitions in the Americas for Goldman Sachs Group Inc.

"I do think there's a little more optimism in theboardroom than you read in the newspapers,"�Ingrassia,46, said at the Bloomberg Dealmakers Summit in NewYork. "We've sensed a significant pickup in thebrainstorming and white- boarding around activity thatgives us some optimism about the merger market lookingforward.“The third quarter was the busiest in two years for mergers,with $566.5 billion of announced transactions. BHP BillitonLtd. made an unsolicited $40 billion offer for Potash Corp.of Saskatchewan Inc., Sanofi- Aventis SA began its pursuitof Genzyme Corp. for at least $18.5 billion, and Intel Corp.announced its largest acquisition, the $7.7 billion takeoverof security-software maker McAfee Inc.

With almost $3 trillion of cash, companies drove a 60percent increase in takeovers from a year ago. Record-lowborrowing costs encouraged dealmaking as the Standard& Poor’s 500 Index headed for its best September since1939. Even more important will be the pace of economicrecovery, Peter Weinberg, founding partner of PerellaWeinberg Partners LP, said today at the conference.

"The big question mark is, where are we going and where is the economy going,"� Weinberg, 53, said. "The success of any merger will be determined more so by the environment than by the deal price. Though there are many factors that suggest a significant increase in activity, there's still one big question out there that's on everybody's mind."

The U.S. economy grew at a 1.7 percent annual rate inthe second quarter, marking the start of a slowdown ingrowth that has concerned the Federal Reserve. That'sdown from a 3.7 percent rate in the first quarter and 5percent in last year's fourth quarter.

In boardrooms, there is a reluctance to get involved insignificant transactions because of the lack of certainty,"Martin Lipton, 79, founding partner of Wachtell, Lipton,Rosen & Katz, said at the conference. "I personally doubtthere will be great increases in activity in M&A until wehave a restoration of confidence as to where the economyis going.“

'Real Health'The financial system is in a slow state of recovery and

areas such as basic middle-market lending are "very, verylong way from real health,” Evercore Partners Inc.Chairman Roger Altman, 64, said.

Commercial and industrial loans at U.S. banks fell 24percent from their 2008 peak to $1.24 trillion as of August.

Completed global deals were $1.16 trillion so far thisyear, up 3.6 percent from a year earlier.. Total announcedtakeovers were $1.49 trillion in the first nine months of2010, compared with $1.76 trillion in all of 2009.

Financial institutions and health-care companies will beamong the most active sectors, Weinberg said.

Lazard Ltd. Vice Chairman Gary W. Parr said the pace offinancial-industry takeovers will be held back by doubtsover the value of bank assets and questions about newcapital requirements from regulators.

New CapitalBanks worldwide will need $500 billion to $1 trillion of

new capital over the next few years after having raisedabout $1.6 trillion since the financial crisis, Parr said.Regulators may push for higher capital levels faster thanproposals from the Basel Committee on BankingSupervision, which phase in the new requirements from2013 to 2023, he said.

'A lot of regulators around the world are applyingpressure to their regulated entities and saying that wewant you to be better capitalized sooner,"�Parr said. Bankscould get the capital from earnings if given enough time,as U.S. and European lenders together generate about$400 billion a year in net income, Parr said.Tony James, president of Blackstone Group LP, said thereisn't enough capital available from investors to fund all theopportunities he sees in the market, while Carlyle Groupco-founder David Rubenstein said private-equity firms arehaving to cut their fees as fundraising becomes moredifficult.

Thomas Barrack, chairman of private-equity firm ColonyCapital LLC, said his best investment opportunities can befound in the U.S.

Commentary: A Year in Opinions * 27

2011 M&A Optimism

‘A lot of regulators around the world are applying pressure to

their regulated entities and saying that we want you to be better

capitalized sooner’ - Gary W Parr, Lazard Ltd

Page 29: Bloomberg - 2011 M&a Outlook

Attractive Stocks Likely to Be Takeover TargetsCommentary by John Dorfman

(Oct. 4) -- Before I became an investment manager 13years ago, I spent a decade as a reporter at the Wall StreetJournal. I had a rival at another newspaper who frequentlywrote about takeover rumors.

One day he filed a story saying that Coca-Cola Co. mightbuy Wendy's, the fast-food chain. Coca-Cola respondedwith a statement, which I framed and have held onto allthese years. The Atlanta-based soft drink giant said that itspolicy was not to comment on such speculation, and thatin this case it wanted to add that the reporter "does nothave a clue.“�

People who invest based on unconfirmed reports aboutpossible mergers or acquisitions often do themselves adisservice. If even well-connected pundits are oftenwrong, imagine how far you can go astray if you act onsuch gossip, whether it comes from friends, acquaintancesor stockbrokers.

Commentary: A Year in Opinions * 28

Possible M&A Targets

It's natural to try to pick stocks that will become takeoverbait. If you succeed, it can be very lucrative: purchasesusually occur at a 20 percent to 70 percent premium overthe previous day's trading price.

And now is a good time to seek out such opportunities.The third quarter was the busiest for M&A activity in twoyears.

The best way to play this game is to invest in companieswhose financial characteristics make them attractive topotential buyers. Frequently these are stocks you would behappy to own even if no deal were imminent.

Finding TargetsLast week, I ran a screen to identify such situations.I looked for companies with an enterprise value no more

than six times Ebitda. Enterprise value is the market valueof a company's stock, plus the total of its debt. It gives anapproximation of what one company must pay to acquireanother.

Ebitda is earnings before interest, taxes, depreciation andamortization. Some investors consider it a truerrepresentation of a company's value than earnings undergenerally accepted accounting principles, or GAAP earnings.

For most purposes, I usually prefer GAAP earningsbecause I consider interest, taxes and depreciation realthings, not phantoms. In takeover situations, however,Ebitda may be a better measure.

An acquirer may not care much about those factorsbecause they may be nullified or changed after theacquisition. For example, the buyer might pay off the targetcompany's debt, and not have to worry about interestcharges thereafter.

Key CharacteristicsTo make sure my potential takeover targets were not too

big or too small for acquirers' taste, I restricted my search toU.S. companies with a market value from $500 million to $5billion.

I also looked for ones that sell for 15 times earnings or less, have cash or safe short-term investments of at least $50 million, and have debt less than stockholders' equity.

Those characteristics make a company more attractive toa potential acquirer -- and they are good things to see evenif no one comes courting. When I ran the screen, 75companies made the cut.

Several were for-profit education companies: ITTEducational Services Inc. of Carmel, Indiana; EducationManagement Corp., based in Pittsburgh; Career EducationCorp. in Hoffman Estates, Illinois; and Corinthian CollegesInc. of Santa Ana, California.

S&P RallyThe S&P 500 Index rallied 80 percent from its bear

market low in March 2009 through April 23 of this year,data compiled. The benchmark gauge for U.S. equitiesthen retreated 16 percent through July 2 and has sincerebounded 12 percent.

"They are more confident that we'll be in a sluggishenvironment as opposed to a double-dip,"� said BlairEffron, co-founder of Centerview Partners. "If you askmost companies, they'll say that the next five years will bemuch more difficult than the five years before thedownturn."

Wall Street will probably have to eliminate about80,000 jobs in coming months and year-end bonuses will"disappoint dramatically,"�Meredith Whitney, founder ofMeredith Whitney Advisory Group, said.

2011 M&A Optimism (cont’d)

‘The best way to play this game is to invest in companies whose financial characteristics make

them attractive to potential buyers’

- John Dorfman

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Opportunities Pop UpAnother is Washington Post Co., which is known as a

media company yet gets more than half its revenue from itsKaplan Higher Education unit.

Education stocks have been popping up on value screensfor weeks. They are cheap because the U.S. governmentmay end aid to schools whose students are too slowrepaying federally backed education loans, or whosestudents have low job-placement rates.

In response to criticism that they recruit studentsindiscriminately, including some who have little chance ofbenefiting from their programs, several for-profit schoolshave begun no-fee provisional enrollment programs orinstituted special training sessions to enhance the studyskills of entering students.

The biotech firm Cephalon Inc. is the largest company onthe list, with a stock-market value of about $5 billion. Basedin Frazer, Pennsylvania, its drugs treat pain, cancer andcentral nervous system disorders. The company’s mostsuccessful product is Provigil, a drug that combatsnarcolepsy.

Attractive ValuationsA few years ago I sold Cephalon shares short, betting on

a decline. At that time the stock was expensive, trading at20 to 40 times earnings. I was also concerned about off-label use of Provigil by truck drivers and others trying toinduce wakefulness. I'm still concerned that if the U.S.regulators crack down, Provigil would quickly lose a lot of itssales, but valuations are now favorable with the stockpriced at 11 times earnings.

Information-technology stocks that look like potentialtakeover candidates include Teradyne Inc., a NorthReading, Massachusetts-based maker of semiconductortest equipment; Tech Data Corp., a Clearwater, Florida,distributor of technology products; and Malvern,Pennsylvania-based Vishay Intertechnology Inc., whichmakes transistors, capacitors and other electroniccomponents.

Disclosure note: I have no long or short positions in thestocks discussed above, personally or for clients. Fourstocks that I own did make the 75-stock list: EndoPharmaceuticals Holdings Inc. of Chadds Ford,Pennsylvania; GT Solar International Inc. of Merrimack, NewHampshire; Mirant Corp. of Atlanta; and Rowan Cos. inHouston. Most of these have been discussed in previouscolumns.

Buyout Firms Still Manage to Finagle Hefty ReturnCommentary by David Pauly

(Nov. 11) -- Leveraged buyout firms are struggling. Theyhave been begging lenders for better terms on the heavydebts of companies they control. An iffy stock marketprevents them from unloading their investments on thepublic.

Not all is lost, though. KKR & Co., Bain Capital LLC andBank of America Corp. have pretty much recouped their2006 investment as major players in HCA Inc., the biggestU.S. hospital chain.

You won't be surprised to know they are doing it bypaying themselves dividends out of HCA's pocket andadding still more to the hospital company's debt.

HCA, based in Nashville, Tennessee, this week said in aSecurities and Exchange Commission filing it plans to pay itsowners, including associates of HCA co-founder Thomas F.Frist Jr., and key executives a $2 billion dividend.

HCA distributed $1.75 billion to these same folks inFebruary and paid an additional $500 million to them inMay.

The LBO investors initially said they would put up $5.3billion for their buyout of HCA, borrowing the rest of the$33 billion cost. A later filing with the SEC indicates theymay have invested less.

HCA's three distributions this year total $4.25 billion. IfKKR and the others did invest $5.3 billion, they have earnedback 80% of that in four years. If they invested less, theymay already have gotten most of their money back. Theperson I spoke to at HCA was unable to help me pin thisdown.

The health-care company's total debt was already $26.1billion as of Sept. 30.

Vital SignsHCA is healthy enough, considering all its borrowings.

In the third quarter, the company said it earned $243million on revenue of $7.65 billion. HCA executives saythe new U.S. health-care law will help the company byforcing more patients to have medical insurance.

Let's hope that HCA treats the patients at its 162hospitals and 104 surgery centers as well as it does itsstakeholders.

The company's executives benefited from the 2006buyout right away. They took advantage of the change-of

Returns on LBOs

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control provisions of the deal that enhanced their companyholdings by immediately vesting options and restrictedshares. Jack Bovender Jr. got $46 million in such benefits asthe company's chief executive while then-president RichardBracken made $20 million. As its chief executive last year,Bracken's salary and other pay totaled $12.3 million.

Generating FeesLet's not forget those major stakeholders in all LBOs: Wall

Street firms. They invest in the acquired companies. Theyget adviser fees on the deals. They earn fees for sellingbonds to the bought-out companies and make more fees fortaking thempublic again.

HCA is half-way through the LBO process for a secondtime. It went private in 1989 and public again in 1992. LastMay it announced plans for a public sale of $4.6 billion inshares but hasn't done so because of the tepid initialoffering market.

A successful IPO might allow KKR and HCA's otherinvestors to get an additional return of as much as $2.1billion by selling some of their shares. HCA said $2.5 billionof the sale would be in new shares earmarked for debtpayment.

The preliminary notice for the IPO stated that after thesale, HCA had no plans to pay dividends. No need: KKR, Bainand Bank of America already have done very well on theiroriginal stake in HCA, in spite of the unruly times.

Focus on Private Equity

KKR Sale Means End of Private-Equity StardomCommentary by Roger Lowenstein

(Aug. 3) -- The public stock offering of KKR & Co. put me inmind of three vexing questions.First, if KKR is based on the premise that private equity is abetter, more efficient form of organization, why did KKRitself go public?

Second, is there evidence that private equity is trulybetter? Does society benefit? Do investors? Or only the fundmanagers who pocket those gargantuan fees?

Third, what happened to Congress's plan to end the taxbreak that benefits managers of private-equity funds, aswell as other investment funds? Will it summon the guts totax billionaires at the same rate as other wage-earners?

Private equity has its roots in the leveraged-buyout fad ofthe 1980s. The premise was that public-company chiefexecutives weren't sufficiently rewarded for success, andthus had let their companies drift. Perhaps a small divisionof a big public company was overlooked, or starved for

capital, and would perform better if it were the sole focus ofmanager-owners. Or maybe the CEO was so insulated frommarket pressure, or fattened with guaranteed bonuses, hehad no incentive.

Henry Kravis, a KKR founder, and like apostles preachedthe remedy of going private. Give managers a piece of theaction and, surely, their capitalist juices would stir. Since noteven the KKRs of the world could replace the public equity,most of the enterprise was financed with debt.

Not that this was cause for alarm. Lots of debt meant lotsof interest, which cut the tax man's take. Better still,leverage magnified gains. Admiring scholars added abeguiling coda: high levels of debt were actually a plus, asthe ever-present risk of bankruptcy would keep managerialminds focused.

Celebrated EssayIn a celebrated 1989 essay, Harvard's Michael Jensen

predicted the 'Eclipse of the Public Corporation.' Jensen'senthusiasm proved to be the peak. As early deals begat highprofits, capital rushed in, pushing up buyout prices. Dealssuch as KKR's acquisition of RJR Nabisco didn't make sense,not that that cooled the dealmakers' ardor.

In a trend that troubled even Jensen, buyout kings --supposed paragons of capitalist virtue -- were pocketingprincely fees upfront (rather like the slothful, public CEOsthey were replacing) and irrespective of eventual results. In1990, the buyout market crashed. LBOs with too much "L"experienced the dubious charm of bankruptcy.

Then, after a mild recession, buyouts returned. Thissecond wave was distinguished by two subtle changes.

Sloths DisappearFirst, public-company CEOs, under pressure to raise their

stock prices, were no longer so slothful, if ever they hadbeen so. They were cutting costs, spinning off divisions thatdidn't fit -- the very tricks employed in LBOs. This left fewercompanies susceptible to formulaic, easy improvement.

But the buyout artists were emboldened by the secondchange. Miraculously, they were 'LBO" firms no more; theyhad been reborn as "private equity." The new nameconjured up an image of baronial elegance, as if merely toinvest with a Stephen Schwarzman was to enter a satinyworld of quiet money and managerial brilliance.

Ultimately, Schwarzman bolted for the grubbier, butmore bountiful, world of public markets. Blackstone GroupInc., the private-equity firm he co-founded, got a jump onKKR, going public in 2007. Evidently, buyout kingpins areanxious for an exit strategy, which public shares enable.

The industry has never escaped its boom-to-bust pattern.Strong returns in the early 1990s attracted competition,

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leading to lower returns later in the decade. The cycle wasrepeated in the 2000s, as deals struck in the easy-creditenvironment of 2006-2007 collapsed.

Index FundsHow does the record look overall? Steven Kaplan, a

University of Chicago Business School professor, has beenstudying private equity since the late 1980s. Kaplan’sfindings: some firms solidly beat the pack, though theindustry as a whole bests the stock market by only a modestamount. And after fees, outside investors would do as wellor better with their money in an index fund that tracks theStandard & Poor’s 500.

There is no doubt, Kaplan adds, that private-equity firmsadd operational improvements. But the gains are given backat the outset, in the premiums paid to acquire targets. Andas public-company managements have improved, the gapbetween private and public efficiency has probablynarrowed.

In sum, private equity adds modest and probably onlytemporary efficiencies. As a social good, this isn't exactlycuring cancer.

Which brings us to the issue of taxes. Whereas the fedstax ordinary income at up to 35%, capital gains oninvestments held for more than one year are taxed at only15%, a rate designed to attract investment in capitalmarkets.

Undeserved BreakManagers of private-equity funds, and of other

investment partnerships, enjoy an undeserved exception.The performance fee they charge investors, typically 20percent of profits, is treated as a capital gain and taxed atthe lower rate. This makes no economic sense; an outsideinvestor has the same incentive to participate regardless ofthe tax paid by the manager. It makes sense only if you areHenry Kravis and prefer to pay less.

The House of Representatives has voted three times toend this unwarranted privilege. After the financial crisis, theSenate seemed likely to concur. Then, industry lobbyistsstormed Congress. The matter now rests with the SenateFinance Committee. Since nothing is more arbitrary than theproper rate at which to tax, the only sure principle isconsistency: what one party pays, so should the other.

No great industry is at stake -- private equity is hardly theengine of job creation its flag-waving lobby maintains, andthe industry will survive at any rate. The only principle atstake is fairness: billionaires should pay as much aseveryone else.

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