Forging ahead · 24 PwC Methodology Forging ahead is an analysis of merger and acquisition activity in the global metals industry. Deal information was sourced from Thomson Reuters

Page 1

Vis

it o

ur m

etal

s in

dust

ry w

ebsi

te a

t w

ww

.pw

c.co

m/u

s/in

dust

rial

prod

ucts

© 2

012

Pric

ewat

erho

useC

oope

rs L

LP. A

ll ri

ghts

res

erve

d. “

Pric

ewat

erho

useC

oope

rs”

and

“Pw

C”

refe

r to

Pri

cew

ater

hous

eCoo

pers

LLP

, a D

elaw

are

limit

ed li

abili

ty p

artn

ersh

ip, o

r, a

s th

e co

ntex

t req

uire

s, th

e Pr

icew

ater

hous

eCoo

pers

glo

bal n

etw

ork

or o

ther

mem

ber fi r

ms

of th

e ne

twor

k, e

ach

of w

hich

is a

sep

arat

e le

gal e

ntit

y. T

his

docu

men

t is

for

gene

ral i

nfor

mat

ion

purp

oses

onl

y, a

nd s

houl

d no

t be

used

as

a su

bsti

tute

for

cons

ulta

tion

wit

h pr

ofes

sion

al a

dvis

ors.

MW

-12-

0199

kd

Spec

ial r

epor

t:U

sing

div

esti

ture

s and

sp

in-o

ffs t

o po

siti

on a

n or

gani

zati

on fo

r gr

owth

Forg

ing

ah

ead

Four

th-q

uart

er 2

011

glob

al

met

als

indu

stry

mer

gers

an

d ac

quis

itio

ns a

naly

sis

ww

w.p

wc.

com

/us/

indu

stri

alpr

oduc

ts

Page 2

Page 3

24

P

wC

Met

ho

do

logy

Forg

ing

ahea

d is

an

anal

ysis

of m

erge

r an

d ac

quis

itio

n ac

tivi

ty in

the

glob

al m

etal

s in

dust

ry. D

eal i

nfor

mat

ion

was

sou

rced

from

Tho

mso

n R

eute

rs a

nd in

clud

es d

eals

for

targ

ets

wit

h pr

imar

y SI

C c

odes

that

fall

into

one

of t

he

follo

win

g in

dust

ry g

roup

s: ir

on o

res;

ferr

oallo

y or

es, e

xcep

t va

nadi

um; s

teel

wor

ks, b

last

furn

aces

, rol

ling

mill

s, a

nd

fi nis

hing

mill

s; ir

on a

nd s

teel

foun

drie

s; p

rim

ary

smel

ting

an

d refi n

ing/

nonf

erro

us; s

econ

dary

sm

elti

ng a

nd r

efi n

ing/

nonf

erro

us; r

ollin

g, d

raw

ing,

and

ext

rudi

ng/n

onfe

rrou

s;

nonf

erro

us fo

undr

ies;

mis

cella

neou

s pr

imar

y m

etal

s pr

oduc

ts; a

nd m

etal

s se

rvic

e ce

nter

s an

d offi c

es. B

alan

ce

shee

t dat

a w

as s

ourc

ed fr

om p

ublic

com

pany

rep

orts

.

This

ana

lysi

s in

clud

es a

ll in

divi

dual

mer

gers

and

ac

quis

itio

ns fo

r di

sclo

sed

or u

ndis

clos

ed v

alue

s, le

vera

ged

buyo

uts,

pri

vati

zati

ons,

min

orit

y st

ake

purc

hase

s, a

nd

acqu

isit

ions

of r

emai

ning

inte

rest

ann

ounc

ed b

etw

een

Janu

ary

1, 2

010,

and

Dec

embe

r 31

, 201

1, w

ith

a st

atus

of

com

plet

ed, i

nten

ded,

par

tial

ly c

ompl

eted

, pen

ding

, pen

ding

re

gula

tory

app

rova

l, un

cond

itio

nal (

i.e. i

niti

al c

ondi

tion

s se

t for

th b

y th

e ac

quir

er h

ave

been

met

but

dea

l has

not

been

com

plet

ed),

or

wit

hdra

wn.

The

term

dea

l, w

hen

refe

renc

ed h

erei

n, r

efer

s to

tran

sact

ions

wit

h a

disc

lose

d va

lue

of a

t lea

st $

50 m

illio

n un

less

oth

erw

ise

note

d.

Reg

iona

l cat

egor

ies

used

in th

is re

port

app

roxi

mat

e U

nite

d N

atio

ns (

UN

) re

gion

al g

roup

s, a

s de

term

ined

by

the

UN

Sta

tistic

s D

ivis

ion,

wit

h th

e ex

cept

ion

of th

e N

orth

A

mer

ica

regi

on (

incl

udes

Nor

th A

mer

ica,

Lat

in A

mer

ica,

an

d th

e C

arib

bean

UN

gro

ups)

, the

Asi

a an

d O

cean

ia re

gion

(i

nclu

des

Asi

a an

d O

cean

ia U

N g

roup

s), a

nd E

urop

e (d

ivid

ed

into

Uni

ted

King

dom

and

Eur

ozon

e an

d Eu

rope

ex-

UK

an

d Eu

rozo

ne re

gion

s). I

nter

natio

nal M

onet

ary

Fund

cl

assifi c

atio

ns w

ere

used

to la

bel e

cono

mie

s as

adv

ance

d or

de

velo

ping

and

em

ergi

ng. O

vers

eas

terr

itori

es w

ere

incl

uded

in

the

regi

on o

f the

par

ent c

ount

ry. C

hina

, whe

n re

fere

nced

se

para

tely

, inc

lude

s H

ong

Kong

.

Com

peti

ng d

eals

, not

just

the

ulti

mat

e su

cces

sful

dea

l pa

rtne

r, w

ere

incl

uded

in th

e da

ta s

et u

sed

thro

ugho

ut th

e do

cum

ent.

Fo

rgin

g a

hea

d

1

To o

ur

met

als

ind

ust

ry r

ead

ers:

Wel

com

e to

the

late

st e

diti

on o

f For

ging

ahe

ad, P

wC

’s an

alys

is o

f mer

gers

and

acq

uisi

tion

s in

the

glob

al m

etal

s in

dust

ry. I

n th

is r

epor

t, y

ou’ll

fi nd

an

over

view

of M

&A

in th

e se

ctor

du

ring

the

four

th q

uart

er o

f 201

1, p

lus

expe

ctat

ions

for

deal

act

ivit

y in

the

near

futu

re.

We

also

incl

ude

a sp

ecia

l sec

tion

on

the

impa

ct o

f div

esti

ture

s an

d sp

in-o

ffs,

incr

easi

ngly

vi

ewed

as

esse

ntia

l str

ateg

ies

for

help

ing

com

pani

es to

bet

ter

posi

tion

them

selv

es fo

r gr

owth

opp

ortu

niti

es.

PwC

ana

lyst

s po

int t

o se

vera

l tre

nds

affe

ctin

g th

e va

lues

and

loca

tion

s of

dea

ls in

the

met

als

sect

or:

• In

dea

ls v

alue

d at

$50

mil

lion

or

mor

e, th

e av

erag

e va

lue

incr

ease

d by

mor

e th

an

20%

ove

r th

e th

ird

quar

ter,

ste

mm

ing

from

incr

ease

d m

ega-

deal

act

ivit

y (d

eals

val

ued

at $

1 bi

llion

or

mor

e). O

vera

ll de

al v

olum

e an

d va

lue

incr

ease

d as

wel

l. Fo

r 20

11,

how

ever

, ave

rage

dea

l val

ue d

eclin

ed c

ompa

red

wit

h 20

10; t

he h

igh

aver

age

of

2010

larg

ely

stem

med

from

the

BH

P-B

illit

on d

eal d

urin

g th

e se

cond

qua

rter

that

w

as la

ter

wit

hdra

wn.

• C

ash

bal

ance

s h

ave

incr

ease

d ov

er th

e la

st tw

o ye

ars,

whi

le d

ebt t

o ca

pita

l rat

ios

have

de

clin

ed, s

ugge

stin

g th

at a

cqui

rers

are

bec

omin

g be

tter

cap

ital

ized

ove

r th

e lo

ng te

rm.

Stoc

k-sw

ap d

eals

hav

e in

crea

sed,

poi

ntin

g to

the

pote

ntia

l for

equ

ity-

fund

ed e

xpan

sion

, bu

t lev

erag

ed b

uyou

ts h

ave

decl

ined

, ind

icat

ing

that

fi na

ncia

l inv

esto

rs m

ay b

e re

luct

ant t

o en

gage

in d

eals

.

• Th

ree

meg

a-de

als

wer

e an

noun

ced

in 4

Q11

: the

pro

pose

d ac

quis

itio

ns o

f Chi

na’s

Heb

ei S

houg

ang

Qia

n’an

Iron

& S

teel

, Bra

zil’s

Usi

na S

ider

urgi

cas

de M

inas

Ger

ais,

and

th

e U

S-ba

sed

Com

mer

cial

Met

als.

The

dea

ls, w

orth

$7.

36 b

illio

n, c

ompr

ised

mor

e th

an

half

of t

he to

tal f

or d

eals

val

ued

at $

50 m

illio

n or

mor

e.

• A

sia

and

Oce

ania

dro

ve o

vera

ll r

egio

nal d

eal v

alue

in 2

011.

And

a r

epea

t is

likel

y in

20

12. C

hina

con

tinu

es to

con

solid

ate

its

dom

esti

c m

etal

s in

dust

ry a

s pa

rt o

f its

Tw

elft

h Fi

ve Y

ear

Plan

.

Whi

le s

teel

pri

ces

seem

to h

ave

stab

ilize

d, e

xpec

tati

ons

are

that

201

2 w

ill b

ring

a s

low

dow

n in

the

stee

l ind

ustr

y, g

iven

wea

keni

ng g

loba

l dem

and

and

tigh

ter

cont

rol o

f the

Chi

nese

rea

l es

tate

mar

ket.

Con

sequ

entl

y, m

etal

s de

als

will

gro

w o

nly

mod

erat

ely,

wit

h ro

bust

incr

ease

s in

M&

A u

nlik

ely

unti

l met

al p

rice

s an

d ot

her

fund

amen

tals

impr

ove.

We’

re p

leas

ed to

pre

sent

the

four

th-q

uart

er 2

011

edit

ion

of F

orgi

ng a

head

as

a pa

rt o

f our

on

goin

g co

mm

itm

ent t

o pr

ovid

ing

a be

tter

und

erst

andi

ng o

f M&

A tr

ends

and

pro

spec

ts in

th

e in

dust

ry.

Rob

ert M

cCut

cheo

n Ji

m F

orbe

sU

S M

etal

s Le

ader

G

loba

l Met

als

Lead

er

Rob

ert M

cCut

cheo

n

Jim

For

bes

Page 4

2

Pw

C

Spec

ial r

epo

rt:

Usi

ng d

ives

titur

es a

nd s

pin-

offs

to p

ositi

on a

n or

gani

zatio

n fo

r gro

wth

Glo

bal m

erge

r an

d ac

quis

itio

n ac

tivi

ty h

as r

isen

sig

nifi c

antl

y in

rec

ent y

ears

, inc

reas

ing

to $

2.54

trill

ion

in 2

011,

a 7

.6%

ju

mp

over

201

0.1 U

S M

&A

act

ivit

y is

exp

ecte

d to

con

tinu

e at

th

e cu

rren

t pac

e th

roug

h 20

12 a

nd c

ould

acc

eler

ate

if th

ere

is in

crea

sed

acce

ss to

cap

ital

.2 M&

A a

ctiv

ity

has

show

n a

rise

in th

e nu

mbe

r an

d va

lue

of d

ives

titu

res

and

spin

-off

s.

US

dive

stit

ure

deal

vol

ume

as a

per

cent

age

of to

tal M

&A

vo

lum

e in

crea

sed

to 3

6% in

201

1 fr

om 3

5% in

201

0,

acco

rdin

g to

Pw

C.3

Alt

houg

h di

vest

itur

e ac

tivi

ty h

as in

crea

sed,

the

tran

sact

ions

ha

ve ta

ken

long

er to

clo

se th

an in

pre

viou

s ye

ars.

Som

e co

mpa

nies

hav

e be

en fo

rced

to g

o to

mar

ket s

ever

al ti

mes

be

fore

suc

cess

fully

str

ikin

g de

als

wit

h bu

yers

. Als

o sl

owin

g su

ch d

eals

are

the

follo

win

g:

• Ti

ghte

r le

ndin

g st

anda

rds

for

a sm

alle

r po

ol o

f buy

ers

• In

vest

ors

mad

e sk

itti

sh b

y vo

lati

le s

tock

mar

kets

• So

vere

ign

debt

cri

ses

in E

urop

e an

d th

e U

nite

d St

ates

• A

n un

cert

ain

econ

omic

fore

cast

• Sh

rink

ing

gove

rnm

ent s

pend

ing

Thir

d-pa

rty

lend

ers

and

othe

r co

nsti

tuen

ts a

re r

equi

ring

m

ore

dilig

ence

, and

, eve

n w

hen

they

don

’t, b

uyer

s ar

e be

ing

mor

e ca

utio

us. I

n th

e m

id-s

ize

mar

ket,

cor

pora

te b

uyer

s ha

ve b

een

prep

ared

to p

ay s

tron

ger

mul

tipl

es fo

r th

e hi

ghes

t-qu

alit

y in

dust

rial

pro

duct

s bu

sine

sses

. Pro

cess

es

are

also

bei

ng s

truc

ture

d to

bet

ter

bene

fi t tr

ade

buye

rs, a

s ve

ndor

s ar

e ab

le to

pro

vide

them

wit

h m

ore

acce

ss to

m

anag

emen

t and

mor

e ti

me,

alt

houg

h th

ey e

xpec

t to

be

paid

for

thei

r sy

nerg

ies.

Buy

ers

also

are

oft

en m

ore

aggr

essi

ve in

see

king

a p

rice

be

low

the

valu

e so

ught

by

selle

rs. B

ut m

any

com

pani

es

cont

inue

to v

iew

div

esti

ture

s an

d sp

in-o

ffs

as e

ffec

tive

st

rate

gies

for

shed

ding

non

core

bus

ines

ses,

rig

htsi

zing

thei

r or

gani

zati

ons,

and

pro

vidi

ng a

pla

tfor

m fo

r gr

owth

.

Spin

-off

s w

ere

on th

e ri

se in

201

1 as

an

attr

acti

ve w

ay fo

r co

mpa

nies

to s

epar

ate

thei

r hi

gh-g

row

th o

r lo

w-g

row

th

com

pone

nts

from

mor

e tr

adit

iona

l pie

ces

of th

e bu

sine

ss.

Such

was

the

case

wit

h se

vera

l hig

h-pr

ofi le

tran

sact

ions

, in

clud

ing

ITT’

s sp

lit in

to th

ree

publ

icly

trad

ed c

ompa

nies

, M

otor

ola’

s sp

in-o

ff o

f its

mob

ile p

hone

div

isio

n, M

cGra

w-

Hill

’s sp

in-o

ff o

f its

edu

cati

onal

uni

t, L

-3’s

anno

unce

d sp

in-o

ff o

f sev

eral

gov

ernm

ent s

ervi

ces

busi

ness

es, a

nd

Sara

Lee

’s sp

in-o

ff o

f its

inte

rnat

iona

l bev

erag

e bu

sine

ss.

The

met

als

sect

or h

as s

een

M&

A a

ctiv

ity

incr

ease

, too

. The

12

2 d

eals

wit

h a

disc

lose

d va

lue

grea

ter

than

$50

mill

ion

and

a to

tal d

eal v

alue

of $

55.2

bill

ion

dur

ing

2011

co

mpa

res

wit

h 10

6 de

als

and

$92.

6 bi

llion

in d

eal v

alue

in

201

0. D

ives

titu

res

and

spin

-off

s ac

coun

ted

for

38.5

% o

f de

al a

ctiv

ity

in th

e se

ctor

dur

ing

2011

.

Am

ong

the

driv

ers

of s

pin-

offs

and

div

esti

ture

s in

the

met

als

sect

or:

• Sh

ifts

in th

e va

lue

chai

n, w

ith

upw

ard

pric

ing

pres

sure

in

raw

mat

eria

ls a

nd c

omm

odit

ies

crea

ting

cha

lleng

es

for

conv

erte

rs c

ompa

red

wit

h th

e co

mpa

nies

that

are

ve

rtic

ally

inte

grat

ed. G

oing

forw

ard,

wha

t will

the

profi

t m

argi

ns lo

ok li

ke if

the

indu

stry

shi

fts

tow

ard

com

mod

ity

prod

ucer

s?

• Po

rtfo

lio r

atio

naliz

atio

n, w

ith

com

pani

es m

akin

g de

cisi

ons

hing

ing

on w

hich

bus

ines

ses

they

bel

ieve

will

be

profi t

able

in th

e fu

ture

and

whi

ch w

ill n

ot.

• C

once

rns

rega

rdin

g ge

ogra

phic

foot

prin

ts in

mar

kets

. C

erta

in c

ount

ries

or

regi

ons

may

not

be

as p

rofi t

able

as

in p

revi

ous

year

; it m

ay b

e ri

sky

to d

ives

t of a

sset

s in

th

ose

mar

kets

.

• A

ref

ocus

ing

on c

ore

com

pete

ncie

s an

d sh

eddi

ng o

f no

ncor

e bu

sine

sses

.

• Pr

essu

res

from

dis

tres

sed

mar

kets

, par

ticu

larl

y in

Eur

ope.

• In

tere

st fr

om s

trat

egic

buy

ers

wit

h m

ore

inte

grat

ed

oper

atio

ns o

r fr

om fi

nanc

ial b

uyer

s se

ekin

g to

m

ake

thei

r bu

sine

sses

mor

e at

trac

tive

to fu

ture

st

rate

gic

buye

rs.

1 “

On

Wal

l Str

eet,

Ren

ewed

Op

timis

m f

or D

eal-

Mak

ing,

” b

y E

vely

n M

. Rus

li, T

he N

ew Y

ork

Tim

es, J

an. 2

, 201

2.2

“‘H

unt

for

Gro

wth

to

driv

e 20

12 U

S M

erge

rs &

Acq

uisi

tions

,’ sa

ys P

wC

US

,” P

wC

, 201

2.3

ibid

.

Fo

rgin

g a

hea

d

23

Co

nta

cts

Pw

C G

lob

al T

ran

sact

ion

Ser

vice

s p

ract

ice

PwC

’s Tr

ansa

ctio

n Se

rvic

es p

ract

ice

offe

rs a

full

rang

e of

tax,

fi na

ncia

l, bu

sine

ss a

ssur

ance

, and

adv

isor

y ca

pabi

litie

s co

veri

ng a

cqui

siti

ons,

dis

posa

ls, p

riva

te e

quit

y, s

trat

egic

M&

A a

dvic

e, a

dvic

e on

list

ed c

ompa

ny tr

ansa

ctio

ns, fi

nan

cing

, an

d pu

blic

-pri

vate

par

tner

ship

s.

Pw

C G

lob

al M

eta

ls p

ract

ice

PwC

’s M

etal

s pr

actic

e pr

ovid

es in

dust

ry-f

ocus

ed a

ssur

ance

, tax

, and

adv

isor

y se

rvic

es. T

hrou

gh o

ur g

loba

l net

wor

k, w

e m

ay

draw

upo

n th

e in

-dep

th in

dust

ry e

xper

ienc

e of

pro

fess

iona

ls in

eve

ry c

ount

ry in

whi

ch y

our c

ompa

ny o

pera

tes.

Our

peo

ple

may

hel

p yo

u de

al w

ith

the

chal

leng

es o

f tod

ay, a

nd th

ey u

nder

stan

d th

e im

plic

atio

ns fo

r tom

orro

w.

US

Met

als

Indu

stry

Lea

der

Rob

ert M

cCut

cheo

n —

+1.

412.

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n@us

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als

Tax

Lead

erM

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era

— +

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Met

als

Adv

isor

y Le

ader

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Her

rman

n —

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US

Met

als

Tran

sact

ion

Serv

ices

Dir

ecto

r Jo

aqui

n O

live

ras

— +

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6.47

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nt S

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dvis

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etal

s Le

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Jim

For

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ca.p

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com

US

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stri

al P

rodu

cts

Dir

ecto

rTh

omas

Wal

ler

— +

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as.a

.wal

ler@

us.p

wc.

com

US

Met

als

Lead

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lyst

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Gaf

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trib

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p.bo

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com

US

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sact

ion

Serv

ices

, Ass

uran

ceB

rian

Vic

krey

— +

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2.29

8.29

30

bria

n.vi

ckre

y@us

.pw

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US

Tran

sact

ion

Serv

ices

, Tax

Mic

hae

l Kli

egm

an —

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646.

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sact

ion

Serv

ices

, Mer

ger

Inte

grat

ion

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id L

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bal T

rans

acti

on S

ervi

ces

Lead

erC

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McK

ay —

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@us

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US

Tran

sact

ion

Serv

ices

Lea

der

Joh

n M

cCaf

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— +

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.p.m

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us.p

wc.

com

Euro

pe T

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on S

ervi

ces

Lead

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a-Pa

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s Le

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o C

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Pw

C C

orp

ora

te F

ina

nce

glo

ba

l net

wo

rk

For

Cor

pora

te F

inan

ce s

ervi

ces

in th

e U

nite

d St

ates

pl

ease

con

tact

:

US

Indu

stri

al P

rodu

cts

Cor

pora

te F

inan

ce L

eade

rPr

icew

ater

hous

eCoo

pers

Cor

pora

te F

inan

ce L

LCR

akes

h K

otec

ha —

+1.

312.

298.

2895

rake

sh.r

.kot

echa

@us

.pw

c.co

m

For

Cor

pora

te F

inan

ce s

ervi

ces

outs

ide

the

Uni

ted

Stat

espl

ease

con

tact

:

Glo

bal C

orpo

rate

Fin

ance

Lea

der

Chr

is H

emm

ings

— +

44.2

0.78

0.45

703

chri

s.he

mm

ings

@uk

.pw

c.co

m

Page 5

22

P

wC

Pw

C’s

met

als

exp

erie

nce

Dee

p m

eta

ls e

xper

ien

ce

PwC

con

tinu

es to

hav

e th

e le

adin

g Fo

rtun

e G

loba

l 500

m

arke

t sha

re in

the

met

als

indu

stry

. Our

Met

als

prac

tice

se

rves

ferr

ous

and

nonf

erro

us p

rim

ary

and

seco

ndar

y m

etal

s pr

oduc

ers

thro

ugh

a ne

twor

k of

mor

e th

an 1

,000

pr

ofes

sion

als

stra

tegi

cally

loca

ted

arou

nd th

e w

orld

. Cen

tral

to

the

succ

essf

ul d

eliv

ery

of o

ur s

ervi

ces

is a

n in

-dep

th

unde

rsta

ndin

g of

toda

y’s

indu

stry

issu

es, i

n ad

diti

on to

our

w

ealt

h of

indu

stry

res

ourc

es a

nd “

best

pra

ctic

es”

that

hel

p in

sol

ving

com

plex

bus

ines

s ch

alle

nges

. Our

hig

hly

skill

ed

team

enc

oura

ges

dial

ogue

on

tren

ds a

nd is

sues

thro

ugh

part

icip

atio

n in

indu

stry

con

fere

nces

and

ass

ocia

tion

s, s

uch

as th

e A

mer

ican

Iron

and

Ste

el In

stit

ute,

as

wel

l as

thro

ugh

indu

stry

-foc

used

pub

licat

ions

and

Web

foru

ms.

To

addr

ess

your

indu

stry

nee

ds w

here

ver

they

ari

se, o

ur p

rofe

ssio

nals

ar

e co

ncen

trat

ed in

are

as w

here

the

met

als

indu

stry

op

erat

es to

day

and

in th

e em

ergi

ng m

arke

ts w

here

it

will

ope

rate

in th

e fu

ture

.

Qu

ali

ty d

eal p

rofe

ssio

na

ls

PwC

’s Tr

ansa

ctio

n Se

rvic

es p

ract

ice,

wit

h m

ore

than

6,5

00

dedi

cate

d de

al p

rofe

ssio

nals

wor

ldw

ide,

has

the

righ

t in

dust

ry a

nd fu

ncti

onal

exp

erie

nce

to a

dvis

e yo

u on

var

ious

fa

ctor

s th

at c

ould

aff

ect a

tran

sact

ion,

incl

udin

g m

arke

t,

fi nan

cial

acc

ount

ing,

tax,

hum

an r

esou

rces

, ope

rati

ng, I

T,

and

supp

ly c

hain

con

side

rati

ons.

Tea

med

wit

h ou

r M

etal

s pr

acti

ce, o

ur tr

ansa

ctio

n pr

ofes

sion

als

may

bri

ng a

uni

que

pers

pect

ive

to y

our

deal

, add

ress

ing

it fr

om a

tech

nica

l as

pect

as

wel

l as

from

an

indu

stry

poi

nt o

f vie

w.

Glo

ba

l co

nn

ecti

on

In a

ddit

ion

to th

e m

ore

than

1,0

00 p

rofe

ssio

nals

who

se

rve

the

met

als

indu

stry

, our

team

is p

art o

f an

expa

nsiv

e In

dust

rial

Pro

duct

s gr

oup

that

con

sist

s of

mor

e th

an 3

2,00

0 pr

ofes

sion

als,

incl

udin

g ap

prox

imat

ely

17,0

00 p

rovi

ding

as

sura

nce

serv

ices

, 8,3

00 p

rovi

ding

tax

serv

ices

, and

7,0

00

prov

idin

g ad

viso

ry s

ervi

ces.

Thi

s ex

pand

s ou

r gl

obal

fo

otpr

int a

nd e

nabl

es u

s to

con

cent

rate

eff

orts

in b

ring

ing

clie

nts

a gr

eate

r de

pth

of ta

lent

, res

ourc

es, a

nd k

now

-how

in

the

mos

t eff

ecti

ve a

nd ti

mel

y w

ay.

Sout

h A

mer

ica

1,96

0 In

dust

rial

Pro

duct

s pr

ofes

sion

als

155

Met

als

indu

stry

pro

fess

iona

ls

Nor

th A

mer

ica

5,70

0 In

dust

rial

Pro

duct

s pr

ofes

sion

als

225

Met

als

indu

stry

pro

fess

iona

ls

Euro

pe12

,700

Indu

stri

al P

rodu

cts

prof

essi

onal

s31

5 M

etal

s in

dust

ry p

rofe

ssio

nals

Mid

dle

East

& A

fric

a1,

360

Indu

stri

al P

rodu

cts

prof

essi

onal

s46

Met

als

indu

stry

pro

fess

iona

ls

Asi

a9,

000

Indu

stri

al P

rodu

cts

prof

essi

onal

s19

5 M

etal

s in

dust

ry p

rofe

ssio

nals

Aus

tral

ia &

Pac

ifi c

Isla

nds

1,00

0 In

dust

rial

Pro

duct

s pr

ofes

sion

als

70 M

etal

s in

dust

ry p

rofe

ssio

nals

Fo

rgin

g a

hea

d

3

Dri

vin

g sp

in-o

ffs

an

d d

ives

titu

res

Spin

-off

s ar

e of

ten

the

way

to d

ispo

se o

f a b

usin

ess

whi

le

pres

ervi

ng s

hare

hold

er v

alue

. For

bus

ines

ses

wit

h si

gnifi

cant

app

reci

ated

val

ue, t

hey

are

a so

und

stra

tegy

in

stea

d of

a s

ale,

whi

ch m

ay tr

igge

r a

larg

e ta

xabl

e ga

in. A

sp

in-o

ff is

a ta

x-fr

ee tr

ansa

ctio

n th

at a

llow

s sh

areh

olde

rs to

m

aint

ain

thei

r ap

prec

iate

d va

lue

wit

hout

trig

geri

ng a

gai

n.

This

cha

ract

eris

tic

allo

ws

shar

ehol

ders

to p

rese

rve

capi

tal

gain

s tr

eatm

ent a

nd c

ontr

ol th

e ti

min

g of

the

real

izat

ion

of

the

gain

. Fol

low

ing

the

repe

al o

f the

Gen

eral

Uti

litie

s D

octr

ine,

a ta

x-fr

ee S

ecti

on 3

55 s

pin-

off m

ay b

e th

e on

ly

rem

aini

ng m

eans

by

whi

ch a

cor

pora

tion

may

ext

ract

ap

prec

iate

d as

sets

wit

hout

pay

ing

corp

orat

e-le

vel t

ax.

Selli

ng a

long

-sta

ndin

g un

it o

f a c

ompa

ny c

an b

e a

diffi

cul

t,

and

ofte

n co

ntro

vers

ial,

deci

sion

for

an o

rgan

izat

ion,

pa

rtic

ular

ly if

mem

bers

of t

he m

anag

emen

t tea

m h

ave

ties

to

the

unit

bei

ng d

ives

ted.

But

by

selli

ng a

bus

ines

s un

it

that

is n

o lo

nger

par

t of t

he c

ore

stra

tegy

bec

ause

it m

ay b

e po

orly

per

form

ing,

in a

con

trac

ting

mar

ket,

or

sim

ply

no

long

er a

pri

orit

y, a

com

pany

may

rai

se c

apit

al to

inve

st in

it

s st

rate

gic

prio

riti

es a

nd a

llow

the

busi

ness

uni

t to

do th

e sa

me,

pos

sibl

y en

hanc

ing

over

all s

hare

hold

er v

alue

.

By

taki

ng s

uch

an a

ppro

ach,

an

orga

niza

tion

may

gai

n th

e fi n

anci

al r

esou

rces

to in

ject

add

itio

nal f

undi

ng in

to it

s co

re

busi

ness

. It m

ay r

efoc

us o

n es

sent

ial a

spec

ts o

f the

bus

ines

s th

at h

elp

defi n

e th

e or

gani

zati

on a

nd la

unch

key

pro

ject

s th

at m

ay h

ave

been

del

ayed

. The

se in

itia

tive

s m

ay a

llow

the

com

pany

to im

prov

e it

s ov

eral

l per

form

ance

. The

infu

sion

of

cas

h m

ay a

lso

help

a c

ompa

ny s

hed

its

debt

.

Add

itio

nally

, cer

tain

sel

lers

are

inte

rest

ed in

acq

uiri

ng

capi

tal a

s co

mpa

nies

look

to r

estr

uctu

re th

eir

bala

nce

shee

ts

by b

uild

ing

up c

ash

rese

rves

or

payi

ng d

own

debt

. Sel

ling

a hi

gh-p

erfo

rmin

g or

hig

h-va

lue

busi

ness

uni

t at a

des

irab

le

pric

e m

ay g

o a

long

way

tow

ard

help

ing

a co

mpa

ny a

chie

ve

such

a g

oal.

Na

viga

tin

g a

ch

all

engi

ng

pro

cess

Cor

pora

te s

elle

rs o

ften

del

ay m

akin

g di

vest

itur

e de

cisi

ons

than

ks to

the fi n

anci

al a

nd lo

gist

ical

cha

lleng

es o

f tim

ing,

va

luat

ion,

and

pot

enti

al p

ushb

ack

from

man

agem

ent t

eam

s ru

nnin

g ta

rget

ed b

usin

ess

unit

s. P

arti

cipa

nts

in a

Pw

C

roun

dtab

le o

n di

vest

itur

e st

rate

gies

and

sol

utio

ns n

oted

th

at fa

iling

to a

dequ

atel

y co

nsid

er th

ese

fact

ors

may

co

ntri

bute

to a

por

tfol

io r

evie

w th

at is

poo

rly

plan

ned,

in

turn

dri

ving

unh

ealt

hy o

r co

nfl ic

ting

ince

ntiv

es a

cros

s an

or

gani

zati

on. S

uch

a dy

nam

ic m

ay le

ad to

inst

itut

iona

l re

sist

ance

to id

enti

fyin

g di

vest

itur

e ca

ndid

ates

and

can

ul

tim

atel

y ha

mpe

r or

der

ail d

ives

titu

re e

ffor

ts. T

imin

g,

pric

e, a

nd e

ase

are

prio

riti

es to

bal

ance

whe

n ev

alua

ting

ca

ndid

ates

for

dive

stit

ure.

Onc

e m

ovin

g fo

rwar

d w

ith

a di

vest

itur

e, le

ader

ship

and

inve

stor

s m

ay fo

cus

on th

e fu

ture

of

the

core

bus

ines

s an

d ex

pedi

ting

the

dive

stit

ure

to li

mit

ex

ecut

ive

and

inve

stor

dis

trac

tion

s.4

The

road

to c

losi

ng a

lso

may

be

long

and

com

plex

, wit

h gl

obal

eco

nom

ic u

ncer

tain

ty in

crea

sing

ly le

adin

g bu

yers

to

exp

ect a

nd d

eman

d m

ore

deta

iled

data

abo

ut a

targ

et

com

pany

. Mor

e in

tens

ive

and

exte

nsiv

e du

e di

ligen

ce is

ex

tend

ing

the

dive

stit

ure

proc

ess.

4 “

Div

estit

ure

stra

tegi

es a

nd s

olut

ions

,” P

wC

, 200

9.5

“D

ives

titur

es in

diffi

cul

t tim

es,”

Pw

C, 2

009.

Com

pani

es in

rece

nt y

ears

hav

e bec

ome a

war

e of

gap

s in

thei

r app

roac

h to

div

estit

ures

: Nea

rly

half

of th

e C-s

uite

exe

cutiv

es a

nd co

rpor

ate

deve

lopm

ent d

irec

tors

resp

ondi

ng to

a P

wC

su

rvey

repo

rted

thei

r acq

uisi

tion

proc

ess w

as

bett

er d

efi n

ed th

an th

eir d

ives

titur

e pro

cess

.

Mor

e tha

n ha

lf of

resp

onde

nts i

n th

e sam

e sur

vey

said

that

rece

nt d

ives

titur

es h

ad ta

ken

at le

ast

20%

long

er to

com

plet

e tha

n in

pre

viou

s yea

rs.5

Page 6

4

Pw

C

For

a co

rpor

ate

enti

ty, d

ives

titu

res

typi

cally

are

far

less

co

mm

on th

an a

cqui

siti

ons.

Con

sequ

entl

y, th

ere

are

grea

t ch

alle

nges

whe

n it

com

es to

eff

ecti

vely

man

agin

g th

e pr

oces

s an

d dr

awin

g on

thei

r te

am’s

expe

rien

ces.

Any

co

mpa

ny p

lann

ing

an a

cqui

siti

on m

ay o

btai

n si

gnifi

cant

va

lue

and

mee

t its

bus

ines

s ca

se b

y ch

oosi

ng th

e ap

prop

riat

e ta

rget

, ach

ievi

ng p

lann

ed s

yner

gies

, and

ef

fect

ivel

y in

tegr

atin

g th

e ta

rget

. A m

anag

emen

t tea

m

accu

stom

ed to

ser

ial a

cqui

siti

ons

may

con

duct

thes

e ac

tivi

ties

as

core

cap

abili

ties

. How

ever

, the

ski

lls a

re

not a

s re

leva

nt fo

r a

dive

stit

ure.

Ove

r th

e ye

ars,

a c

ompa

ny r

efi n

es th

e lis

t of t

arge

ts it

wou

ld

seek

to a

cqui

re a

t the

app

ropr

iate

tim

e an

d pr

ice,

and

m

anag

emen

t pay

s cl

ose

atte

ntio

n to

the

targ

ets,

som

e of

w

hich

may

be

com

peti

tors

. Ide

ntif

ying

a th

orou

gh li

st o

f bu

yers

may

be

mor

e ch

alle

ngin

g to

man

agem

ent t

eam

s —

fo

r ex

ampl

e, w

hen

suit

able

buy

ers

may

not

wor

k di

rect

ly in

th

e sa

me

indu

stry

but

inst

ead

may

be

seek

ing

to e

nter

it.

Con

sequ

entl

y, s

elle

rs a

re p

ayin

g cl

oser

att

enti

on to

how

th

ey m

anag

e th

e di

vest

itur

e pr

oces

s, fr

om s

tart

to fi

nish

. Th

ey fr

eque

ntly

ass

embl

e a

team

ded

icat

ed to

man

agin

g an

d ex

ecut

ing

the

deal

and

the

oper

atio

nal s

epar

atio

n si

mul

tane

ousl

y.

To c

lose

dea

ls a

nd in

crea

se th

e va

lue

of th

eir

asse

ts, s

elle

rs

are

stri

ving

to g

ain

a be

tter

, mor

e de

taile

d un

ders

tand

ing

of

the

com

plex

itie

s of

the

dive

stit

ure

mar

ket.

The

y ar

e ga

ugin

g th

e w

ide

scop

e of

buy

er c

once

rns

and

resp

ondi

ng to

the

glob

al e

cono

mic

cri

ses

that

hav

e ch

ange

d th

e ru

les

of th

e ga

me,

req

uiri

ng a

twea

k in

str

ateg

ies.

The

over

ridi

ng g

oal i

s to

eva

luat

e th

e bu

sine

ss fr

om a

bu

yer’

s pe

rspe

ctiv

e an

d be

tter

pos

itio

n it

for

sale

. Red

ucin

g or

avo

idin

g de

lays

alt

oget

her

may

be

esse

ntia

l to

mai

n-ta

inin

g th

e de

sire

d va

lue

of th

e sa

le b

ecau

se th

e lo

nger

a

tran

sact

ion

take

s, th

e m

ore

oppo

rtun

ity

ther

e is

for

valu

e er

osio

n.

Als

o he

lpfu

l is

to p

repa

re fo

r se

para

ting

the

oper

atio

ns o

f th

e un

it fr

om th

e pa

rent

com

pany

as

earl

y as

pos

sibl

e w

hen

deal

pre

para

tion

s be

gin.

Loo

king

out

for

the

unex

pect

ed,

incl

udin

g du

al-t

rack

tran

sact

ions

(sa

le o

r sp

in-o

ff),

als

o m

ay h

elp

mak

e de

als

succ

essf

ul..

Ask

ing

rele

van

t q

ues

tio

ns

up

fro

nt

Whe

n pl

anni

ng a

div

estit

ure,

an

orga

niza

tion

may

enh

ance

its

cha

nce

of a

succ

essf

ul tr

ansa

ctio

n by

ask

ing

and

answ

erin

g qu

estio

ns in

spe

cifi c

are

as:

• W

ho is

the

anti

cipa

ted

buye

r? P

ublic

or

priv

ate?

C

orpo

rate

? D

omes

tic

or fo

reig

n? M

anag

emen

t? A

fi n

anci

al b

uyer

?

• H

ow w

ill th

e tr

ansa

ctio

n te

am m

anag

ing

the

dive

stit

ure

be m

otiv

ated

or

rew

arde

d, a

long

wit

h th

e ex

ecut

ives

w

ho w

ill b

e le

avin

g th

e pa

rent

com

pany

to s

tart

w

orki

ng fo

r th

e ac

quir

er?

• H

ow c

ompl

ex is

the

anti

cipa

ted

dive

stit

ure

and

the

atte

ndan

t sep

arat

ion

of fi

nanc

ial s

yste

ms,

peo

ple,

and

op

erat

ions

?

• W

hat w

ill a

buy

er r

eque

st in

reg

ard

to d

ata

and

addi

tion

al in

form

atio

n?

• W

hat a

re th

e ri

sks,

and

has

a p

lan

been

dev

elop

ed to

re

duce

ris

ks a

nd s

urpr

ises

?

• W

hat a

re th

e an

tici

pate

d bu

yer’

s au

dit a

nd fi

nanc

ial

repo

rtin

g re

quir

emen

ts?

• H

ow w

ill th

e pr

oces

s be

man

aged

, and

wha

t is

the

tim

elin

e fo

r th

e tr

ansa

ctio

n?

• W

ho w

ill m

anag

e th

e pr

oces

s, a

nd d

oes

the

com

pany

ha

ve a

dequ

ate

inte

rnal

res

ourc

es/k

now

ledg

e?

• W

hat o

ngoi

ng tr

ansa

ctio

ns w

ith

the

dive

sted

ope

rati

ons

are

to b

e ex

pect

ed, a

nd h

ow w

ill th

ose

be h

andl

ed?6

• W

hat a

re th

e ta

x or

oth

er r

egul

ator

y re

quir

emen

ts th

at

coul

d re

sult

in p

oten

tial

add

itio

nal c

osts

or

rest

rict

ions

on

how

the

dive

stit

ure

is c

ompl

eted

?

Ca

rve-

ou

ts fr

equ

ent

am

on

g m

eta

ls c

om

pa

nie

s

Whe

n it

com

es to

div

esti

ture

s in

the

met

als

sect

or, c

arve

-ou

ts a

re fr

eque

nt, p

arti

cula

rly

in N

orth

Am

eric

a an

d W

este

rn E

urop

e. T

he fo

cus

is o

ften

on

prod

uct s

egm

ent

spin

-off

s.

Ther

e ar

e th

ree

leve

ls o

f car

ve-o

uts

mos

t fre

quen

t in

dive

stit

ures

of m

etal

s co

mpa

nies

, and

eac

h re

quir

es

6 “

Gen

erat

ing

Valu

e fr

om C

orp

orat

e D

ives

titur

es in

201

1,”

Pw

C, 2

011.

Fo

rgin

g a

hea

d

21

Spec

ialt

y ca

se s

tud

y:

Div

esti

ture

and

spi

n-of

f for

glo

bal c

ompa

ny

Issu

eA

glo

bal m

etal

s co

mpa

ny s

ough

t opp

ortu

niti

es to

div

est s

ever

al b

usin

ess

oper

atio

ns th

at w

ere

not c

entr

al to

its

core

mis

sion

. The

com

pany

urg

entl

y ne

eded

cas

h to

pay

a le

nder

loan

and

was

req

uire

d to

effi

cie

ntly

con

duct

a

seri

es o

f div

esti

ture

tran

sact

ions

.

Act

ion

PwC

per

form

ed s

ell-s

ide

due

dilig

ence

on

enti

ties

for

dive

stit

ure,

ana

lyzi

ng

earn

ings

tren

ds, w

orki

ng c

apit

al is

sues

, and

pot

enti

al s

epar

atio

n co

ncer

ns.

We

help

ed m

anag

emen

t gai

n an

acc

urat

e vi

ew o

f nor

mal

ized

ear

ning

s an

d w

orki

ng c

apit

al a

nd h

elpe

d pr

epar

e th

e co

mpa

ny fo

r bu

yer

dilig

ence

by

iden

tify

ing

area

s of

val

ue le

akag

e. P

wC

als

o he

lped

the

com

pany

est

ablis

h a

cent

ral d

ives

titu

re m

anag

emen

t offi

ce

and

achi

eve

its

goal

s fo

r th

e se

para

tion

, in

clud

ing

tran

siti

on s

ervi

ce a

gree

men

ts a

nd IT

and

peo

ple

appr

oach

es.

Impa

ctPw

C’s

invo

lvem

ent h

elpe

d th

e co

mpa

ny’s

man

agem

ent a

nd it

s ba

nker

s pr

epar

e fo

r th

e de

al n

egot

iati

ons.

Wit

h th

e fi r

st fe

w w

eeks

of P

wC

’s fi e

ld

depl

oym

ent,

the

com

pany

:

• Es

tabl

ishe

d it

s di

vest

itur

e m

anag

emen

t offi

ce

• D

evel

oped

ope

rati

onal

and

func

tion

al D

ay O

ne s

epar

atio

n pl

ans

• C

ondu

cted

sep

arat

ion

acti

viti

es w

ith

tran

siti

on te

ams

The

com

pany

suc

cess

fully

clo

sed

the

tran

sact

ions

by

the

debt

cal

l dat

e, r

aisi

ng

enou

gh c

ash

to r

estr

uctu

re it

s de

bt.

Page 7

20

P

wC

Pw

C s

po

tlig

ht

In a

n un

cert

ain

glob

al e

cono

my,

liq

uidi

ty is

sues

and

sta

keho

lder

pr

essu

res

for

impr

oved

per

form

ance

ha

ve tu

rned

mor

e at

tent

ion

to

dive

stit

ure

acti

viti

es in

the

shor

t te

rm. D

ives

titu

re m

ay b

e in

evit

able

. B

ut a

sm

alle

r po

ol o

f lik

ely

buye

rs

and

grea

ter

scru

tiny

from

ban

ks h

ave

resu

lted

in m

ore

due

dilig

ence

am

ong

buye

rs, w

hich

oft

en e

xten

ds th

e sa

le p

roce

ss a

nd s

omet

imes

ero

des

sale

pri

ces.

For

the

selle

r, r

eady

ing

a co

mpa

ny

for

mor

e ri

goro

us b

uyer

due

dili

genc

e m

ay p

rese

rve

the

valu

e of

a d

ives

titu

re.

Als

o im

port

ant:

pre

para

tion

s fo

r m

itig

atin

g ot

her

area

s of

freq

uent

va

lue

loss

, inc

ludi

ng in

effe

ctiv

e te

rms

and

pric

ing

of tr

ansi

tion

ser

vice

s ag

reem

ents

and

insu

ffi c

ient

infr

a-st

ruct

ure

plan

ning

for

stra

nded

cos

ts.

Ho

w P

wC

ma

y h

elp

We’

ve s

een

mar

ket c

ondi

tion

s fl u

ctua

te

dram

atic

ally

in r

ecen

t yea

rs. S

till,

ex

trac

ting

top

valu

e re

mai

ns th

e ov

erri

ding

goa

l of a

div

esti

ture

. The

di

vest

itur

e pr

ofes

sion

als

wit

h Pw

C’s

Tran

sact

ion

Serv

ices

sup

port

clie

nts

in

acce

lera

ting

the

spee

d to

mar

ket/

clos

e an

d he

lp th

em r

eady

com

pani

es fo

r sa

le to

gai

n th

e m

ost v

alue

of t

he

busi

ness

in th

e of

feri

ng p

rice

. Our

di

vest

itur

e pr

ofes

sion

als,

par

t of a

Tr

ansa

ctio

n Se

rvic

es te

am o

f abo

ut

1,00

0 de

al p

rofe

ssio

nals

in 1

6 ci

ties

ac

ross

the

Uni

ted

Stat

es, m

ay a

ddre

ss

carv

e-ou

t fi n

anci

als,

sta

nd-a

lone

aud

it

requ

irem

ents

, ide

ntifi

cati

on o

f po

tent

ial b

uyer

dea

l iss

ues,

tran

siti

on

serv

ice

agre

emen

ts, d

ata

room

as

sist

ance

, and

str

uctu

ral a

lter

nati

ves

desi

gned

to h

elp

mai

ntai

n th

e va

lue

of

the

dive

stit

ure.

We

offe

r:

• D

ives

titur

e m

anag

emen

t sup

port

—Pw

C h

as p

ut to

geth

er a

win

ning

ap

proa

ch to

laun

chin

g an

d m

anag

ing

dive

stitu

res.

We

brin

g a

time-

test

ed d

ives

titur

e an

d se

para

tion

met

hodo

logy

and

an

expa

nsiv

e se

t of p

roce

sses

, too

ls,

tem

plat

es, a

nd g

uide

s to

sup

port

th

e ov

eral

l div

estit

ure.

• Fu

ncti

onal

div

esti

ture

ass

ista

nce—

PwC

is e

quip

ped

wit

h co

re

com

pete

ncie

s in

the

fund

amen

tal

infr

astr

uctu

re a

reas

that

form

the

build

ing

bloc

ks fo

r ca

ptur

ing

and

pres

ervi

ng v

alue

in a

div

esti

ture

. O

ur e

xper

ienc

ed d

ives

titu

re

prof

essi

onal

s dr

aw o

n th

eir

subj

ect

mat

ter

and

proc

ess

know

ledg

e to

he

lp c

lient

s po

siti

on a

bus

ines

s fo

r sa

le a

nd o

ptim

ize

over

all r

esul

ts

from

tran

siti

on to

tran

sfor

mat

ion.

PwC

hel

ps c

lient

s pr

epar

e fo

r ri

goro

us

buye

r du

e di

ligen

ce. W

e m

ay d

eliv

er

supp

ort,

met

hodo

logy

, too

ls, a

nd

tem

plat

es th

at ta

ke y

ou fr

om s

tart

to

fi nis

h of

a d

ives

titu

re a

nd c

onsi

der:

• D

ives

titu

re s

trat

egy

• C

andi

date

acq

uire

r sc

reen

ing

• Se

ll-si

de c

omm

erci

al d

ue d

ilige

nce

• Se

ll-si

de fi

nanc

ial d

ue d

ilige

nce

• Fi

nanc

ial a

nd ta

x st

ruct

urin

g

• Fi

nanc

ial s

tate

men

ts a

nd r

epor

ting

• C

arve

-out

sta

tem

ents

and

fi lin

gs

for

regu

lato

ry c

ompl

ianc

e

• Pe

ople

and

HR

mat

ters

incl

udin

g em

ploy

ee b

enefi

ts

• O

pera

tion

al c

arve

-out

ana

lysi

s

• In

sura

nce

risk

• C

ontr

act t

rans

itio

n

• D

ives

titu

re m

anag

emen

t an

d se

para

tion

PwC

dep

loys

a te

am ta

ilore

d to

eac

h cl

ient

’s en

gage

men

t. In

add

itio

n to

su

ppor

ting

a s

peed

y, m

ore

effi c

ient

go

-to-

mar

ket p

roce

ss a

nd c

lose

, ri

goro

us d

ives

titu

re m

anag

emen

t and

du

e di

ligen

ce h

elp

clie

nts:

• Ex

ecut

e a

smoo

th tr

ansa

ctio

n,

clos

e, a

nd p

ost-

clos

e tr

ansi

tion

• R

educ

e ri

sks,

avo

id c

ostl

y su

rpri

ses,

and

enh

ance

ove

rall

cont

rol o

f the

pro

cess

• A

ddre

ss o

pera

tion

sep

arat

ion

issu

es e

arly

, inc

ludi

ng tr

ansi

tion

se

rvic

es a

gree

men

ts a

nd p

oten

tial

st

rand

ed c

osts

• Av

oid

valu

e de

teri

orat

ion

thro

ugho

ut th

e pr

oces

s an

d af

ter

the

clos

e

• R

educ

e di

srup

tion

s to

bot

h th

e ta

rget

and

rem

aini

ng b

usin

esse

s

• M

itig

ate

regu

lato

ry, fi

nan

cial

re

port

ing,

and

ope

rati

onal

ris

ks

• Se

ek tr

ansa

ctio

n va

lue

for t

he s

elle

r

Our

tailo

red

appr

oach

giv

es

clie

nts

the

appr

opri

ate

bala

nce

of

tran

sact

ion,

func

tion

al, a

nd in

dust

ry

expe

rien

ce a

cros

s th

e va

lue

chai

n.

We

star

t wit

h a

clie

nt’s

tran

sact

ion

view

poin

t and

inve

stm

ent t

hesi

s.

The

n w

e gu

ide

the

com

pany

thro

ugh

asse

ssm

ents

and

eva

luat

ions

of

dive

stit

ure

cons

ider

atio

ns e

xclu

sive

or

auc

tion

sit

uati

on p

lann

ed c

apit

al

stru

ctur

e an

d fi n

anci

ng s

ourc

es

tim

ing

and

deliv

erab

les

cri

tica

l dea

l an

d va

luat

ion

issu

es a

nd in

tegr

atio

n ch

alle

nges

and

sol

utio

ns.

Fo

rgin

g a

hea

d

5

invo

lvem

ent w

ith

diff

eren

t dea

l dyn

amic

s an

d m

ulti

ple

com

plex

itie

s.

Wit

h a

corp

orat

e-le

vel c

arve

-out

, ope

rati

ons

typi

cally

ha

ndle

d at

the

corp

orat

e le

vel a

re n

ot in

clud

ed in

the

dive

stit

ure.

So

nego

tiat

ions

focu

s on

suc

h ar

eas

as th

e le

gal,

acco

unti

ng/fi

nan

ce, t

axat

ion,

trea

sury

, IT,

sup

ply

chai

n,

and

insu

ranc

e de

part

men

ts. T

ypic

ally

, a tr

ansi

tion

ser

vice

s ag

reem

ent (

TSA

) w

ill c

over

six

to 1

2 m

onth

s (o

r lo

nger

),

unti

l the

new

lead

ersh

ip o

f the

uni

t bei

ng d

ives

ted

can

deve

lop

or in

tegr

ate

the

corp

orat

e se

rvic

es.

In th

e ca

se o

f a p

lant

-lev

el c

arve

-out

, whi

ch is

com

mon

in

the

met

als

indu

stry

, eve

ry d

ives

titu

re m

ay r

esul

t in

the

divi

sion

of a

pla

nt. T

he s

elle

r ty

pica

lly w

ill k

eep

the

half

of

the

plan

t vie

wed

as

core

to it

s m

issi

on, w

ith

the

othe

r ha

lf

of th

e pl

ant t

rans

ferr

ed to

the

unit

bei

ng d

ives

ted.

As

a re

sult

, a s

erie

s of

com

plex

ow

ners

hip

issu

es a

rise

for

reso

luti

on. F

or e

xam

ple,

will

the

plan

t mai

nten

ance

gro

up,

esse

ntia

l to

ongo

ing

profi

tab

le o

pera

tion

s, b

e sp

lit, o

r w

ill

one

part

y in

the

tran

sact

ion

own

the

grou

p an

d re

nt

mai

nten

ance

ser

vice

s to

the

othe

r pa

rty?

Oth

er p

lant

issu

es a

lso

have

the

pote

ntia

l for

sig

nifi c

ant

oper

atio

nal a

nd c

ost c

onse

quen

ces,

incl

udin

g qu

esti

ons

rega

rdin

g ow

ners

hip

and

cont

rol o

f:

• St

eam

sup

ply

• C

o-ge

nera

tion

pla

nts

• M

eter

s

• Su

pplie

rs

• R

ail l

ines

• Pu

mps

and

oth

er e

quip

men

t

Del

inea

ting

ow

ners

hip

issu

es ty

pica

lly r

equi

res

an e

xten

sive

w

alk-

thro

ugh

and

insp

ecti

on o

f the

pla

nt s

ite.

Oft

en th

e re

sult

is p

erm

anen

t ser

vice

agr

eem

ents

rob

ust e

noug

h to

w

eath

er p

lant

exp

ansi

on, i

nfl a

tion

, and

oth

er o

ngoi

ng

conc

erns

and

out

com

es th

at c

anno

t be

enti

rely

pre

dict

ed

befo

re c

ompl

etio

n of

the

deal

.

Wit

h su

pply

cha

in c

arve

-out

s, d

eal n

egot

iati

ons

may

ce

nter

on

ever

ythi

ng o

utsi

de th

e pl

ant t

hat r

emai

ns

oper

atio

nal—

incl

udin

g, fo

r ex

ampl

e, a

com

mon

sup

ply

cont

ract

for

a pa

rtic

ular

raw

mat

eria

l. W

hile

the

buye

r of

th

e di

vest

ed u

nit m

ay r

equi

re th

at r

aw m

ater

ial,

its

need

s m

ay n

ot b

e su

bsta

ntia

l eno

ugh

to tr

igge

r th

e vo

lum

e di

scou

nts

enjo

yed

by th

e se

lling

com

pany

. As

a re

sult

, de

al v

alua

tion

may

be

affe

cted

.

Ther

e ar

e al

so c

once

rns

arou

nd s

hare

d di

stri

buto

rs. F

or

exam

ple,

if a

met

als

com

pany

shi

ps p

rodu

cts

to A

sia,

the

orga

niza

tion

’s A

sian

dis

trib

utor

may

be

hand

ling

mul

tipl

e pr

oduc

ts s

old

by th

e ta

rget

com

pany

’s pa

rent

or

subs

idia

ries

th

at a

re n

ot in

clud

ed in

the

tran

sact

ion.

Whe

n a

unit

is

dive

sted

, the

buy

er m

ay w

ant t

o es

tabl

ish

a ne

w, s

epar

ate

rela

tion

ship

wit

h th

e di

stri

buto

r. A

lter

nati

vely

, the

sel

ler

and

buye

r m

ay c

reat

e a

TSA

or

cont

inue

to b

oth

use

the

dist

ribu

tor

unti

l eac

h en

gage

s it

s ow

n di

stri

buto

r.

A s

elle

r lo

okin

g fo

r su

cces

s in

any

giv

en d

ives

titu

re o

r sp

in-o

ff w

ill p

repa

re o

n a

num

ber

of fr

onts

:

Rep

osit

ioni

ng to

sei

ze o

ppor

tuni

ties

By

empl

oyin

g a

wel

l-defi

ned

and

reg

ular

por

tfol

io p

roce

ss, a

co

mpa

ny m

ay a

chie

ve b

ette

r op

port

unit

ies

from

its

busi

ness

an

d pr

oduc

t por

tfol

io. F

orw

ard-

thin

king

com

pani

es id

enti

fy

appr

opri

ate

dive

stit

ure

cand

idat

es b

ased

on fi n

anci

al,

oper

atin

g, a

nd c

omm

erci

al p

aram

eter

s. S

uch

fact

ors

incl

ude

a bu

sine

ss m

atur

ing

or b

ecom

ing

ripe

for

sale

bec

ause

of

rest

ruct

urin

g or

mar

ket f

acto

rs; a

n ac

quir

ing

busi

ness

re

quir

ing

a ca

pita

l inf

usio

n or

spe

cial

ized

kno

wle

dge

that

re

side

s in

the

port

folio

com

pany

or

com

pany

’s m

anag

emen

t;

or a

bus

ines

s be

ing

part

of a

larg

er a

cqui

siti

on a

nd n

ot

fi tti

ng w

ith

the

over

all s

trat

egic

pla

n of

the

acqu

irin

g co

mpa

ny o

r it

s po

rtfo

lio b

usin

esse

s.

Aft

er s

ettl

ing

on a

bus

ines

s to

exi

t, th

e co

mpa

ny b

egin

s th

e pr

oces

s in

ear

nest

by

valid

atin

g th

e ca

se fo

r se

para

tion

. The

pr

oces

s m

ay e

ncom

pass

res

olvi

ng s

uch

issu

es a

s:

• W

hat t

ype

of e

xit s

uits

my

inve

stor

s? Is

it r

ealis

tic?

• W

hich

buy

ers

in w

hich

mar

kets

are

mor

e lik

ely

to b

e w

illin

g an

d ab

le to

pay

full

pric

e?

Page 8

6

Pw

C

• W

ould

a s

trat

egic

par

tner

add

val

ue?

If s

o, w

hich

ca

ndid

ates

are

sui

tabl

e fo

r th

e bu

sine

ss w

e w

ill d

ives

t?

• W

hat s

cope

of d

ilige

nce

on p

rosp

ecti

ve b

uyer

s or

pa

rtne

rs is

app

ropr

iate

from

the fi n

anci

al a

nd

com

mer

cial

per

spec

tive

s?

• W

hich

dea

l str

uctu

res

stri

ke a

bal

ance

bet

wee

n th

e bu

yer’

s an

d se

ller’

s ne

eds?

Eval

uati

ng o

pera

tion

s fo

r po

ssib

le c

orre

ctio

n

In to

day’

s en

viro

nmen

t, c

once

rns

that

buy

ers

mig

ht h

ave

over

look

ed in

pre

viou

s ye

ars

may

dam

age

or e

ven

dera

il a

deal

. To

prep

are

for

a di

vest

itur

e, s

elle

rs c

ondu

ct

an a

sses

smen

t of o

pera

tion

s an

d id

enti

fy a

nd c

orre

ct

sign

ifi ca

nt is

sues

, suc

h as

unu

sual

ly h

igh

back

-offi

ce

cost

s an

d pl

ant i

neffi

cie

ncy,

and

res

truc

ture

thei

r op

tion

s be

fore

go

ing

to m

arke

t. E

ven

if s

elle

rs c

anno

t cor

rect

issu

es p

rior

to

clo

sing

, buy

ers

are

keen

to g

ain

an u

nder

stan

ding

of t

he

targ

et’s

cost

s an

d be

nefi t

s.

Wal

king

in th

e bu

yer’

s sh

oes

Ado

pt a

buy

er’s

pers

pect

ive

by p

erfo

rmin

g du

e di

ligen

ce o

f th

e bu

sine

ss b

efor

e in

volv

ing

pote

ntia

l buy

ers.

A th

orou

gh

revi

ew o

f the

uni

t sla

ted

for

sale

may

be

esse

ntia

l whe

n th

e se

ller’

s an

d bu

yer’

s pr

icin

g ex

pect

atio

ns v

ary

sign

ifi ca

ntly

. A

dvan

ce d

ilige

nce

may

als

o he

lp th

e se

ller

iden

tify

and

pr

omot

e th

e un

it’s

stre

ngth

s an

d ev

alua

te a

lter

nati

ve

tran

sact

ions

and

str

uctu

res

from

an

info

rmed

per

spec

tive

.

Buy

ers

ofte

n ar

e su

spic

ious

that

exe

cuti

ng a

div

esti

ture

is

mer

ely

a st

rate

gy fo

r a

com

pany

to r

id it

self

of a

pro

blem

as

set.

To

defu

se th

at is

sue,

sel

lers

sho

uld

be e

quip

ped

to

answ

er c

riti

cal q

uest

ions

:

• W

hy is

the

asse

t for

sal

e?

• W

hy h

as it

bee

n un

derp

erfo

rmin

g?

• W

hy is

it e

xpec

ted

to d

o w

ell o

utsi

de th

e co

mpa

ny?

• H

ow w

ill th

e fo

reca

st b

e pr

epar

ed?

Det

erm

inin

g se

para

tion

issu

es e

arly

dur

ing

the

proc

ess

Hum

an r

esou

rces

, int

elle

ctua

l pro

pert

y, in

form

atio

n te

chno

logy

sys

tem

s, e

mpl

oyee

ben

efi t

pla

ns, a

nd o

ther

sy

stem

s an

d pr

oces

ses

that

took

yea

rs to

cre

ate

may

be

dise

ntan

gled

dur

ing

a di

vest

itur

e. T

he p

roce

ss in

clud

es th

e de

velo

pmen

t of T

SAs,

whi

ch p

rovi

de fo

r se

rvic

es

betw

een

the

selle

r an

d th

e bu

yer

afte

r cl

osin

g. B

uyer

s w

ill

wan

t not

onl

y to

out

line

the

issu

es a

nd ti

mel

ines

invo

lved

, bu

t als

o to

inco

rpor

ate

TSA

and

pos

t-T

SA c

osts

into

thei

r in

itia

l val

uati

ons.

Pres

enti

ng th

e bu

sine

ss in

a m

ore

favo

rabl

e lig

ht

His

tori

cal fi

nan

cial

res

ults

oft

en m

ay b

e re

vise

d to

ac

cura

tely

refl

ect

the

unit

as

a st

and-

alon

e op

erat

ion

and

excl

usiv

e of

non

recu

rrin

g it

ems.

A b

usin

ess

plan

may

cle

arly

an

d co

nvin

cing

ly d

escr

ibe

the

resu

lts

to li

nk th

e fo

reca

sts

and

acti

ons

and

driv

e pr

ofi t

s.

For

the

mos

t cha

lleng

ing

dive

stit

ures

to b

e su

cces

sful

, the

ve

ndor

may

dev

elop

a d

etai

led

busi

ness

pla

n to

pre

sent

to

pro

spec

tive

pur

chas

ers.

The

pla

n co

uld

incl

ude

a de

taile

d an

alys

is o

f the

rec

urri

ng h

isto

rica

l fi g

ures

and

m

ove

to d

escr

ibe

the

fore

cast

s an

d ac

tion

s to

con

side

r fo

r im

plem

enta

tion

. A v

endo

r m

ay m

ake

a di

vest

itur

e m

ore

attr

acti

ve to

pot

enti

al p

urch

aser

s by

usi

ng s

trat

egie

s su

ch

as p

rovi

ding

them

wit

h co

ntra

cts

for

a pr

edet

erm

ined

ti

me.

Suc

h in

cent

ives

cou

ld b

e co

nsid

ered

whe

n pr

epar

ing

the

busi

ness

pla

n.

Selle

rs a

lso

coul

d co

nsid

er th

e va

riou

s ta

x an

d ac

coun

ting

st

ruct

ures

ava

ilabl

e to

them

and

cho

ose

the

one

that

wor

ks

from

a d

eal p

ersp

ecti

ve.

Fo

rgin

g a

hea

d

19

Dea

ls b

y ta

rget

met

al c

ateg

ory

—20

11M

easu

red

by

valu

e of

dea

ls w

orth

$50

mill

ion

or m

ore

Dea

ls b

y ta

rget

met

al c

ateg

ory

—4Q

11M

easu

red

by

valu

e of

dea

ls w

orth

$50

mill

ion

or m

ore

0%10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

With

dra

wn

Pen

din

g or

inte

nded

Com

ple

ted

Tota

l

8.4

Alu

min

um

Ste

elIro

n or

e

Oth

er

% of deal value (absolute deal valuein data labels in $ millions)

2.3

1.6

0.2

0.5

1.5

2.3

7.9

0.8

0.8

0%10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

With

dra

wn

Pen

din

g or

inte

nded

Com

ple

ted

Tota

l

31.8

4.1

% of deal value (absolute deal valuein data labels in $ millions)

13.1

6.1

3.3

6.5

1.3

7.4

6.0

4.8

0.8

0.6

0.1

23.3

1.1

Alu

min

um

Ste

elIro

n or

e

Oth

er

Stee

l co

nti

nu

es t

o d

rive

va

lue

of m

eta

ls M

&A

PwC

seg

men

ts th

e m

etal

s se

ctor

into

four

cat

egor

ies

by

com

pari

ng s

tand

ard

indu

stri

al c

lass

ifi ca

tion

(SI

C)

code

s to

ou

r in

tern

al c

lass

ifi ca

tion

sys

tem

. Bas

ed o

n th

is p

roce

ss, w

e gr

oup

deal

s (m

easu

red

by n

umbe

r) in

to fo

ur p

rodu

ct

segm

ents

:

• St

eel

• A

lum

inum

• Ir

on o

re

• O

ther

Bas

ed o

n th

is m

etho

dolo

gy, s

teel

man

ufac

turi

ng ta

rget

s dr

ove

mos

t of t

he fo

urth

-qua

rter

act

ivit

y, c

ontr

ibut

ing

alm

ost t

wo-

thir

ds o

f the

dea

l val

ue. F

or 2

011

over

all,

stee

l w

as a

lso

the

key

driv

er w

ith

57.6

% o

f val

ue.

Stee

lmak

ers

wer

e re

spon

sibl

e fo

r the

thre

e m

ega-

deal

s va

lued

at $

7.36

bill

ion.

The

em

phas

is o

n st

eel m

anuf

actu

ring

m

akes

sen

se: s

teel

is a

mor

e fr

agm

ente

d pa

rt o

f the

met

als

sect

or a

nd s

o is

like

ly to

see

mor

e co

nsol

idat

ion,

cre

atin

g ec

onom

ies

of s

cale

for m

arke

t exp

ansi

on a

nd c

ost c

uttin

g.