The ABCs of Merger Integration Agenda n Merger

The ABC’s of Merger Integration

Agenda n Merger Integration as a Competitive Advantage n The ABC’s of Merger Integration – Align the business model – Be quick – Culture is key to success – Define synergy targets – Execute the plan – Focus the organization 2

Many mergers fail to deliver the expected value Principal Challenges: How do you capture synergies … Integration facts: – Personnel reduction – Sourcing/purchasing – Facilities consolidation § Synergies not achieved in 70% of cases § Only 23% of cases earn their cost of capital § 47% of executives leave by end of year 1; 75% by year 3 and building a strategic platform … – New customer value proposition – New processes – New organization § First 4 to 8 months productivity reduced by 50% … while integrating – – – Systems Customers Management Suppliers Processes Employees … without negatively impacting – – – Customers Employees Shareholders Vendors/Suppliers Financial performance Must integrate the acquisition and capture synergies while maintaining current business momentum and operating within FTC and EU constraints Source: Deloitte Consulting M&A survey (2000); DC analysis 3

Companies can create a competitive advantage by proactively developing an internal merger integration capability n Reduce M&A transaction lifecycle – The ability to complete and rapidly integrate transactions will allow companies to benefit from the acquisitions sooner. – The key to speed and synergy capture is a robust, proven approach that is well understood and supported by the management team. n Reduce M&A cost structure – A well-documented, widely understood, and repeatable process executed by trained resources reduces the organization’s dependency on outside advisors. n Strengthen credibility with key constituencies – Proven integration capability strengthens management’s case to the Board of Directors, rating agencies and the target and shows that the company has the ability to execute and deliver on transactions. n More effectively capture integration synergies – Strong correlation exists between an organization’s ability to effectively integrate and the extent to which their process has been defined and documented. Documented capability increases probability of success. 4

The ABC’s of Merger Integration

Align the business model of the new merged company to leverage strengths and meet customer requirements Customer/market-focused Functional/product line Newco Mkt. A Mkt. B Mkt. C Blend of customer and functional/ separation of unique models Newco Mkt. D Mkt. E Prod. 1 Prod. 2 Prod. 3 Newco Prod. 4 Prod. 5 Mkt. A Mkt. B Mkt. C Mkt. D Prod. 1 Key Criteria n Establish clear roles and responsibilities for senior management n Provide incentives to talented management to show there is a place for them in the new organization n Avoid “lame duck” positions — catastrophic for building strong organizational buy-in n Develop senior level organization structure to establish clear ownership of synergy capture n Regardless of the model selected, incentives and accountabilities must be clear and must reward behavior Mergers create opportunities to make fundamental changes in the business model that support the strategic rationale of the deal 6 Prod. 2

Be quick with your integration so you can get back to running your business n Define “end state”; develop a roadmap n Phase in small “ 30 -day” chunks n Set tangible targets; measure performance; celebrate early wins n Manage priorities to focus organization Announcement Close Pre-Close Integration 0 – 100 Days Integration Framework “Win” 100 – 200 Days “Win” n+ Days Capture Sustainable Value Rapidly Manage “Win” Pre-Close Integration “Win” Reinvent “Win” Well-defined and managed integration process increases speed 7

Culture is key to success; eliminate uncertainty Commitment § “It is the right thing to do” § “We will succeed” Organization Momentum Early Euphoria § “Change is exciting” § “Our company is taking a bold step” Adaptation Fear/ Uncertainty § “The train is leaving, I better get on” § “What does § “It’s hard, but we this mean for me? ” § “What are my priorities now? ” can do it” Paralysis Withdrawal § “I can’t act with all this uncertainty” § “My highest priority is to stay on top of the integration news” § “I’ll do what is Departure necessary to survive” § “This is not something I want to be a part of” Time Address culture and model behavior through day-to-day business events 8

Define synergy targets and set accountability for achieving them Category Duplication Avoidance Human Resources Created Savings Economies of Scale Operations Expenditure Avoidance Information Systems Operational Efficiency Logistics Skill Transfer Product Development Practices Adoption Technology Transfer Organizational Streamlining Spans of Control Work Reduction Activity Avoidance Performance Realignment Centralization Contractual Arrangements Outsourcing Best Practices Information Systems “Would not be available except for the merger” Prioritize Enabled Savings “Potentially unlocked through the merger” Developed Savings “Could be accomplished absent the merger” Capturing the full value of the deal requires a detailed assessment of the potential synergy opportunities 9

Execute the integration plan Example Rapidly stabilize and prep for Day One – 150 High- Level Milestones – 120 – 90 Integration Disciplines Phase 1 (Analysis) Vision/mission Operating model Integration approach Organizational design Program Management PMO setup Workplan “close” Staff teams Value Capture Organizational Preparedness Validate/develop synergies Prioritize synergies Develop projects – 5 Day 1 +30 Close – 30 Performance metrics Launch select “clean teams” – design, prototype, select synergy areas Define “must have” Develop projects Prototype requirements & risk Launch select clean teams points Define business Conduct baseline Develop migration plan Prioritize future state assessment Develop organization plan Develop transition tools and methods HSR filings Second requests Proxy Contingency planning Shareholder approval Develop HR Human Resources processes – payroll, benefits, etc. Detailed HR Conduct transition training Deliberation Change of ownership and executive contracts plan & selection process RISC Review 10 +360 +720 Phase 3 (Implement) Implement Fast. Track™ decision-making process Monitor and coordinate all plans and resources Report status, manage interdependencies and facilitate decision making Track synergy progress Design lockdown session Develop and coordinate Communications communications internal and external Change Management strategy & plan messages Regulatory/ Closing – 60 Phase 2 (Design and Build) Strategic Framework Capture sustainable value Certify Day One Readiness Implement Newco organization Implement performance metrics Monitor Manage execution of projects Manage interdependencies L O C K Implement synergy projects D Track synergy capture O Capture 50% of synergies by W T+360; 100% by T+720 N Implement System 3 Plan and implement long-term system and process changes Notify 100% of impacted employees by T+30 Close Regulatory approval Implement

Focus the organization on the integration Challenges How do you capture synergies … while integrating systems, processes … Five Focus Areas Control the integration 1 2 3 and building a strategic platform … 4 without negatively impacting customers, financial performance … Outcome – Gain control by installing rigorous toolset and process and making all organizational data transparent – Develop clear governance and PMO structure and processes – Clear accountability – Speedy integration Capture synergies – High bar – Synergy capture on Day One Plan for issue-free Day One – Clear and focused priorities – Issue-free Day One Finalize organization design and transition – Portfolio analysis – Workforce transition – Functional integration – Drive detailed bottoms up synergy estimates and focus on front-loading capture – Identify and prioritize critical systems and processes that must be in place for Day 1 – Develop Day One Readiness requirements – Define strategy/approach to for appropriate integration of business units and functions – Minimize disruption from workforce transition Address culture immediately and frequently 5 communicate – Proactively work to align leaders and individuals – Develop and deliver proactive communications 11 – Management team alignment – Commitment at all levels – Workforce retention

Challenges to building a merger integration process n Merger integration must be viewed and accepted as a strategic business process n Develop a consistent approach and focus across all business units n Structure and discipline is needed to capture the full value of the transaction; synergies can be elusive n Recognize small isn’t necessarily easier, faster, or more successful n A formal, open process is needed to learn from our success and failures 12

Successful acquirers proactively develop their internal merger integration capability through an iterative process Define End State Develop M&A Tools n Collaboratively define deliverables n Perform As-Is diagnostic to incorporate M&A activity to date n Define process considering deal challenges( n Structure PMO n Organize program and processes n Create support tools and protocols; Make specific n Develop education and knowledge transfer plan Rollout Methodology and Tools n Solicit review and comment n Ensure understanding of scope and identification of cross-functional issues n Create learning imperative n Identify barriers and enablers n Determine training and orientation requirements n Launch training and communications n Determine performance measurements Learn by Doing n Follow process n Manage and drive discipline n Drive ownership to integration team s n Support teams and drive results n Monitor progress and capture learnings n Incorporate comments and feedback; be open to input Emphasis was placed on “hands-on” learning and knowledge transfer. 13 Knowledge and Capability Transfer n Share learning with integration team n Build a library of information for future use n Use lessons learned session to discuss process n Share information and learnings n Take action to educate and share Insight