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Text: 14pt. Times New Roman with .75 square bullet,Level 2,Level 3,Level 4,Major (24 Point) or Minor/Headline (18 Point) Bold Times New Roman, Sentence case,A.T.Kearney 4/1375C/Merger Integration,1083,19,_Macros,60,March 2002,Merger Integration,Intellectual Capital Collection,Generic Proposal,Table of contents,Executive Summary,Our Understanding of Your Situation,A.T. Kearneys Perspective on Merger Integration,Proposed Overall Approach,Realizing Integration Synergies,Integration Management,A.T. Kearney Qualifications,Executive Summary,This section is tailored to the client situation and summarizes the approach proposed in the document,Our Understanding your Situation,This section is tailored to the client situation and summarizes the key drivers of the merger. It should highlight relevant quantitative and qualitative analysis that demonstrate our insight into the clients particular challenges and drivers of success for the integration,A.T. Kearneys Perspective on Merger Integration,The best value-builders combine organic growth with mergers and acquisitions,Source:A.T. Kearney Monograph on Value-Building Growth,2001,Revenue,Growth,Value Growth,Under performers,Profit Seekers,Simple Growers,Value Growers,Growth Matrix (CAGR 1988-,2000),Value Growers Follow Conscious, Constant Process To Growth,Mergers and acquisitions are key growth drivers,What really matters in “acquisition for growth” strategies is execution,Source:A.T. Kearney Monograph on Value-Building Growth,2001,Sources of Growth,40% of Growth Is From Acquisitions,Value Growers,Manage Both,Well,Few mergers actually create shareholder value,Source:A.T. Kearney,Analysis 2001, SDC database, Global Worldscope,Acquirers Value Growth Following a Merger,Top performing mergers create significant shareholder value,Value growth,3%,8%,12,%,2,7%,2,1%,1,6%,3%,Underperformance compared to industry average,Overperformance compared to industry average,-100%,-60%,-30%,30%,60%,150%,-15%,15%,0%,Average: 2.8%,49.5%,50.5%,Top-Performing,Mergers,10%,Business Integration issues require “usual” management decisions while four main factors add another level of considerable complexity,Scope,High number of decisions to be made in all operational and functional areas,Dozens of projects/initiatives and risks to be managed,Time pressure,All stakeholders expect rapid execution (shareholders, employees, management, regulation committees, government,),Decisions need to be made without delay,Simultaneity,Co-existence of strategic, tactic and operational decisions,Strong inter-dependence of the decisions,Short term and strategic decisions may seem incompatible,Human component,High number of people potentially involved (operational, functional and executive people),Risk of cultural mismatch,Scarce resources to bridge,between merged,compan,ies,Usual Management decisions,Strategy & IPO,Define the scope of combined entity,Confirm each countrys scope of activity for mobiles,Design strategy leveraging on broader global presence,Define financial and operational targets as well as timing of expected benefits,Prepare the IPO,Organisation,Choose the best organisational model at the European management level,Identify the central/local functions evolution schedule,Define organisational charts and management nomination,Define key decision processes (committees, procedures, ),Infrastructure,Reduce total cost of external purchases through best price evaluation volume concentration, competitive bidding,Share best practices,Support functions,Rationalise shared supports (,Align and select Information Systems for the integration,Align processes and share best practices,Communication,Define external communication strategy,Define internal communication strategy,Select communication rules and procedures,Choose media (intranet, documents, speeches),Integration mgnt,Integrate overall planning and milestones,Detail planning by topic and country,Manage transition phase,Track and execute financial synergies,Manage risks, explaining why only few mergers and acquisitions succeed fully,Note: (1) Shareholder returns from buyer divided by shareholder returns (industry average) after the merger,Sources : A.T. Kearney analysis, Global PMI Survey, 1998 ; Datastream,Higher,Nochange,Lower,100% = 230 companies,Only 29% of Companies Realize an Increase in Aggregate Profitability,Performance relative to industry average,10%,11%,21%,18%,17%,23%,-15%,-25%,+15%,+25%,Top PerformingMergers,Under performance,Outperformance,Number of companies,Industry average,Only 42% of Companies Outperform Their Peers in Shareholder Value,(1),42%,58%,Top performers across most industries can create significant shareholder value,Creation of,Shareholder,Returns,Erosion of,Shareholder,Returns,Note:(1)Total shareholder returns percentage over/under performance relative to industry index in the timeframe between 3 months before and 24 months after merger announcement; total shareholder returns defined as the tangible returns investors receive through dividends and stock price appreciations,Sources:Datastream; A.T. Kearney,Analysis 2001,Retailers,62.5%,64.5%,32.3%,44.2%,26.6%,49.9%,34.2%,26.6%,36.1%,25.1%,16.0%,43.3%,26.0%,27.5%,17.2%,17.4%,31.9%,22.4%,18.0%,40.4%,17.4%,14.8%,4.0%,-6.5%,-31.5%,-38.9%,-10.8%,-25.9%,-11.0%,-35.0%,-20.6%,-17.6%,-28.8%,-18.0%,-9.7%,-39.6%,-22.7%,-24.9%,-17.4%,-20.3%,-35.3%,-26.7%,-24.1%,-46.8%,-26.5%,-27.2%,-19.4%,-24.1%,Recreation,Chemicals,Metal Producers,Paper,Transportation,Diversified,Drugs, Cosmetics & Health Care,Utilities,Automotive,Printing and Publishing,Electronics,Financial,Beverages,Metal Products Manufacture,Food,Tobacco,Machinery & Equipment,Electrical,Miscellaneous,Oil, Gas, Coal & Related Services,Construction,Textiles,Aerospace,Industry Specific Ranges of Value Creation,(1),Once the deal is closed, the principal problems relate almost entirely to failures in,merger management, rather than to the underlying strategic rationale,Problems Identified inMerger Integration,Under-communication,Financial/synergy Expectations Unrealistic/Unclear,New Org. Structure With Too Many Compromises,“Master Plan” Missing,Missing Momentum,Missing Top Management Commitment,Unclear Strategic Concept,Missing Pace of Project,IT Issues Addressed Too Late,Source: A.T. Kearneys Global Merger Integration Survey 1998,Percent of Respondents,To manage inherent risks, “critical success factors” can be distilled from successful large-scale mergers to guide value creation,Critical Success Factors from Large-Scale Mergers,Source:,A.T. Kearney Merger Integration,Create a sense of urgency and reduce uncertainty through clear event milestones, and move quickly,Select top-level leadership quickly and fairly; avoid “two-in-the-box” leadership for integration planning and execution unless absolutely necessary,Set out synergy goals and objectives, to prioritize activities and provide a baseline for performance tracking,Manage market expectations carefully. Set conservative dollar targets with a time frame that accommodates unforeseen circumstances,Keep strong, explicit focus on key customer retention and service with teeth (i.e., measurement and tracking),Maintain open and timely communications with employees to ensure understanding and retention,Conduct decentralized,merger,Integration guided forcibly via,Clear guiding principles,Overall framework and tools for integration,Reporting standards,Establish a strong central Integration office and decentralized Integration teams with corporate-wide perspectives on,Results,Project status,Risk,Lead role on internal/external communications,Instill robust, well-defined processes to ensure objective and timely risk and interdependency tracking,Sense of Urgency,Top-Level Leadership Selected Quickly,Clear Synergy Goals,Manage Market Expectations,Explicit Focus on Customers,Open, Timely and Consistent Communications,Decentralized Merger Integration,Strong Central Integration Office,Well-Defined Processes,Source:,A.T. Kearneys global PMI survey 98,Value Capture of Top Performers Over Time,15%,Year 1,Year 2,Cumulative Value,Capture After Two Years,85%,Time,Closingthe Deal,1,2,3,4,5,6,7,8,9,10,-10,-8,-6,-4,-2,0,2,4,6,Value,Capture/Loss,($ MM),Year in Which Synergies Are Realized,Timing of Synergy Realization Is Also Critical,Source:Marl L Sirower : The Synergy Trap. Calculated based on a $10MM acquisition premium, representing 50% of market value,In our experience, the most critical element in achieving targeted benefits is speed,Proposed Overall Approach,A.T. Kearney has a flexible merger integration framework with a comprehensive toolkit to support planning and implementation throughout the merger process to ensure value capture,A.T. Kearneys Merger Integration Framework,Develop Strategy,Establish Structure and Plan,Merger/Acquisition options,Create/articulate/validate,Markets/customers,Competition,Resources,Sources of value,Understand type of merger,Establish the integration program,Build integration capability,Assess sources of value,Develop organization strategy & design,Develop IT integration strategy,Design/harmonize HR policies,Create master plan and prioritize,Validate sources of value,Implement quick hits,Develop SOV IT enablers,Implement HR plan,Monitor progress and risk,Execute the plan,Realign the organization,Implement IT integration plan,Merger,Manage-ment,Sources,of Value,Merger,Enablers,Change of Control,Shareholder Approval,MOU,Integrated Planning and Initial Rollout,Full-Scale Rollout,Day,One,Phase 0,Phase I,Phase II,Phase III,Multiple Tools,Exist for All Cells,This allows merging entities to rapidly capture available sources of value,by focusing on operational synergies, as well as seamlessly merging the organizations,Merge the Organizations as Seamlessly as Possible,Develop and communicate a shared strategic agenda,Define,Organization structures/leadership,Key business processes,Technology platform/architecture,Change integration requirements,Drive top line growth,New value propositions/products,Cross selling/sales pull through,Ensure customer focus/retention,Integrate day-to-day operations,Ensure sustainable change,Position for growth,Achieve $ XX million (annual rate) of synergy savings within 1218 months,Sales,Operations,Procurement,Corporate overlap and duplication,Cost of distribution,Technology/R&D,Others to be identified,Eliminate/minimize sources of risk,Drive the short-term value,Exceed the markets expectations,MI Sources of Value,Achieve Growth Synergy and Cost Synergy Targets as Quickly as Possible,The program structure supports focused value capture teams working across all SBU/Geographic teams,Illustrative,Integration Office,Others,Steering Committee,Business Develop-ment Team,Corporate Center,Team,Global Operations,Team,Global Sourcing,Team,Technology/,R&D,Team,Human Resources,Team,Information Technology,Team,SBU A or,N. America,SBU B or Latin America,SBU C or Europe,SBU D or,Asia Pacific,BU driven integration to set priorities,Focused on value capture across the businesses,Market Facing Teams,Value Capture Teams,Enabler Teams,Set overall direction,Make critical decisions,Develop guiding principles,Provide integration management leadership and support,Implementation,Full-Scale Rollout,Integrated Planning and,Initial Rollout,Establish Structure,and Plan,By launching the integration effort prior to change of control, significant progress is made in identifying sources of value, while also developing the high-level organization models to capture that value,Integration Management,IT Requirements/Alignment,High-Level,Organization,Data,Repository,Comm.,Planning,Oversight/,Visibility Rm,Analysis,Opportunities,Initial Prioritization,Initial Sequencing,Data Collection/Analyses,Operations/ Asset Consolidation,Diagnostic Pack,PP 1,PP 2,PP 3,PP 4,H,M,L,H,M,L,Init,Q1 Q2 Q3 Q4,PP1,PP2,PP3,PP4,Data Collection/Analyses,Business Unit,(e.g., Services),Diagnostic Pack,CS 1,CS 2,CS 3,CS 4,H,M,L,H,M,L,Init,Q1 Q2 Q3 Q4,CS1,CS2,CS3,CS4,Phase I (“Clean Team”),Hypotheses 1,Hypothesis N,Hypotheses 1,Hypothesis N,Master Calendar,Day/Week/Month 1 Plans,Sources of Value Identification,Baseline Dev./Tracking,During the critical period prior to change of control, the engagement team,assumes,the role of a “clean team,” to enable critical pre-merger integration,Role of Clean Team,Quantify savings generated from identified opportunities from teams of merged companies,Act as a third party conduit for proprietary information of both companies (protection should merger be aborted),Validate and challenge initial assumptions of opportunities made by merging companies,Highlight best practices in existing companies and external knowledge and recommend ongoing merged operating practices,Determine risk factors in merger for ongoing risk management during implementation,Data Collection,Organization assessment,Hypotheses development,Preliminary planning,Company A,Company B,Open,Joint Client,Team Meetings,A.T. Kearney“Clean Team”,Merger SynergyHypotheses,Pre-Change of Control,Post-Change of Control,Validated Initiatives,Accelerate decision making by providing access to comprehensive databases and detailed analysis,Share and validate findings with joint client teams,Finalize initiatives based on validated hypotheses,Develop implementation plans,Assist in launching initiatives and provide continued implementation, risk and financial tracking support,The up-front work efforts of the “clean team” enables accelerated launch of implementation activities and value capture,“Clean Team” Process,Limited,Joint Client,Team Meetings,After change of control, the teams quickly,finalize,not identify, synergy opportunities and gain consensus,Results Tracking/Risk Assessment,Begin Implementation,Initial Prioritization and Sequence,Master Plan Sequencing,Full Team Meetings,Disclose and Validate,Modify and Refine,Finalize Savings Opportunities and Prioritization,Identify Interdependencies,H,M,L,H,M,L,Overall Prioritization/,Executive Committee Buy-In,Init,Q1 Q2 Q3 Q4,MD 1,ST 3,SC 6,PP 4,SC6 Workplan,ST3 Workplan,MD 1 Workplan,Step 1,2,3,4,Investment Requirements,Timing of Results,Master Plan Detail,Day/Week/Month 1 Execution,Phase II,Init,Q1 Q2 Q3 Q4,PP1,H,M,L,H,M,L,Init,Q1 Q2 Q3 Q4,PP1,H,M,L,H,M,L,IT Requirements/Enablers,Master Plan Detail,Communication,Full-Scale Rollout,Integrated Planning and,Initial Rollout,Establish Structure,and Plan,MD 1 Workplan,Activity,Task 1,Task 1,Task 1,Task 1,Q1,Q2,Q3,Q4,The transition to full-scale rollout and implementation of initiatives is supported by a clear tracking process,Program Risk Management,Top 10 Program Risks as of 06/24,Organization announcement timing still unclear,IT requirements not fully understood,No plans to address cultural misalignment,Success of communication not currently planned to be measured,Illustrative,Initiative Status Management,Size = $ Saved,6,12,18,Green,Yellow,Red,Risk,Time to Complete Implementation,Initiative,Current Quarter,Cum. Qrtly. Breakdown,Jan.,Feb.,Mar.,4Q97,1Q98,2Q98,Cost Saves and Growth Achievement,Implementation,Communication,Phase III,Full-Scale Rollout,Integrated Planning and,Initial Rollout,Establish Structure,and Plan,Source: A.T. Kearney Merger Integration,Throughout the effort, managing risk is a formalized methodology; adherence facilitates a fair and robust decision making process,Project Risk Prioritization,Risk Identification,Risk Categorization,Project Prioritization Business Criticality And Size,Business Criticality, how much does it matter if the project does not meet its objective?,A,= Incremental benefit but current processes will suffice,B,= Supports strategy but manageable impact if project fails/delayed,C,= Important to the strategy with significant impact if project fails/delayed,D,= Critical impact/must keep up with competitors/cannot continue business,Complexity,High,Low,High,D,C,B,A,A,B,C,D,Business Criticality,Project2,Project3,Project6,Project1,Project4,Project5,Many issues are closed by making assumptions,Risks,Assumptions,Issues,ProjectPlans,Risk Plans,Issues are open questions,Unstable/sensitive assumptions create risks,Significant risks need to be managed,Issues, Assumptions And Risks Are Inherent In The Project Plans,Risk Reduction,Red,Amber,Green,Merger Risk Profile,Now,Future,Green,Amber,Red,Time,Criticality,Illustrative,Challenges,Decision Making,Planning/,Execution,Reporting,Benefits of Proactive Risk Management,Cross organizational input and dedicated facilitation ensures objective input,Milestone risks associated with decision timing are derived from process-wide initiatives,Risk process highlights resource vulnerabilities. Sense of urgency associated with the process forces discussions and actions,Proactive management and facilitation objectively evaluates all communication risks. Forum offers participants a chance to agree or disagree,Concise updates focused on cross-organizational risks direct attention where it is needed,Clear assignment of risk ownership and action responsibilities eliminate confusion,Realizing Integration Synergies,To assess and achieve their synergies, all teams can leverage a number of A.T. Kearneys proven methodologies and tools as appropriate,Streamlining the Organization,Reducing Purchased Costs,Objectives:,Focus Areas:,Methodology and Tools,Determine management and governance structure,Integrate offices,Align HR policies and procedures,Finance / Accounting,Legal / Regulatory,IT,HR,Corporate Center Rationalization,Leverage corporate spend,Leverage purchasing volumes,Direct materials,Purchased services,Indirect materials,Capital expenditures,Strategic Sourcing,E-Sourcing (eBreviate),Market exchange strategy (LSN),Supporting Methodologies and Tools,Increasing Sales Force Effectiveness,Increase revenue productivity of sales force,Increase knowledge and value-added selling capabilities,Explore channel leverage (i.e., Dealer /Reseller network),Sales force effectiveness,Cross-selling,Sales Force Effectiveness Methodology,Customer Retention Methodology,Illustrative,Leveraging Assets,Maximize asset utilization,Bottling plant consolidation,Warehouse consolidation,Realize network synergies,Fixed assets,Capital expenditures,Inventory,Procurement,Supply Chain Transformation,Operating Asset Effectiveness,Streamlining,Product Portfolios and Networks,Rationalize product offering and customer base,Evaluate and implement optimal network strategy,Product Offering,Customer requirements,Network cost and capacity,Product Portfolio and Network Rationalization Methodology,Operating Networks Integration,Rapid benefit delivery is feasible through integrating the operating network,ManufacturingCapabilities,What can be produced,Where,How does throughput vary by location and plant capability,What are the capacity constraints,NetworkConfiguration,Which are the costs of transportation, handling and inventory,Which is the most cost efficient network configuration,Are there cost synergies with other Dannon products,Manufacturing Capabilities,Network Configuration,Several Iterations,Local MarketRequirements,What are the market requirements,What is the current/future competitive positioning,What distribution channels are growing fastest,Market Requirements,1,A.T. Kearney 6/Document#/I.D.,Sample Preliminary,Scenario,SKU tree,1,SKU 2,SKU 3,Proliferation,Level,A,B,C,D,E,E,F,G,H,I,
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