Corporation Acquired Integration Planning Launch

1
Corporation / Acquired Integration Planning Launch

• DATE
• Location

2
Acquired is the perfect match for Corporation

• Reduces industry overcapacity
• Provides hard synergies
• Forms worlds second largest pump company
• Broadens products, markets, territories
• Adds to installed base
• Is perfectly timed
• Creates significant shareholder value
• Etc

3
Removes Excess Capacity
Demonstrated Capacity
Capacity Overhang
Chemical
Demand
Refinery
Sources Bank of America, Salomon Smith
Barney, Oil Industry Outlook Company Reports
4
Provides Hard Synergies

• Headquarters -- about 15 million
• Sales force coverage overlap (calls to same
  customers, bid costs, travel, etc.)
• Corporation pump sales force - 300
• Acquired sales force - 700
• Plant/service center and product overlaps exist
• Etc

Approximate number of sales personnel
5
Forms Second Largest Pump Company ( millions)

Pro Forma
Sources Pumps World Market 1999-2004 The
McIlvaine Company, November 1998. Acquired and
Corporation sales adjusted for actual results.
6
Broadens Products
Key Corporation product gains include

• Comprehensive ANSI, ISO, API
• Diffuser
• Solids slurry abrasive
• Rotary gear, screw, progressive cavity
• Reciprocating
• Specialty for niche markets decoking systems,
  concrete transfer, fire, marine/navy

7
Broadens Markets
Corporation
Combined Market Mix
Other 10
General Industry 4
Water 4
Petroleum 39
Power 11
Other 9
Chemical 32
General Industry 12
Petroleum 38
Other 8
Water 8
Acquired
General Industry 24
Petroleum 36
Power 13
Chemical 20
Power 15
Chemical 5
Water 12
Other includes Navy, Mining, Food and
Beverage, and Pharmaceutical.
8
Broadens Territories
Combined Geographic Mix
Corporation
Other 10
Asia Pacific 6
North America 58
Asia Pacific 10
Europe/ME 26
Latin America 10
North America 50
Other 10
Acquired
Europe/ME 30
Asia Pacific 15
North America 41
Europe/ ME 34
9
Adds to Installed Base
Installed Base
Units
Corporation
Acquired
Sales Mix
Corporation
Acquired
Aftermarket
Original Equipment
Pumps and pump services
10
Is Perfectly Timed
Accelerating Decline
Decelerating Decline
Accelerating Growth
Decelerating Growth
11
Creates Significant Shareholder Value

• Is significantly EPS accretive
• Is neutral to slightly dilutive in 2000
• Provides net hard synergies run rate
• 35 million by year end 2000
• 75 million by year end 2001
• Estimated rationalization costs of 150 million

12
Overview of Corporation / RED

• Corporation (ABC)
• 1997 merger of XYZ and BWC
• NYSE ABC
• 1999 net sales 1.1 billion
• 40 of sales outside US
• Approx. 7,000 employees
• Operations in 28 countries
• Equipment Division (ED)
• 1999 net sales 353 million
• 1999 focus on cost reduction
• Significant growth opportunities

13
Overview of Acquired

• Formed in 1992 joint venture between PumpCo and
  Pumps RUs, is 5 global supplier of pumps
• Has 5,000 employees, 42 manufacturing, repair and
  parts distribution facilities in 15 countries and
  operates in 27 countries
• Produces broadest range of pump configurations in
  industry, including centrifugal, reciprocating
  and rotary pumps

14
Summary

• Catapults Corporation to pump industry leadership
  position
• Has substantial hard synergies
• Fills product gaps
• Expands markets
• Provides opportunity for significant shareholder
  value creation

15
Call to Action

• Potential to create 800 million in shareholder
  value
• Need for urgency time is the enemy of
  integration
• Need for focus highest value proposition
  available over the next 24 months
• Need for decisiveness delayed actions (and
  decisions) cost money
• Need for speed early capture of synergies
  brings exponential cash flow to the bottom line

16
Transaction Summary( millions)

• Purchase price
• Asset purchase
• Financing (banks and bonds)
• Estimated closing

775 8.2 x 1999 Adjusted EBITDA 1,425 April 2000
17
Pro Forma Sales ( millions)
Acquired Division ABC
18
Pro Forma EBITDA (before special items) (
millions)
Acquired Division ABC
19
Pro Forma Cost Savings Opportunities (
millions)
Acquired Division ABC
20
Scenarios (excluding special items)
21
Potential Growth Scenario PL (excluding special
items)
22
Potential Growth ScenarioSources/Uses of Cash
23
PRITCHETT

• Corporate integration specialists

24
Objectives

• Organization
• Focus
• Prioritization (80/20 rule)
• Responsibility/accountability
• Coordination and linkage
• Bottom-line rationale

25
MA Risk Statistics

• 83 of deals are disappointing or outright
  failures
• 50 overall drop-off in productivity in first 4-8
  months
• Upon announcement of merger or acquisition, a
  companys stock price rises only 30 of the time
• 77 of all acquisitions fail to earn their cost
  of capital
• On average, management grades the financial
  performance of their integration alliances as a
  C minus
• Lack of integration speed and people problems
  cited as the top integration failure factors by a
  sample of 45 CFOs from Fortune 500 companies who
  have recently merged/acquired

Sources CFO Magazine, Business Week, Fortune,
Independent Research
26
Seven Deadly Sins of Integration

• Lack of integration speed
• Dilatory decision-making protocols (pursuit of
  the perfect answer)
• Poor internal and external communications
• Lack of integration focus and prioritization
• Inadequate senior executive participation
• Poor due diligence (financial only, no soft
  goods)
• Inattention to critical retention issues
  (disregard for the me issues)

27
Integration, like war, must be waged

• Relentless pursuit of speed
• Rapid fire decision-making
• Focus on results (i.e., meeting the integration
  timeline, identifying and capturing synergies)
• Comprehensive due diligence and planning
• Command-and-control integration focus and
  management
• Ruthless prioritization and integration
  discipline
• Strong internal and external communications
• Manage people issues

Understanding and managing MA ambiguity and
workload can be counter-intuitive to accepted
business practices and tenets.
28
Caveats

• Important to use discretion in communicating with
  employees outside of this meeting
• Were going to present information that needs to
  be evaluated
• Were here to evaluate options
• This work does not represent final decisions

29
Acquisition Value Drivers
30
Integration Team Structure
Approved by Howie Wynn on 3/9/00.
31
Production Operations Plant Consolidation
Sample
32
Sales
Sample
33
RD
Sample
34
Marketing
Sample
35
Seal Sales
Sample
36
Real Estate Non-core Assets
Sample
37
Human Resources
Sample
38
Finance/Accounting/Treasury
Sample
39
Legal, Risk Mgmt Liberty Corners
Sample
40
Information Technology
Sample
41
Supply Chain Management
Sample
42
Integration Timeline (sample)
Objective Milestone Events
Day 1 Action Team Review
Integration / Synergy Team Review
Project Launch
Executive Summit
IAT Launch
Six Month Review
Post-Close Review
Target Close 4/15
Objective Status
Weekly (approx. 4 wks) then monthly
Complete
3/223/24
TBD
4/244/25
4/3 (0r 4/5)
Month 6-9
Week 1
2
3
4
5
6
7
8
9

• Contracts and decision making
• Strategy and economics
• Soft-goods issues management
• The Call to Action
• Integration planning
• (synergy review, integ. mgmnt., integ.
  milestones, launch Comm, HR and IT IATs, and
  initiate integ. functional discovery)
• Project admin.

• Planning interviews / meetings
• Launch preparation
• Drivers
• Metrics
• Constraints
• IAT structure / membership
• Timeline
• Checklists/data
• Incentives
• Presentations template
• Invites/logistics

• Finalize Day 1 plans (incl. linkages, recomm.,
  and Day1 impl. cost summary)
• Day 1 plan review / approval meetings (3/30-3/31)
• Launch Day 1 impl. campaign
• Synergy planning

• Executive Summit Preparation
• Day 1 event finalization
• Change management issue ID and planning
• Newco exec personality profiling, team building
  and engagement
• Transitioning the functional integration

• Review Day 1 issue execution and next steps
• Review integration / synergy action initiatives
• Finalize org. and personnel selection
• Review synergy status
• Review timeline
• Red flag issues
• Re-prioritize actions
• Re-focus effort

• Review status of all integration actions
• Review synergy realization and tracking
• Red flag issues
• Re-prioritize actions
• Re-focus effort

• Finalize synergy / integration action plan (incl.
  synergy / cost detail by month)
• Synergy / integration plan review / approval
  meetings (4/6-4/7)
• Launch synergy / integration campaign

Key Initiatives
43
Integration Commitment Petition
We the undersigned, individually and
collectively, commit our best efforts to the
success of the Corporation / Acquired corporate
integration. We recognize the need for speed in
executing the integration plan and the importance
of realizing the synergies associated with
combining the two companies. We acknowledge that
we may be presented with or asked to deal with
information or decisions involving either
companies business or personnel that is highly
confidential. We further recognize that the
pre-mature release of such information could
negatively impact the success of this project to
which we are committed. Accordingly, we pledge
to maintain the confidentiality of the
information and actions contemplated throughout
the integration process and agree that we shall
not share such information with anyone in either
organization until such information is approved
for release within the integration
project.   NAME AFFILIATION/STATUS
44
Integration Performance Metrics

• Three measures of integration success
• Realized synergies (run rate)
• Cash savings (captured cash flow)
• Restructuring costs (costs)

45
Integration Performance Metrics

• Realized Synergies (run rate)
• - the annualized savings from future costs
  that have been removed (but not yet realized)
  from the combined companies as of a snapshot
  point in time.
• Example 1 terminated employee annual salary
  annual benefits as a realized synergy as of
  date of termination.
• Regardless of termination date 60,000 salary
  30 burden rate 78,000 of Realized
  Synergies, annual cost removed from combined
  companies.

46
Integration Performance Metrics

• Company minimum realized synergies
• Success 106,000,000
• By June 30, 2001

47
Integration Performance Metrics

• Cash savings (captured synergies)
• - the cumulative cash that has been captured
  (taken to the bank) from realized synergies as
  of a snapshot point in time.
• Example 1 employee terminated January 1, 2001
  will provide 6 months of salary and benefits
  savings (cash that we did not spend) on June 30,
  2001.
• 01/01/01 term date 60,000/12 x 6 mos
  30,000 of cash savings

48
Integration Performance Metrics

• Company minimum cash savings (captured
  synergies)
• Success 60,000,000
• By June 30, 2001

49
Integration Performance Metrics

• Restructuring costs (costs)
• - the costs (cash outlays) directly
  associated with taking a synergy action.
• Examples Severance pay, equipment relocation,
  contract labor, capital investment.

50
Integration Performance Metrics

• Company maximum restructuring costs (costs)
• Success 146,000,000
• By June 30, 2001

51
Integration Performance Metrics

• Company success
• Synergies 106,000,000
• Cash 60,000,000
• Cost
• achieved by June 30, 2001

• Team success
• Synergies Team target
• Cash Team target
• Cost
• achieved by June 30, 2001

52
106
53
60
54
Synergy Scorecard
55
Integration Performance Metrics

• Incentive plan design will be based on June 30,
  2001 performance
• Trigger 1 Achieving company synergy, cash and
  cost targets.
• Trigger 2 Achieving team synergy, cash and cost
  targets.
• Value accelerator Maximizing cash in excess of
  60 million.

56
Integration Performance Metrics

• Incentive plan design to be finalized in the next
  two weeks. Key features will include
• No awards if company targets are not met
• No awards if team targets are not met
• Meaningful awards if targets are met
• Increasingly substantial awards for exceeding
  cash target of 60 million

57
Acquired Project Synergy Bonus Plan
58
Acquired Project Synergy Bonus Plan

• Eligibility assigned members of the Acquired
  Integration Team whose participation is approved
  by Steering Committee Chairman.
• Participants will include employees and external
  contractors
• Two categories of participants Full-time
  part-time
• Full-time 100 integration
• Part-time 25-50 integration day job
• Executive Officers will not be eligible to
  participate

59
Acquired Project Synergy Bonus Plan

• Proposed Incentive Plan
• The term of the plan is 01/01/2000 through
  06/30/2001
• Participants maintain their current base salary
  and target incentive opportunity
• The plan provides significant upside opportunity
  for meeting or exceeding project cash savings.

60
Acquired Project Synergy Bonus Plan

• Proposed Incentive Plan cont.
• All or a portion of the target incentive
  (depending on team status--dedicated or
  part-time) will be tied to achievement of
  Acquired synergies as specified below

61
Acquired Project Synergy Bonus Plan

• Proposed Incentive Plan cont.
• Payout of project incentives will be contingent
  upon achievement of the following threshold
  performance levels
• Cash Flow 60,033,000
• Realized Synergies 106,344,000
• Restructuring Costs
• Payout of project incentives for part-time team
  members will also be contingent upon receiving a
  met expectation rating or better for
  non-project related responsibilities in their
  March, 2001 performance appraisal

62
Acquired Project Synergy Bonus Plan

• Proposed Incentive Plan cont.
• Full-time participants 300 of target bonus,
  plus roughly 3 of target bonus for each 1 of
  additional cash savings above 60 million.
• Example If base 100k and target bonus 40,
  and company and team targets are met then
• 40 x 300 120 x 100,000 120,000
• if cash target exceeded by 10 (66 million)
• 40 x 30 12 x 100,000 12,000

63
Acquired Project Synergy Bonus Plan

• Proposed Incentive Plan cont.
• Part-time participants 300 of 40 of the
  prorated target bonus, plus roughly 3 of target
  bonus for each 1 of additional cash savings
  above 60 million.
• Example If base100k and target bonus 40,
  and company and team targets are met then
• 40 x 40 x 300 48 x 100,000 x 1.5
  72,000 plus remaining prorated bonuses for
  normal 2000 and 2001 plans
• if cash target exceeded by 10 (66 million)
• 40 x 40 x 30 4.8 x 100,000 4,800

64
106
65
60
66
Synergy Scorecard
67
Integration Performance Metrics

• Incentive plan design will be based on June 31,
  2001 performance
• Trigger 1 Achieving company synergy, cash and
  cost targets.
• Trigger 2 Achieving team synergy, cash and cost
  targets.
• Value accelerator Maximizing cash in excess of
  60 million.

68
Integration Performance Metrics

• Incentive plan design to be finalized in the next
  two weeks. Key features will include
• No awards if company targets are not met
• No awards if team targets are not met
• Meaningful awards if targets are met
• Increasingly substantial awards for exceeding
  cash target of 60 million

69
The Next 3 Days

• Day 1
• Overview of deal (economics, timeline, structure)
• Short-term mission critical issues planning
• Day 2
• Synergy action planning
• Day 3
• Synergy action planning
• Presentation of plans
• Next steps

70
Anti-Trust Guidelines for Pre-Merger Information
Sharing

• There are two anti-trust issues associated with
  negotiating and closing transactions
• Specific pre-closing coordination/information
  sharing between parties that may violate the
  Hart-Scott-Rodino Act
• 2. Joint activities by the parties prior to
  close will be subject to review under Section 1
  of the Sherman Act which prohibits all contracts,
  combinations or conspiracies that unreasonably
  restrain trade

71
Anti-Trust Guidelines for Pre-Merger Information
Sharing

• You cannot discuss
• Current/future pricing plans
• Costs
• Strategic plans of the existing business
• Confidential/proprietary information re market
  share and/or selling practices
• Specific customer information
• You can discuss
• How the merger/acquisition will be structured
• What the anticipated efficiencies will be
• Vision for new corporate culture
• How you envision motivating the new workforce
  (e.g., goals, metrics, etc.)
• In addition, you can
• Form integration/transition teams
• Prepare for post-closing implementation
• Retain an independent third-party consultant to
  receive/escrow competitively sensitive information

72
Integration 101

• Execute on short-term mission critical for
  seamless Newco transition
• Drive synergies to bottom line as quickly as
  possible
• Turn attention to incremental process/infrastructu
  re/functional improvements

Only after this is achieved
73
Short-Term Mission Critical

• Critical actions that must be executed in the
  short-term in order to
• Ensure a seamless customer transition (e.g.,
  customer communications, order entry, field
  service, sales representative clarification,
  etc.)
• Allow employees to maintain focus on day-to-day
  operations and protect productivity (e.g.,
  employee communications, organization structure,
  contact lists, employee benefits, business cards,
  etc.)
• Produce necessary financial reporting and optimal
  legal / tax position (e.g., purchase accounting,
  beginning Newco balance sheet, legal entity
  structure, etc.)
• Supply information connectivity to support
  baseload operations and critical decision-making
  (e.g., vmail/email, consolidated reporting, etc.)
• Day 1 Day 90

74
Breakout 1(1 hour)

• Within each function, identify core business
  processes which are mission critical to seamless
  operation in short-term
• Using checklists and pre-work as a reference,
  identify and prioritize Day 1 risks
• Outcome Identification and prioritization of
  critical liabilities/barriers to seamless Day 1
  operation

75
Breakout 1
Day 1 Issues/Risks Matrix  
Objective List all of your functions core
business processes (or special projects) that are
mission critical for Day 1 operation. Next,
using the issue checklists as a reference,
identify and prioritize the constraints/barriers
to timely Day 1 completion.
 
76
Breakout 2(2 hours)

• Map out short-term mission critical action plans
• Key actions
• Timing
• Primary responsibility
• Linkages
• Decisions required
• Team presentations
• Outcome Draft short-term integration plan of
  attack

77
Breakout 2
Short-Term Integration Action Planning  
Objective Using the results from Breakout 1,
create your teams skeletal Mission Critical
Integration Action Plan. Please include start
and completion dates for key actions, assign a
team member or functional contact responsibility
for the completion of the action item, capture
linkages to other teams or functional areas, and
specify any executive decisions required for
completion of the action within the specified
timeframe. You may complete your preliminary
plan using either the MS Word or the MS Project
template on diskette. MS Project is preferred,
as it is the standard we will be using going
forward.
 
Achievability Assessment for This Action Plan
(1-100)
78
Day 1 Wrap Up

• QA and Recap of Day 1
• Dinner

79
Corporation / Acquired Integration Planning Launch

• Date
• Location

80
Day 2 Overview

• Synergy action planning
• Minimum synergy event planning and risk
  assessment
• Stretch synergy targets, actions and compressed
  cash savings timing

81
106
82
60
83
Preliminary Synergy Model by Team

• Preliminary synergy charts (cash and run rate)
• Preliminary synergy assumptions
• Excel worksheets

84
Breakout Session 3(3 hours)

• Map out preliminary synergy action plan
• Review preliminary synergy model and assumptions
  for your team
• Assess the achievability (0 100) of
  preliminary synergy model
• Based on model, map out necessary timing for
  synergy actions
• Based on these milestones, backfill synergy
  action plan (incl. actions, timing,
  responsibility, estimated costs/synergies/cash by
  month, linkages, and decisions required)
• Outcome Preliminary synergy action plan and
  achievability assessment

85
Breakout 3
 
Synergy Action Plan Development  
Objective Using the Integration metrics/targets
for your team, backfill a Synergy Action Plan by
supplying the information requested below. For
each synergy project and supporting key action,
include date key actions must be completed by,
include any constraints/actions required to
remove constraints, assign a team member or
members responsibility for the execution of the
action item, note the dollar value of estimated
cost, synergy run rate or synergy cash capture
associated with the action by month (using the
separate Excel file), capture linkages to other
teams or functional areas, and specify any
executive decisions required for completion of
the action within the specified timeframe.
Achievability Assessment for This Action Plan
(1-100)
   
Achievability Assessment for This Action Plan
(1-100)  
86
Synergy Cash Capture Risk Rating Model (Sample)
150
120
Cash Capture by 6/30/01 (M)
90
Stretch
60
30
0
100
50
Achievability
87
Breakout Session 4(3 hours)

• Develop synergy scorecard to John Doe ASAP
• Continued development of synergy action plans
• Short-term plans review (4/7)
• Synergy plans review (4/24 - 4/25)
• HR/IT linkage meetings
• Mfg group from 4p to 430p
• Sales and Mktng from 430p to 500p

88
Day 3 Overview

• Team presentations
• Issues
• Linkages
• Data request
• Decisions required
• Return updated disks (w/ planning work) to John
  Doe for consolidation
• Overview of next steps

89
Issues Inventory
90
Next Steps

• Short-term action planning and execution
• Urgent identification/recommendations re Day 1
  issues (hot decision issues/recommendations to
  MAP consultant each Friday Greer/Wynn issue
  resolution meetings every Monday _at_ 10a)
• Finalization and implementation of Day 1 plan
• Integration Action Team Day 1 review 4/7
• Synergy action planning and execution
• Develop synergy action plan (enter into MS
  Project)
• Develop project budget
• Integration Action Team Synergy review 4/24
  4/25

91
Meeting Objectives

• Clear focus on speed (sense of urgency) and
  synergy realization 
• Understanding of key metrics
• Buy-in of the Synergy Bonus Plan as integration
  action team driver
• Development and understanding of the financial
  measurement system
• Validation of synergies, cash flow and costs
• Development and understanding of the Synergy
  Scorecard 
• Prioritization of Day One issues
• Prioritization around synergy buckets and cash
  flow drivers 
• Staying on time