The Evolving M

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The Evolving MA Market
Securities Regulation Institute January 2005
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The Pundits Agree MA is Back
Shake, Rattle and Merge - BusinessWeek, 1/10/05
MA is Heating Up - WSJ, 1/3/05
A Boom in Merger Activity - NYT, 1/2/05
Will Merger Mania Extend to 2005? - CFO.com,
12/16/04
Wall Street Toasts a Surge in Merger
Activity - MSNBC.com, 12/21/04
MA Boom in Store - UK Telegraph, 1/4/05
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Volume of MA Activity
27 Annual Decline2000-2003
33 Annual Growth1994-2000
46Growth
Source Thomson Financial Securities Data
4
Volume of MA ActivityBillion Dollar Deals Year
by Year
23 Annual Decline2000-2003
31 Annual Growth1994-2000
76Growth
Source Thomson Financial Securities Data
5
Despite Recovery, Volumes Below Historical Levels
Average 8
Source Thomson Financial Securities Data
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Volume of MA Activity
27 Annual Decline2000-2003
33 Annual Growth1994-2000
46Growth
Source Thomson Financial Securities Data
7
Balance Sheet Cash is at Record LevelsSP 500
Companies
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Key Factors Driving MA Activity

• Strong Economy / Profit Recovery
• Improved CEO Confidence
• Consolidating Industries
• Cheap Financing / Strong Stock Prices
• Weakened Takeover Defenses
• Momentum Investors and Hedge Funds

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Key MA Trends in 2004

• Consolidating Industries Drive Biggest Deals
• Meaningful Pickup in Hostile Activity
• Private Equity Continues to Drive Volumes
• Trend Towards Cash Deals Continues
• Premium Levels Remain More Moderate

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Consolidating Industries Drive Biggest Deals
ValueAcquiror Target (bn) Sector

• Sanofi-Synthelabo Aventis 65.7 Healthcare
• J.P. Morgan Chase Bank One 58.8 Financial
  Services
• Cingular Wireless ATT Wireless 47.1 Telecom
• Sprint Nextel Communications 46.5 Telecom
• Sumitomo Mitsui Financial Group UFJ
  Holdings 29.3 Financial Services
• Telecom Italia Telecom Italia Mobile 28.8 Telecom
  
• Exelon Public Service Enterprise
  Group 27.4 Utilities
• Johnson Johnson Guidant 25.0 Healthcare
• KBC Bank Insurance Almanij NV 20.8 Financial
  Services
• Santander Central Hispano Abbey
  National 15.8 Financial Services

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Meaningful Pickup in Hostile Activity

• Hostile / unsolicited activity includes deals
  that began as unsolicited.
• Source Thomson Financial Securities Data

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The Emergence of Large Hostile Deals With
Strategic Buyers

• Comcast Walt Disney 66.7
• Sanofi-Synthelabo Aventis 66.2
• Sumitomo Mitsui Financial Group UFJ
  Holdings 29.3
• Revival Acquisitions (Philip Green) Marks
  Spencer 19.1
• CWG Acquisition/Silvestor Canary Wharf Group 8.9
• Oracle PeopleSoft 8.6
• Cox Enterprises Cox Communications 8.4
• MGM Mirage Mandalay Resort Group 7.6
• Alcan Pechiney 7.1
• Xstrata WMC Resources 6.7

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Dramatic Industry Growth in LBO and Hedge
Funds1989 - 2003
1989/90 1995 2003
LBO Funds (a) Hedge Funds (b)
Growth 17x
Funds Funds Funds
Growth 10x
Funds Funds Funds

• Source Public Sources
• Numbers for LBO Funds are US and Europe Hedge
  Funds numbers are global
• LBO Funds greater than 1 billion.
• All Hedge Funds.

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Private Equity Continues to Drive Volumes
Average 3.9
Source Thomson Financial Securities Data
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Trend Towards Cash Deals Continues
All Stock 27
All Cash 36
All Stock 48
All Cash 48
All Stock 40
All Cash 55
Cash Stock 18
Cash Stock 12
Cash Stock 16
Source Thomson Financial Securities Data
16
Premium Levels Remain More Moderate
Average Acquisition Premiums (a)
(a) Premium is relative to target share price 4
weeks prior to announcement for deals with U.S.
targets valued over 250 million. Source Thomson
Financial Securities Data
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Where Do We Go From Here?
Mid 1990s-Factors Influencing MA
Activity 2000 2001/2002 2005

• Economic Environment ? ? ?
• Stock Market Performance ? ? ?
• Investor Confidence ? ? ?
• CEO Confidence ? ? ?
• Corporate Scandals / Bankruptcies ? ? Improving
• Geopolitical Situation ? ? Uncertain
• Regulatory Environment ? ? Uncertain
• Absence of Write-offs ? ? Improving