Investing in the European market

1
Investing in the European market
Global Banking and Markets
June, 2008
2
Cross border mergersKey considerations for a
successful transaction

• Corporate
• Address flag issues
• Address takeover defence measures
• Minimise acquisition premium
• Effective integration
• Capital markets
• Avoid flowback of buyer shares received by
  target shareholders
• Tax
• Avoid capital gains tax for selling shareholders
• Minimise ongoing corporate tax

3
European takeover directiveImpact on European
merger defence

• The European takeover directive is a framework
  directive which aims to achieve a central
  harmonisation of the takeover legislation among
  the member states, establishing minimum standards
  but not a uniform set of rules
• The Directive allows member states to elect
  whether or not to be bound by Articles 9 and 11
• Article 9 limits frustrating actions during a bid
  
• Article 11 enables a bidder which receives
  tenders from at least 75 of target shareholders
  to "break through multiple voting rights and
  restrictions on voting and transfer of share
• As a result European companies can retain or
  implement effective defence measures permitted by
  their national laws

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European takeover directiveBoard neutrality and
Breakthrough
Articles
Description
Current law
Exceptions
Opt in
Opt out
9 Board neutrality
No frustrating actions by Board, except seeking
other bids, without shareholder approval while
bid is pending

• Principle of Board
• neutrality while bid is pending represents
  current law in the following countries
• France
• UK
• Italy
• Ireland
• Spain
• Sweden
• Finland
• Norway
• Denmark

• Netherlands
• Large company regime, stitching, preference share
  historically provided effective defence
• However Fundamental reform has changed Dutch
  landscape
• Germany
• From 2002 (Post Vodafone/Mannesmann) management
  can act with Supervisory Board authorization
  without shareholder authorization
• However not used so far in practice and limited
  by German law

• UK
• Sweden
• Portugal
• Hungary
• Norway
• Ireland
• Italy
• Spain
• Austria
• France

• Belgium
• Netherlands
• Germany
• Denmark
• Finland
• Luxembourg

11 Breakthrough
Breakthrough of restrictions on transfer and
voting shares in articles and shareholder
agreements, and of multiple voting rights
Restrictions on voting Rights are effectively not
permitted in UK, Italy and Germany
Restrictions on voting rights are permitted in
the following countries France, Spain
Netherlands, Sweden, Finland, Norway and Denmark

• Italy

• 15 countries
• including
• UK
• Sweden
• Spain
• Germany
• France
• Belgium

5
European takeover directiveBoard neutrality and
Breakthrough
Articles
Description
Opt in
Opt out
12 Reciprocity
Member States can decide that Articles 9 and/or
11 will not apply to companies with registered
offices in their territories. This would allow
such companies to take defensive action to
frustrate bids and/or mean that the breakthrough
provisions in Article 11 would not apply to them

• France
• Germany
• Sweden
• Italy
• Spain
• Belgium
• Netherlands
• Ireland
• Denmark
• Finland

• UK
• Norway
• Austria

6
European defence measures

• One or more effective defence measures can be
  implemented prior to a merger transaction in
  nearly all European countries including France,
  Germany, Spain, the Netherlands, Switzerland,
  Sweden, Norway, Denmark and Finland

In a very few European countries, particularly
the UK, anti-takeover defence measures would not
be approved by the shareholders
Defence Description UK Germany France Italy
Spain NL CH Sweden Norway Denmark Finland
? ? ? ? ? ? ? ? ? ? ? ? ? ?
? ? ? ? ? ? ? ? ? ? ? ?
? ? ? ? ? ? ? ? ? ? ? ?
? ? ? ? ? ? ? ? ? ? ?
? ? ? ? ? ?
Voting restrictions Ownershiprestrictions Poi
son pill Blankchequeissue Sale
ofcrownjewels
Insert limits on maximum voting Insert limits on
maximum number of shares any shareholder can own
without the consent of the board The poison pill
gives the stockholders the right to purchase
common shares at some fraction of the current
market price A Blank Cheque allows a company to
issue to current or new shareholders a new equity
security with significant voting rights Sell the
most attractive business(es) to a friendly party
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Overall assessment of European acquisition
opportunities

• Shareholder friendly UK takeover rules, a
  sophisticated institutional UK shareholder base
  and UK Government policy together permit the
  acquisition of controlling stakes by foreign
  companies including from the developing world
• The acquisition of controlling stakes has
  historically been more difficult in many
  continental European countries as a result of
  less open takeover rules, more direct involvement
  of Government and a less developed institutional
  shareholder base
• The acquisition of controlling stakes in
  strategic sectors including resources and energy
  is especially difficult for foreign acquirers in
  continental Europe
• Acquiring non-controlling strategic equity stakes
  presents an investment opportunity across
• Acquiring minority equity investments alongside
  financial buyers presents another investment
  opportunity in Europe which, however, should be
  explored on a specific transaction basis

8
E.ONs offer for Endesa
HSBC acted as Sole Financial Advisor and Lead
Financing Bank to E.ON
Transaction highlights

• E.ON made an all-cash offer to acquire Endesa for
  40 per share, for an equity value of 42.4bn and
  a total enterprise value of 71.5bn1
• On 5 September 2005, Gas Natural had made a
  hostile offer for Endesa at 21.30 per share, of
  which 7.34 would be in cash, representing a
  14.82 premium over the previous closing price
• E.ONs final offer represented a 115.52 premium
  over Endesas undisturbed share price
• Endesas Board officially recommended the offer
  stating that E.ON had offered a fair price and
  underlined the attractiveness of the all-cash
  offer to its shareholders
• Endesas Board subsequently announced their
  decision to tender into E.ONs offer
• While EONs bid was pending Acciona and Enel
  acquired substantial stakes in Endesa,
  aggregating with other friendly shareholders in
  excess of 50 of Endesas shares
• On 2 April 2007, E.ON announced an agreement with
  Acciona and Enel, to purchase approximately 11
  billion assets from Enel and Endesa and allow its
  offer to lapse

9
Key transaction developments
Gas Natural makes hostile offer for Endesa at
21.30 per share
E.ON approaches HSBC appointed sole financial
advisor
Spanish council amends energy regulations
granting powers to CNE to block foreign bids
European Commission clears E.ONs bid for Endesa
without any conditions
Acciona acquires 10 of Endesa shares at 32 per
share, with arrangements to acquire additional
9.63
Decision of Ministry of Industry on amended CNE
conditions including no required disposals
Dec 2005
20 Dec 2005
21 Feb 2006
5 Sep 2005
24 Feb 2006
21 Apr 2006
25 Apr 2006
28 Jul 2006
25 Sep 2006
26 Sep 2006
3 Nov 2006
Endesa approaches E.ON to consider potential
White Knight bid
E.ON makes all-cash offer for Endesa at 27.50
per share
Spanish Supreme Court suspends governments
approval of Gas Naturals bid on competition
grounds
CNE approves E.ONs offer with tough conditions,
including disposals of Endesas assets
E.ON announces its intention to raise its cash
offer for Endesa to 35 per share
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Key transaction developments (contd)
Start of E.ONs acceptance period
Endesas Board publishes favourable opinion on
E.ONs final offer
Enel acquires a 10 stake in Endesa at 39 per
share and announces its intention to increase its
ownership to 24.99
E.ON revises its offer for Endesa to 40 per share
E.ON announces agreement with Acciona and Enel to
allow its offer to lapse In exchange for asset.

Acciona and Enel launch a joint bid for 100 of
Endesa at 41.3 per share
Acciona raises its stake in Endesa to 21.03
10 Jan 2007
2 Feb 2007
6 Feb 2007
26 Jan 2007
27 Feb 2007
23 Mar 2007
26 Mar 2007
2 Apr 2007
11 Apr 2007
1 Feb 2007
E.ON submits sealed bid to CNMV results
announced the same evening
CNMV approval of E.ONs final offer of 38.75 per
share
Acciona and Enel propose potential joint bid for
100 of Endesa for at least 41 per share
Endesa Board recommends E.ONs offer and
announces tender decisions Caja Madrid confirms
swap agreement with E.ON
Gas Natural withdraws
The Chairman of the CNMV announces its
resignation on the ground that the CNMVs board
would not take action on the possible illegality
of the agreement between Enel and Acciona and
subsequent tender offers
11
Mittal Steels offer for Arcelor
HSBC acted as a Financial Advisor to Mittal Steel
in its acquisition of Arcelor Arcelor
Mittal1 worlds largest steel producer
Transaction highlights
Transaction highlights

• In January 2006, Mittal Steel, the worlds
  largest steel producer, launched an unsolicited
  18.6bn (US22.7bn) offer for Arcelor, the
  worlds second largest steel producer
• The offer was twice revised, first increasing to
  25.0bn (US31.8bn) on 19 May 2006 and then to
  27.9bn (US33.7bn) on 25 June 2006, resulting in
  a board recommendation
• Consideration consisted of 13 Mittal Steel shares
  for every 12 Arcelor shares, and 11.50 in cash
  for every Arcelor share, amounting to
  approximately 39.35 per share, representing a
  77 premium to the pre-announcement Arcelor share
  price and a 45 premium over the initial offer
• Following the merger, Mittal Steel agreed to sell
  Arcelors newly acquired Canadian steel business
  Dofasco to ThyssenKrupp
• Key transaction drivers where strong strategic
  fit, complementary geographic footprints, and
  estimated annual synergies of approximately
  US1.6bn

• In January 2006, Mittal Steel, the worlds
  largest steel producer, launched an unsolicited
  18.6bn (US22.7bn) offer for Arcelor, the
  worlds second largest steel producer
• The offer was twice revised, first increasing to
  25.0bn (US31.8bn) on 19 May 2006 and then to
  27.9bn (US33.7bn) on 25 June 2006, resulting in
  a board recommendation
• Consideration consisted of 13 Mittal Steel shares
  for every 12 Arcelor shares, and 11.50 in cash
  for every Arcelor share, amounting to
  approximately 39.35 per share, representing a
  77 premium to the pre-announcement Arcelor share
  price and a 45 premium over the initial offer
• Following the merger, Mittal Steel agreed to sell
  Arcelors newly acquired Canadian steel business
  Dofasco to ThyssenKrupp
• Key transaction drivers where strong strategic
  fit, complementary geographic footprints, and
  estimated annual synergies of approximately
  US1.6bn

Crude steel production (2005)
Metric tonnes
(1) Arcelor Mittal including acquisitionsSource
Company information
12
Impassioned defence / Complex political process

• Arcelor was formed in 2002 through the
  combination of the national steel industries of
  Luxembourg, Belgium, France and Spain
• Luxembourg, France and Spain came out against the
  Mittal offer
• Four key defensive measures
• Increased the final dividend from an expected
  0.80 per share to 1.85 per share
• Promised a further 5bn return of capital
• Placed Dofasco into a Dutch trust (Stichting) to
  prevent Mittal from on-selling Dofasco to
  ThyssenKrupp as agreed
• Shareholder groups (ISS, ADAM, Proxinvest) raised
  concerns over the use of such a trust by Arcelor
  without seeking approval from its shareholders
  first and recommended that Arcelor shareholders
  vote against the re-election of certain Arcelor
  directors at their April AGM in protest
• White Knight defence
• Arcelor struck a deal with Alexey Mordashov
  providing for the contribution his 89 interest
  in OAO Severstal, a Russian steel producer,
  including related mining interests and the
  Italian steelmaker Lucchini, together with
  1.25bn in cash in exchange for the issue of 295
  million newly-issued Arcelor shares representing
  approximately 32 of Arcelor
• Arcelor further proposed to return up to 7.6bn
  of capital to shareholders through a share
  buyback, which would have further increased Mr
  Mordashovs interest in Arcelor
• Subject to approval of shareholders, the proposal
  was subsequently defeated at an Arcelor EGM on 30
  June 2006

we are involved in a war. We do not show our
weapons. But we are very active and, believe me,
we have a lot of imagination. We have not used up
all our ammunition. Joseph Kinsch, Arcelor
Chairman of Board of Directors 24 April 2006,
Guardian
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Borse Dubai / OMX / NASDAQ Transaction summary

HSBC acted as Sole Financial Advisor and Lead
Financing Bank to Borse Dubai on a series of
landmark transactions with OMX and NASDAQ to
create a unique global exchange platform

• Timeline

OMX AB agreed to be acquired by NASDAQ in a cash
and share deal valued at SEK208.1 (USD3.7bn)
25 May 07
HSBC executed a dawn raid with a notional value
of USD1.14bn on behalf of Borse Dubai, securing
4.9 of the share capital of OMX and option
agreements representing a further 22.51
09 Aug 07
Borse Dubai announced a public offer for all
outstanding OMX shares at a price of SEK230
(USD4.0bn)
17 Aug 07
Borse Dubai announced a series of transactions
with NASDAQ that will allow Borse Dubai, NASDAQ
and OMX to create a unique global exchange
platform
20 Sep 07
Borse Dubai increased its offer for OMX to SEK265
per share and announced that it had secured 47.6
of OMX shares through direct ownership, option
agreements and irrevocable undertakings
26 Sep 07
Borse Dubais public offer for all outstanding
OMX shares opened for acceptances
08 Jan 08
Initial offer period closed with Borse Dubai
acquiring 97.6 of OMX (including direct
ownership and following settlement of the options)
12 Feb 08
Borse Dubai completed the series of transactions
with NASDAQ
27 Feb 08
Borse Dubai NASDAQ agreements
Borse Dubai acquired OMX and sold it on to
NASDAQ3 (USD4.9bn)
1
Borse Dubai invested in NASDAQ4
2
NASDAQ invested in DIFX
3
USD 4.9 billion
Borse Dubai acquired NASDAQs stake in the LSE
(USD1.6bn)
4