Merger Integration

1
Merger Integration

• Intellectual Capital Collection
• Generic Proposal

2
Table of contents

• Executive Summary
• Our Understanding of Your Situation
• XYZs Perspective on Merger Integration
• Proposed Overall Approach
• Realizing Integration Synergies
• Integration Management
• XYZ Qualifications

3
Executive SummaryThis section is tailored to the
client situation and summarizes the approach
proposed in the document
4
Our Understanding your SituationThis 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
5
XYZs Perspective on Merger Integration
6
The best value-builders combine organic growth
with mergers and acquisitions
Value Growers Follow Conscious, Constant Process
To Growth
Growth Matrix (CAGR 1988-2000)
Simple Growers
Value Growers
Revenue Growth
Under performers
Profit Seekers
Value Growth
Source XYZ Monograph on Value-Building Growth
2001
7
Mergers and acquisitions are key growth drivers
40 of Growth Is From Acquisitions
Value Growers Manage Both Well
Sources of Growth
What really matters in acquisition for growth
strategies is execution
Source XYZ Monograph on Value-Building Growth
2001
8
Few mergers actually create shareholder value
Acquirer's Value Growth Following a Merger
Average 2.8
?
49.5
50.5
Top-Performing Mergers
16
10
8
12
27
21
3
3
Value growth
-100
-60
-30
30
60
150
-15
15
0
Underperformance compared to industry average
Overperformance compared to industry average
Top performing mergers create significant
shareholder value
Source XYZ Analysis 2001, SDC database, Global
Worldscope
9
Business Integration issues require usual
management decisions while four main factors add
another level of considerable complexity
Time pressure

• All stakeholders expect rapid execution
  (shareholders, employees, management, regulation
  committees, government,)
• Decisions need to be made without delay

Human component
Simultaneity

• High number of people potentially involved
  (operational, functional and executive people)
• Risk of cultural mismatch
• Scarce resources to bridge between merged
  companies

• Co-existence of strategic, tactic and operational
  decisions
• Strong inter-dependence of the decisions
• Short term and strategic decisions may seem
  incompatible

Scope

• High number of decisions to be made in all
  operational and functional areas
• Dozens of projects/initiatives and risks to be
  managed

10
explaining why only few mergers and
acquisitions succeed fully
Only 29 of Companies Realize an Increase in
Aggregate Profitability
100 230 companies
Higher
Lower
Nochange
Note (1) Shareholder returns from buyer divided
by shareholder returns (industry average) after
the merger Sources XYZ analysis, Global PMI
Survey, 1998 Datastream
11
Top performers across most industries can create
significant shareholder value
Industry Specific Ranges of Value Creation(1)
64.5
62.5
49.9
44.2
43.3
40.4
36.1
34.2
31.9
32.3
27.5
26.6
26.6
25.1
26.0
22.4
18.0
17.4
17.2
17.4
16.0
14.8
4.0
-6.5
-10.8
-11.0
-9.7
-17.6
-18.0
-17.4
-19.4
-20.3
-20.6
-22.7
-24.1
-25.9
-26.5
-24.9
-26.7
-28.8
-31.5
-24.1
-27.2
-35.0
-35.3
-38.9
-39.6
-46.8
Food
Paper
Utilities
Textiles
Tobacco
Retailers
Financial
Electrical
Beverages
Chemicals
Aerospace
Recreation
Diversified
Electronics
Automotive
Construction
Miscellaneous
Transportation
Metal Producers
Printing and Publishing
Machinery Equipment
Metal Products Manufacture
Drugs, Cosmetics Health Care
Oil, Gas, Coal Related Services
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
XYZ Analysis 2001
12
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
Percent of Respondents
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 XYZs Global Merger Integration Survey
1998
13
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 XYZ Merger Integration
14
In our experience, the most critical element in
achieving targeted benefits is speed
Value Capture of Top Performers Over Time
Timing of Synergy Realization Is Also Critical
15
6
85
4
2
0
Cumulative Value Capture After Two Years
Value Capture/Loss ( MM)
-2
-4
-6
-8
-10
1
2
3
4
5
6
7
8
9
10
Year in Which Synergies Are Realized
Time
Closingthe Deal
Year 1
Year 2
Source Marl L Sirower The Synergy Trap.
Calculated based on a 10MM acquisition premium,
representing 50 of market value
Source XYZ's global PMI survey '98
15
Proposed Overall Approach
16
XYZ has a flexible merger integration framework
with a comprehensive toolkit to support planning
and implementation throughout the merger process
to ensure value capture

• XYZs Merger Integration Framework

Phase 0
Phase I
Phase II
Phase III
Day One
Develop Strategy
Establish Structure and Plan
Integrated Planning and Initial Rollout
Full-Scale Rollout
Merger Manage-ment

• Establish the integration program
• Build integration capability

• Create master plan and prioritize

• Monitor progress and risk

• Merger/Acquisition options
• Create/articulate/validate
• Markets/customers
• Competition
• Resources
• Sources of value
• Understand type of merger

• Assess sources of value
• Develop organization strategy design

• Validate sources of value
• Implement quick hits

• Execute the plan
• Realign the organization

Sources of Value
Multiple Tools Exist for All Cells

• Develop IT integration strategy
• Design/harmonize HR policies

• Develop SOV IT enablers
• Implement HR plan

• Implement IT integration plan

Merger Enablers
Change of Control
Shareholder Approval
MOU
17
This allows merging entities to rapidly capture
available sources of value by focusing on
operational synergies, as well as seamlessly
merging the organizations
MI Sources of Value
Merge the Organizations as Seamlessly as
Possible
Achieve Growth Synergy and Cost Synergy Targets
as Quickly 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

• Achieve XX million (annual rate) of synergy
  savings within 1218 months
• Sales
• Operations
• Procurement
• Corporate overlap and duplication
• Cost of distribution
• Technology/RD
• Others to be identified
• Eliminate/minimize sources of risk

• Integrate day-to-day operations
• Ensure sustainable change
• Position for growth

• Drive the short-term value
• Exceed the markets expectations

18
The program structure supports focused value
capture teams working across all SBU/Geographic
teams
Illustrative

• Set overall direction
• Make critical decisions
• Develop guiding principles

Steering Committee
Market Facing Teams Value Capture
Teams Enabler Teams

• Provide integration management leadership and
  support

Integration Office
Focused on value capture across the businesses
Others
Business Develop-ment Team
Corporate Center Team
Global Operations Team
Global Sourcing Team
Technology/ RD Team
Human Resources Team
Information Technology Team
SBU A or N. America
SBU B or Latin America
BU driven integration to set priorities
SBU C or Europe
SBU D or Asia Pacific
19
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
Phase I (Clean Team)
Full-Scale Rollout
Integrated Planning and Initial Rollout
Establish Structure and Plan
Integration Management
Data Repository
Comm. Planning
Oversight/ Visibility Rm
Master Calendar
Baseline Dev./Tracking
Implementation
Day/Week/Month 1 Plans
Sources of Value Identification
Analysis
Opportunities
Initial Prioritization
Initial Sequencing
Data Collection/Analyses
Init
Q1 Q2 Q3 Q4

• PP 1
• PP 2
• PP 3
• PP 4

Operations/ Asset Consolidation Diagnostic Pack
PP1
PP2
PP3
PP4
Data Collection/Analyses
Init
Q1 Q2 Q3 Q4

• CS 1
• CS 2
• CS 3
• CS 4

Business Unit (e.g., Services) Diagnostic Pack
CS1
CS2
CS3
CS4




High-Level Organization
IT Requirements/Alignment
20
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
Clean Team Process
Role of Clean Team
Company A
Company B
Data Collection Organization assessment Hypothese
s development Preliminary planning

• 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

Limited Joint Client Team Meetings
XYZClean Team
Pre-Change of Control
Merger SynergyHypotheses
Post-Change of Control

• 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

Open Joint Client Team Meetings
Validated Initiatives
The up-front work efforts of the clean team
enables accelerated launch of implementation
activities and value capture
21
After change of control, the teams quickly
finalize not identify synergy opportunities
and gain consensus
Phase II
Full-Scale Rollout
Integrated Planning and Initial Rollout
Establish Structure and Plan
Master Plan Detail
Timing of Results
Investment Requirements
Day/Week/Month 1 Execution
MD 1 Workplan
Overall Prioritization/ Executive Committee
Buy-In
Initial Prioritization and Sequence
Master Plan Sequencing
Full Team Meetings
Step 1
2
3
4

• Disclose and Validate
• Modify and Refine
• Finalize Savings Opportunities and Prioritization
• Identify Interdependencies

Init
Q1 Q2 Q3 Q4
PP1
ST3 Workplan
Q1 Q2 Q3 Q4
Init
MD 1
ST 3
SC 6
Init
Q1 Q2 Q3 Q4
PP 4
PP1
SC6 Workplan
IT Requirements/Enablers
Master Plan Detail
Communication
Begin Implementation
Results Tracking/Risk Assessment
22
The transition to full-scale rollout and
implementation of initiatives is supported by a
clear tracking process
Phase III
Full-Scale Rollout
Integrated Planning and Initial Rollout
Establish Structure and Plan
Implementation
Size Saved
Red
Risk
Yellow
Green
6
12
18
Time to Complete Implementation
Initiative Status Management
Cost Saves and Growth Achievement
Communication
23
Throughout the effort, managing risk is a
formalized methodology adherence facilitates a
fair and robust decision making process
Illustrative
Project Risk Prioritization
Risk Identification
Risk Categorization
Risk Reduction
Project Prioritization Business Criticality And
Size
Risk Plans
High

• 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

D
Project4
Project5
Significant risks need to be managed
Project6
Project1
C
ProjectPlans
Risks
Business Criticality
Unstable/sensitive assumptions create risks
Project2
B
Project3
Assumptions
A
Low
High
A
B
C
D
Many issues are closed by making assumptions
Complexity
Issues
Issues are open questions
Issues, Assumptions And Risks Are Inherent In The
Project Plans
Merger Risk Profile
Challenges
Benefits of Proactive Risk Management
Decision Making Planning/ Execution Reporting

• 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

Source XYZ Merger Integration
24
Realizing Integration Synergies
25
To assess and achieve their synergies, all teams
can leverage a number of XYZs proven
methodologies and tools as appropriate
Illustrative
Supporting Methodologies and Tools
Streamlining the Organization
Reducing Purchased Costs
Increasing Sales Force Effectiveness
Leveraging Assets
Streamlining Product Portfolios and Networks

• 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

Objectives

• 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)

• Maximize asset utilization
• Bottling plant consolidation
• Warehouse consolidation
• Realize network synergies
• Fixed assets
• Capital expenditures
• Inventory
• Procurement
• Supply Chain Transformation
• Operating Asset Effectiveness

• 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

Focus Areas
Methodology and Tools
26
Rapid benefit delivery is feasible through
integrating the operating network
Key Assessments for Integrating Operating Networks
Several Iterations
Manufacturing Capabilities
Network Configuration
Market Requirements
SKU Tree
SKU tree
Current Sites 2
Future Sites 1
SKU 2
SKU 1
SKU 3
3



A
1



B
1
1
1
2
Classic
Compact
Classic
Compact
Classic
C





Current Sites 8
Current Sites 2
GBH
GBH
EBH
Mechanical
EBH
Mechanical
GBH
3
D







Future Sites 5
Future Sites 1
Blue
Blue
White
White
White
White
White
2
E







1







Menthol/Euca
E
Current Sites 4
Current Sites 1
Classic
Compact
Classic
Classic
Compact
Compact
Classic
2
F







Future Sites 3
Future Sites 1
Resealable
Resealable
Resealable
Resealable
Resealable
Resealable
Resealable
1
Current Sites 3







G
Future Sites 2




























H
6
12
18
24
6
12
18
24
6
12
18
24
6
12
18
24
6
12
18
24
6
12
18
24
6
12
18
24
4




























I
Current Sites 2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
28
Future Sites 1
Current Sites 1
Future Sites 1
1
XYZ 6/Document/I.D.
36
ManufacturingCapabilities
NetworkConfiguration
Local MarketRequirements
Portfolio

• What can be produced
• Where
• How does throughput vary by location and plant
  capability
• What are the capacity constraints

• 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

• What are the market requirements
• What is the current/future competitive
  positioning
• What distribution channels are growing fastest

• Which SKUs are offered
• Which specific product characteristics
• Which emerging technologies/competitive offerings
• How is product bundled and promoted

27
Which entity in the supply chain should develop a
capability is determined by the business scale
and strategic objectives
High

• Strategic Alliance
• Develop strong relationships with key supply
  chain partners that have the required
  capabilities
• Maintain very high levels of cross-functional
  involvement

• In-House
• Invest in resources and people to develop
  world-class capabilities

• Activity Strategic Importance
• How core is the activity? How entangled is it
  with the rest of the organization?
• How critical is it to maintain control and
  involvement in the activity?
• Is the activity an area of competitive advantage
  today? In the future?

• Outsource
• Outsource activity to capable provider
• Organize related activity to minimize transaction
  costs with outsourced provider

• Rationalize
• Depending on true switching costs and investment
  requirements either continue to develop
  capability in-house or outsource

Low
High
Low

• Potential For Internal Capability Development
• In the short- to medium-term can the required
  capability be developed in-house to be highly
  efficient and effective in an activity?

28
Differences in each company have to be
understood, and decisions made on both the
operating model of the joint venture going
forward a formal process can help in
facilitating this thinking
Corporate Center Rationalization Methodology
Step 1
Step 3
Step 2
Step 4
Identify the Operating Model and Detailed
Operating Structure and Characteristics of Each
Firm
Determine New Operating Model, and Appropriate
Benchmarks
Make the High Level Choices As to How the Company
Operates Going Forward
Define and Align Support Functions
C Corporate B Business Unit O Outsourced
DWNA/JV Partner
Support Function Alignment
DWNA
Business Group
Model
Holding
Strategic
Holding
Strategic
Business Group
Model
Company
Architect
Operator
Functional
Company
Architect
Operator
Functional
BG1

?
BG1
Finance
?
Strategy
BG2
?

Accounts Payable
B
C
C
C

P/L accounting
B
C/B
C
C
BG2
?
BG3

?

Consolidation/ corporate
C
C
C
C
Financial Control
reporting
BG3
?

Tax
B
C/B
C
C
Capital Allocation

Treasury
B
C
C
C
Other

Planning/budgeting
B
B
C
C/B
Stand Alone
Human Resources
Resource Management

Benefits/administration
B/O
C/O
C/O
C/O
JV Partner

Benefits planning
B/O
C/O
C/O
C/O

Compensation planning
B
C/B
C
C
Accountability
Corporate Staff Size
Business Group
Model
BG1

?
Autonomy
BG2

?
Marketing
Create Joint Venture Organization
BG3

?
Staff Placement

• Effective, fast rationalization and savings
• Best practices Corporate Center

29
Strategic sourcing is a powerful methodology for
leveraging the combined spending base and
procurement capabilities of the merged
organization
Seven Step Strategic Sourcing Methodology
7. Continuously Benchmark and Monitor Supplier
Improvement
6. Operationally Integrate Supplier(s)
5. Select Competitive Supplier(s)
4. Select Implementation Path
3. Generate Supplier Profile
2. Develop Sourcing Strategy
1. Define Sourcing Categories

• Embed supplier monitoring processes
• Implement market monitoring tools
• Periodically re-evaluate supplier
  competitiveness and performance
• Performance measurement tools
• Technology-enabled data capture process

• Complete implementation templates
• Gain buy-in to supplier changes
• Coordinate new supply chains
• Implement systems to monitor results
• Implementation templates

• Tailor and issue RFPs
• Analyze responses
• Develop targeted negotiation strategy
• Negotiate a deal
• Electronic procurement tools
• Internet RFPs
• On-line auction tools
• Benchmarks

• Select supplier development or negotiation path
  including use of market exchanges
• Define initial negotiation strategy
• Experience in the beverage industry, including
  bottled water
• Negotiation training

• Review supplier lists and supplier capabilities
• Prescreen list to develop short list of suppliers
• Existing supplier lists available globally

• Assess supply category business impacts
• Confirm sourcing strategies
• Validate total supply chain perspective
• Detailed understanding of supply market
• Market competition
• Industry economics

• Profile spend
• Identify specifications
• Unbundle as appropriate
• Review supply category profile
• Assess procurement processes
• Review trends
• Evaluate total cost and savings targets
• Proven database and management tools
• Existing supply category profiles

Key Elements XYZ IntellectualCapital
Employed
30
Strategic Sourcing has a goal of delivering
bottom line savings through core elements
strategic purchasing demand management and
change management
Strategic Sourcing Approach Overview
Change Management
DemandManagement
StrategicPurchasing

• Embed achieved savings by transforming
  organization, structure, processes, policies, and
  systems

TangibleResults

• Reduce costs by decreasing or eliminating the
  demand for goods and services

• Reevaluate external purchases and restructure
  supplier relationships to get best value for the
  company (price, quality and service)

Demand Reduction Hierarchy
Aggressive
Greatest
Organization and Skills
Process
Systems
EliminateDemand
Strategic Procurement Vision
Reduce Quantity
ApplicationMethodology
Procurement Policies
Reduce Quality
Strategic Sourcing
Redesigned
Processes
Reduce Frequency
Organizational
Technology Tools
Structure and
(Information Systems)
Infrastructure
Implementation of
Substitute
Process Linkages
Impose Onerous Approvals
Performance Metrics
Heighten Cost Awareness
Transition Management, Communications, Training
Conservative
LowestOpportunity
31
Strategic Sourcing is effective in integration
environments since it can be started immediately,
deliver major savings and contribute to building
the new company
Integration-Related Strategic Sourcing
32
The sales productivity effort should include
Customer Retention Methodology to understand the
key risks for customer defection and action plans
to address them
Customer Retention Methodology
Overall Process
Step 1
Defection/Loyalty Segmentation
Medium-Term Actions
Step 2
Step 3
High Value Customers
Create Targeted Retention Programs

• Retention bonus/incentives
• Differentiated service levels
• Enhanced product applications
• Customized communication
• Customized product benefits
• Early warning

Contribution
Value Channel Management

• Channel migration pricing
• Price rise
• Passive customer service

Retention
33
Our approach to sales productivity includes
benchmarks, analysis of overlap and
identification of near term growth opportunities
Illustrative
Efficiency
Effectiveness
Average Training Per Sales Rep
Account Win/Loss Performance
Number of Reps Serving Accounts
Total Sales Managed by Sales Rep
Sales Dollar Per Sales Rep
Price
?

Marketing

A B



Salesforce Productivity Benchmarks
New Products
?
Quality

A B
Network Services
Service
?
A B
Capability
?
Laptop
A B
Co. A Co. B
Co. A Co. B
Co. A Co. B
Co. A Co. B
Overlap
Near Term Growth Opportunities
Region
Geography
Sales
Territory
Opportunity to Introduce Co. B Products
Strategically Manage Relation-ships
Major
Co. B
Co. A
Integration Leverage Opportunities
Co. A Position
Opportunity to Introduce Co. A Products
Minor
Minor
Major
Coverage Overlap
Sales Overlap
Co. B Position
34
Information Technology should be viewed as an
enabling mechanism for achieving merger goals
Technology Focus in a Merger Product/Market Focus
Context
Illustrative

Anticipated Benefits
Cost Reduction Cost/Revenue blend Revenue
Enhancement
Product Focus
Product Expansion
Synergistic Merger

• In high-overlap mergers, the emphasis is on cost
  reduction. Market analysts expect to see
  tangible actions being taken early in the merger
  program
• For synergistic mergers, timescales to achieve
  benefits may be longer, and I.T. integration can
  operate within a longer planning horizon to
  support revenue enhancement
• The common factor with all of these merger forms
  is the need for a smooth integration process that
  eliminates the risk of customer or employee
  defection

• Channel rationalization
• Systems enhancements to support new products

• Major systems revisions to support cross-selling
  and geographic/channel expansion
• Review of global data centers and core systems

Complementary or New
Product Lines
High Overlap
Geographic Expansion

• Eliminating duplication between systems
• Rationalizing service agreements
• Reducing license fees
• Reducing support costs

• Pursue data center rationalization
• Standardization on common systems
• Standardization on common products

Overlapping
Market Focus
In-Market Merger
Out-Market Merger
Market Overlap
Source XYZ Merger Integration
35
IT must quickly deliver tangible business driven
results in a timely fashion and not necessarily
the best possible solution to achieve value
creation commitment
Illustrative
Percent of Initiatives Defined Over Time
Representative IT Support Requirements

• Cost imperatives
• Rapid integration to capture synergies as
  committed to the street
• Product rationalization
• Product and plant integration
• Business synergies
• E-business opportunities
• New product/ new market opportunities
• Cross selling
• Leverage existing products to new geographies
• Act on future acquisition opportunities
• Business continuity
• Statutory and performance reporting
• Integrated strategic measurement
• Merger integration progress

ITs challenge is to stay in tune with business
initiatives to understand the scope of effort,
develop the IT response, and to integrate with
the corporate IT direction
36
Integration Management
37
The Steering Committee and Integration Office
manage the overall program and coordinate
decentralized project teams through the
Integration Office
Steering Committee

• Develop/communicate objectives and targets
• Develop merger guiding principles
• Sign off on major issues/decisions
• Set overall direction for integration
• Provide resources and eliminate roadblocks
• Implement top-down communication
• Focus on continuing operations

Integration Office

• Coordinate integration process, scope activities
• Implement merger planning, integration and
  reporting create and manage the master plan
• Conduct frequent work task reviews with teams
• Facilitate overall change management
• Maintain a scorecard to track deliverables and
  benefits
• Prioritize enterprisewide issues and make
  recommendations
• Manage communications
• Install and manage effective merger risk
  management

Market Facing Teams Value Capture
Teams Enabler Teams
Integration Teams
Integration Teams
Integration Teams
Integration Teams
Integration Teams
Integration Teams
Integration Teams
38
Each component of the project had specific roles
and responsibilities

Integration Roles
Deliverables
Steering Committee

• Strategic direction, operating philosophy, and
  governance structure
• Guiding principles
• Communication of key messages
• Scope and actions
• Overall objectives and goals

• Set the strategic direction and principles for
  integration
• Sign-off on major issues/decisions
• Top-down communication throughout the integration
  process
• Focus on continuity of growth, customers issues

Integration Office

• Overall project key success factors
• Master project plan and risk assessment
• Transition reporting including benefits tracking
  and risk management
• Communication implementation

• Coordination, planning, integration, reporting
  and communication
• Monitors implementation of organizational models
• Prioritize issues / initiatives
• Facilitate overall change management
• Risk identification and management

Decentralized Integration Teams

• Transition plans
• Organizational assessment and design
• Progress reports with targets achieved
• Risk assessment
• Performance measurements defined

• Propose transition strategy for the area
• Prepare the transition work plan
• Detailed organizational assessment
• Identify merger benefits and implement tracking
  mechanism
• Implementation of transition plans

39
Each of these three teams have clearly defined
roles and responsibilities
Key Pre-Merger Integration Set-up Responsibilities
Steering Committee
Integration Office
Value Capture Teams

• Communicate objectives and goals of merger
• Establish and communicate the Merger Guiding
  Principles
• Identify and appoint Integration Leader
• Identify and appoint team leaders
• Communicate formation of Integration Office and
  Value Capture Teams
• Communicate executive commitment to the
  integration program
• Communicate team leader and team member
  commitment
• Ensure regular and consistent top-down
  communication across all regions and groups

• Define roles of members
• Identify team members
• Establish cost savings revenue synergies
  targets as a precursor to the Merger Integration
  Scorecard
• Initiate the appropriate MIS/IT infrastructure
• Support development of high-level business
  line/functional plans
• Identify, at a high level, major risk areas
• Co-ordinate the senior management review cycle of
  these plans
• Assemble the first Master Plan
• Develop tracking baseline
• Issue initial communications to stakeholders, as
  required
• Establish risk management process

• Identify team members
• Create team charters
• Prepare for Kickoff Meetings to introduce team
  members and provide initial orientation
• Agree on optimal processes to coordinate each
  team
• Begin data collection and hypothesis testing
• Develop Day 1 Plans
• Develop organizational, customer and/or cost
  profiles falling within team scope
• Conduct interviews to gather additional
  qualitative insight regarding operating processes
  and styles
• Develop joint vision for combined organization

40
The Steering Committee must apply significant
early effort to communicate the new companys
strategy, operating philosophy and governance
Issues to Address
41
In addition, the Steering Committee should
establish a clear set of guiding principles
Case Examples
Merger Guiding Principles
1. This is not the customers merger Major
focus on avoiding customer inconvenience and loss
of customers. Customer service can only change
for the better. Cost savings are important, but
second to customer focus 2. Focus analyst
expectations on the longer term Savings goals
defined as 1 billion expense run rate
reduction by end of three years, eliminating
short-term, quarter-by-quarter focus 3.
Appearance of tight control through Command
Center Command Center used as a single point of
contact for all external communications.
External presentations conducted in war room to
exhibit corporate controls in place 4. Relentless
tracking of risk and interdependencies All
merger projects required to use risk and
interdependency tracking approach. These were
integrated by the Command Center to provide
corporate perspective on risk. Focus of internal
meetings on risks and customer issues, not on
successes 5. Systems focus on smooth Integration
Suites of systems should be selected rather
than pursuit of optimal elements from each
organization. Extensive use of bridges and
workarounds to maintain critical controls while
expediting the process 6. End-to-end systems and
process testing No system or process should be
considered ready for processing until it has been
tested in a dress rehearsal mode (usually two
dress rehearsals) 7. 1 1 3 volumes Strong
encouragement of business units to focus on post
merger business volumes
1. Fast and fair accept that we will make
mistakes, but give us credit for being smart
enough to be able to recognize them, and not so
proud that we can not change 2. Leadership must
be evident/inspiring not holed up in the corner
offices/board rooms, but out in evidence with key
customers and our employees 3. Harmonization
this has to be a key goal with respect to
strategy, key policies, business processes,
etc. 4. Minimize ambiguity be clear in plans,
timing, decisions(dont fuzzify - dont know is
ok 5. Short term bias towards the customer
dont lose sight of the business whatever we
do 6. Overcommunicate you can never do enough
here 7. Integration study team should be advisory
and separate from management let management
decide and let advisors advise, dont mix too
closely 8. Seek acquaintanceship-building
opportunities informal, formal 9. Emphasis on
flexibility/change/fluidity accept change as a
way of life, strategic agility is key, it is
managements first responsibility to take risk
(change, growth, wealth creation can only happen
by taking risk)
42
The role of the Integration Office evolves over
the course of the integration
Establish Structure and Plan
Integrated Planning and Initial Rollout and
Implementation Support
DayOne
Transition of Integration Office Responsibilities
Full-Scale Rollout and Implementation Support

• Creation of Integration Office with leadership
  assigned
• Define roles of members
• Establish and communicate the Merger Guiding
  Principles
• Establish cost savings targets as a precursor to
  the Merger Integration Scorecard
• Initiate the appropriate MIS/IT infrastructure
• Support development of high-level business
  line/functional plans
• Identify, at a high level, major risk areas
• Co-ordinate the senior management review cycle of
  these plans
• Assemble the first Master Plan
• Update Merger Steering Committee
• Issue initial communications to stakeholders, as
  required
• Establish risk management process

• Develop further project infrastructure
• Refine and monitor the Master Plan
• Finalize key objectives, and establish the
  Merger Integration Scorecard
• Work with line management to finalize detailed
  Integration Teams required and their scope,
  objectives and timelines
• Focus on ensuring detailed, comprehensive project
  management
• Establish initial prioritization framework
• Refine reporting tools
• Preliminary assessment of key risks and
  interdependencies
• Update Integration Steering Committee on plans
• Manage stakeholder communications

• Update Integration Steering Committee on plans
  and progress toward targets
• Maintain the Merger Integration Scorecard
• Support development and execution of detailed
  implementation plans by decentralized Integration
  Teams
• Ensure consistency of execution
• Run the continuous risk management process
• Stabilize or desensitize risks as appropriate
• Champion quick win projects to reinforce
  confidence of key stakeholders
• Ensure that key milestones are met, proposing
  resource reallocations as necessary
• Manage stakeholder communications
• Develop contingency plans as necessary

43
A Command Center to monitor and control the
process of the merger can be established
Command Center Layout
Example
Functional Areas
End-To-End Testing
Dress Rehearsals
Identified problemsimplemented fixes
SystemA
SystemB
SystemE
Business/ Geographic Units
Time
DressRehearsal1
DressRehearsal2
ActualConversion
SystemC
SystemD
Testing
Source XYZ Merger Integration
44
The Command Center monitors and tracks critical
information from each area of the integration and
provides an overall view of progress to ensure
success
Example
Command Center Information Reporting
Key Performance Indicators
Shareholder Value Created
Network Evaluation
Market Positioning
Client base
Market Value (Pre-merger)
Invested Capital
SVC
Economic Returns
Aggregate Portfolio Sensitivity
Integration Plan
Revised Retail Organization
Integration Framework
Potential Losses
Basis Points Change
Planned Budgets
Expected Cost Reduction
Dress Rehearsals
End-to-End Testing
Source XYZ Merger Integration
45
There are five main advantages of implementing
the Benefits Tracking and Reporting (BTR) system

• BTR Implementation
• Facilitates the identification and realization of
  cost synergies and related costs, whether they be
  in a merger environment, a restructuring program,
  a strategic sourcing program or any general cost
  reduction program
• Provides key constituents with access to
  periodic, data-driven status of program
  initiatives
• Creates a forward-looking risk and milestone
  tracking system to alert key stakeholders about
  potential synergy shortfalls or issues
• Provides evidence that cost synergies have been
  achieved
• Provides information for a common program
  communication vehicle for executive management

46
The BTR is a web-enabled system that allows users
to input and update key project data easily,
quickly and frequently. The output of the system
is used to create consolidated project and
program-level reports
Management Reports (Generated through Excel and
PowerPoint)
Web-enabled User Interface (Via a Terminal Server
Application)
Benefits Achievement, Progress against Plan
Revised Forecasts
BTR Database
The BTR front-end and back-end are completely
customizable and scaleable to meet the needs of
any engagement size and scope
47
The eight components of the BTR consist of
one-time and ongoing regular update reporting
requirements

• 1) Project Profile
• Defines projects and owners
• 2) Project Milestones
• Identifies key milestones with accountable owners
  and completion dates
• 3) Project Interdependencies
• Describes interdependencies with other teams,
  actions required and impact if actions are not
  taken
• 4) Headcount Reductions Template
• Tracks actions resulting in net headcount
  reductions
• Tracks headcount-related savings and costs
• 5) Non-Headcount Savings and Cost Template
• Tracks non-headcount savings and associated
  implementation costs
• 6) Capital Expenditures Template
• Tracks capital expenditures related to the
  project

One-time Reporting
Regular Update Reporting
48
Updates to the system are used to track progress
against targets. The system can track multiple
parameters, including - savings, costs, headcount
and project status
Web-enabled User Interface (Via a Terminal Server
Application)
Management Reports (Generated through Excel and
PowerPoint)
Headcount Reductions and Related Savings/ Costs
Summaries by Project Team
Non-Headcount Savings and Related Implementation
Costs
Monthly Achievement Forecast
Capital Expenditures
Other Restructuring Charges (i.e. Asset Sales
Write-Offs)
Monthly Progress Against Plan and Forecast
Risk and Key Milestone Tracker
Project Risk Assessment
49
The Steering Committee and client team leaders
are provided with summaries of progress against
plan on a regular basis
Illustrative
Financial Reports
Run Rate Saves Project SC01
Run Rate Saves Supply Chain Integration Team
Run Rate Saves Integration Program (US MM)
300
200
Monthly Actuals
Original Plan
Revised Forecast
100
0
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Jul
Aug
Sep
Oct
Nov
Dec
50
A risk-tracking system is implemented to track
initiative progress and to help anticipate
delays, identify barriers to success and
highlight areas of concern to leadership
Illustrative Example
Initiative Risk Assessment
Size of Savings
lt1MM
Red
1MM5MM
5MM10MM
AA1
SC6
Risk Rating
I
PP4
gt10MM
Yellow
SC3
SF11
SC5
TBD
SC7
ST10
SC4
CS2
EM1
ST9
MD11
MD31
RT6
MD34
ST7
On Hold
EM4
MD21
EM7
EM2
SC1
MD15
MD33
MD32
RT5
Green
I
PP2
MD37
ST2
RT3
ST8
EM3
EM5
MD6
MD29
MD1
ST1
SC11
SF8
MD27
MD2
MD26
EM6
PP5
CS5
CS1
MD19
MD18
CS4
01/02
12/99
06/00
12/00
06/02
Expected Completion Date
51
In risk management, objective criteria need to be
developed to decide which initiatives are
inherently more risky than others
Initiative Prioritization Business Criticality
and Size
Illustrative
High

• 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

Project4
Project5
D
Project6
Project1
C
Business Criticality
Project2
B
Project3
A
High
Low
A
B
C
D
Complexity

• Business Complexity how many areas of the
  business will be involved in the project?
• Technical Complexity  how technically difficult
  is the project?
• Project Size how many dedicated FTEs will be
  working on the project?

In This Example, Project 5 and Project 1 Are
Both Critical and Complex, Requiring a Formal
Project Risk Management Approach
52
Once risks have been identified, they are then
prioritized as Red, Amber or Green (RAG) to
reflect their potential impact
Illustrative

• Risk Categorization
• Red Showstopper
• Legal block to the merger
• Unable to provide one Funds Transfer System
• Lose a major customer
• Unquantifiable cost impact
• Amber Serious Problem
• Major cost impact (difficult workarounds)
• Customer irritation or embarrassment
• Green Minor Problem
• Minor cost impact (workarounds identified and
  acceptable)
• Localized impact

53
XYZ Qualifications
54
XYZ is a global management consulting firm with
5,000 employees worldwide
Lisbon
Madrid
Barcelona
London
Paris
Brussels
Amsterdam
Düsseldorf
Oslo
Toronto
Milan
Singapore
Copenhagen
Ottawa
Beijing
Stuttgart
Cleveland
Stockholm
Hong-Kong

• Successful Track Record
• Diversified management consulting Firm
• Founded in 1926
• Backed by the information technology expertise of
  EDS
• Mostly Fortune 500 clientele
• Global
• 65 offices in 35 countries
• Senior, experienced staff
• More than 3000 assignments per year
• 1.4 billion of fees in 2000

Washington, D.C.
Munich
Istanbul
Berlin
New York
Prague
New Delhi
Tokyo
Boston
Helsinki
Moscow
Chicago
Seoul
San Francisco
Manila
Houston
Los Angeles
Denver
Caracas
San Diego
Kuala Lumpur
Phoenix
Mexico
Dallas
Atlanta
Miami
Johannesburg
Wellington
Sao Paulo
Melbourne
Sydney
Buenos Aires
55
XYZ is best known for delivering outstanding
tangible results quickly
Representative Annual Results Achieved
Federal Express gt500 Million
Sears gt750 Million
Rolls-Royce 750 million
Marks Spencer 250 million
General Motors gt3.5 Billion
56
Our commitment to our clients is guided by three
key principles
Mutual Involvement
Unique Quality Program
Relationship Based Accounts

• Senior-level relationships and accountability
  internationally
• Joint steering committees and action teams
• Involvement of key stakeholders
• Personable, collegial clientinteraction

• Two quality evaluations following a project
• 85 of work exceeds expectations
• The only program of its kind to our knowledge

• 90 of revenues from repeat clients
• 15 current clients with 10 plus years
• Most relationships extend internationally through
  our one-firm policy

Engagement Quality Review
These principles ensure that XYZ consistently
provides not only high-value insights but also
practical, tangible results for our clients
57
In overall satisfaction, XYZ is the global leader
Client Satisfaction
XYZ
94
KPMG Peat Marwick
82
Price Waterhouse
80
McKinsey Company
79
Andersen Consulting
79
Booz-Allen Hamilton
77
Boston Consulting
75
IBM
74
CSC Index
71
Source Louis Harris Survey, 1998
58
Our organization of global service and industry
practices supports effective building and
dissemination of specific know-how
Industry Practices
Aerospace and Defense
Automotive
Communications and Media
Financial Institutions
High Tech And Electronics
Pharmaceutical and Healthcare
Process
Consumer Goods and Retail
Transportation
Utilities
Strategy and Organization/ Merger Integration
Service Practices
Operations
Technology
59
We have used our specific capabilities and
know-how to build a wide range of global merger
integration experience with more than 250
assignments
Selection of A.T Kearney merger integration
clients
Industry
Oil gas, chemicals, pharmaceuticals
Financial institutions

• Aluminium Comp. of America
• The Battenfeld Group
• CIAM SpA
• EKO Stahl GmbH
• GEA AG
• James River - Fort Howard
• Kvaerner Warnow Werft GmbH
• Krupp MAK/SKL
• Lone Star Technologies, Inc.
• MAN Gutehoffnungshütte AG
• Mann Hummel
• Pfleiderer
• Robert Bosch GmbH
• R.R. Donnelley Sons Company
• Siemens
• Siemens / Tyco
• ThyssenKrupp
• VA Technologie AG
• Woodward Governor

• ABN AMRO N.V.
• Bank für Gemeinwirtschaft AG
• Bank of America/NationsBank
• Bank of Indonesia
• Bank of Melbourne
• Bayerische Hypo Bank/Bayerische Vereinsbank AG
• Chase Manhattan Bank/Chemical Bank
• CIBC/TD
• DBS/POSBank
• Erste Bank / Ceska sporitelna
• HIH Winterthur Int'l. Holdings
• KH / ABN-Amro (Hungary)
• SBC Warburg
• Société Générale
• Union Bank
• United Jersey Bank
• Westpac Banking Corporation

• Advanced Medical, Inc./IVAC Systems, Inc.
• Agr Evo
• Air Liquide/BOC
• Amoco
• Arco
• Baxter International, Inc.
• BP
• Bayer/Hoechst AG
• Byk Gulden Lomberg Group
• Dystar
• Ecolab Inc./Henkel KGaA
• GE Plastics
• Hoechst/Schering AG
• Hoechst/Rhône-Poulenc
• Metallgesellschaft
• Mobil
• Monsanto
• National Patent Medical/American White Cross
• Rohm Haas

Transportation
Other
Food industry

• Booth Fisheries Corp.
• Delikat Fabrikker A/S
• EAC Plumrose Division
• H. J. Heinz Co.
• John Labatt Ltd.
• K.-H. Asmussen GmbH Co
• Lipton/Van Den Berg Foods
• MD Foods International
• Molson Breweries
• Noelke
• Select Beverages Inc.
• Unilever Canada Ltd. / Unilever Foods

• Air Lingus-FLS
• BahnTrans GmbH
• Canadian National/Illinois Central
• Canadian Pacific Ltd.
• Federal Express Corp.
• Istituto Nazionale Traspo.
• LOG SPED GmbH
• Univar Corp.
• Wegener N.V.

• AOK
• Apex
• Carrefour - Promodes
• Destec Energy, Inc.
• Enso-Gutzeit OY
• HOCHTIEF / Turner
• Illinois Power
• Casino- Monoprix
• Nagano Toyota Motor Sales Co., Ltd.
• Pacific Corp.
• Saint Laurent Paperboard
• Staples, Inc.

60
Our merger integration competency is brought to
life through a style suitable for merger
integration activityswiftness and analytical
rigor matched with sensitivity and buy-in
XYZ Merger Integration Practice Competencies
XYZ's Approach To Client Work

• Cross-functional and cross-company team-based
  approach
• Well-structured and flexible work plan
• Early and recurrent management buy-in
  opportunities
• Culturally versed and flexible
• Tangible results mindset
• Cooperative, participatory style
• Leverage client knowledge base
• Objective, fact-based analysis and practical,
  feasible recommendations
• Local resources/global support

• Consulted to many of the worlds top corporations
• An independent strategic view
• Advisory role in many of the major mergers in the
  past decade
• Merger integration experience across industries
  and geographies
• Formalized feedback processes within the firm to
  capture and advance post merger integration best
  practices
• Highly developed project/risk management skills
• Proven ability to expedite change in large
  organizations

Seasoned Expertise Knowledge of Best
Practices Tangible Results
MI Approach
Merger Engagements
Intellectual Capital Development