M&A versus autonomous growth strategies

• Harry de Roo• Executive Member of

the Managing Board and Chief Financial Risk Officer Rabobank International

• Rob Wismans• Head Control

Subsidiaries & Wholesale Rabobank Netherlands

M&A versus Autonomous Growth

Harry de Roo

Rob Wismans

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Agenda

•Rabobank at a glance

•M&A versus autonomous growth

•Role of finance

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Retail banking in NL

Co-operativefarmer banks

€ 2 bln

1898 1960 1978 2005Balance Sheet: € 34 bln € 475 bln

AllFinanz banking in the Netherlands and first steps abroad

Rabobank at a glance

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(€ bn) 2007-I 2006 2006-I

Total Assets 591.7 556.5 521.5Group Equity 29.7 29.4 26.7

Net profit 1.4 2.3 1.2Efficiency Ratio 68.1% 68.5% 66.7%

2007-1 2006 Long term objective

Tier-I ratio 10.2% 10.7% 10%

Return on equity 10.3% 9.4% 10%

Net profit growth 13.7% 12.6% 12%

• Cooperative bank• All-Finanz leader in domestic market• Predominant focus on Dutch Market • Global food & agri bank

Triple-A ratings sinceStandard & Poor’s AAA 1981Moody’s Investor Service Aaa 1981DBRS AAA 2001

Investor Relations

Rabobank at a glance

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Local cooperatives basis of Rabobank

9 million clients1.7 million members

183 local cooperative Rabobanks

1,193 domestic branchesownership and

cross-Guarantee

division: Rabobank International Rabobank Nederland

specialised subsidiaries insurance, asset management, real estate, leasing, mortgages, banking, private banking

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Subsidiaries service their own client base and customers of local Rabobanks

(38% stake)

Rabo

leasing asset management & investment

real estate financing & development

insurance mortgage brokerage

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“continuity through durable growth”

• Renewed elaboration of “nearby” in order to retain our distribution position

• Differentiated service concepts with own cost structures

• Improved cost allocation

The top ofthe market

Affiliated Institutions

• Growth of our market share in the top of the market

• Both among retail and business customers

• Focus on urban area

International Growth

• Growth in both international retail and wholesale

• Primary focus on markets in which we can capitalise on our knowledge of Food & Agri and/or triple-A rating

• Clear focus and prioritisation

• Optimum utilisation of the combined strength within the Rabobank Group

• Realisation of synergy potential

“Nearby bank” of the future

Co-operative, high-quality and sustainability-focused organisation

Healthy profitability

1 2 3 4

5

6

Six strategic priorities

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Rabobank’s international ambition is to become the global Food & Agri bank

• International growth is necessary – SME/top 200 demand international services– Safeguarding the continuity of the co-operative – there are

only limited opportunities for growth in the Netherlands– Raising funding/capital on international markets– For the development of innovative, high-quality products

and processes– To play a meaningful role in the European consolidation

process– In order to remain attractive as an employer

• Our co-operative character and our knowledge of Food & Agri are distinctive and provide an attractive platform for growth

• Preference for foreign markets that have a strong agricultural sector– Rabobank’s strength is shown in its best light in these markets

– The competition is less developed in many countries

InternationalGrowth

Leading Food & Agri

Bank

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"Some 60% of all takeovers in the U.S. and the UK are struggling to return their cost of capital later on …"

McKinsey & Co.

"57% of all merged companies turn into industry laggards for the three years following the deal"

Mercer Management Consulting

"Only one third of all M&As led to the intended performance improvements, the remaining two thirds either struggled or failed completely…"

Booz, Allen & Hamilton

M&A versus autonomous growth

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Portfolio management, growth strategy

M&A Process

Search, select, executeFrame opportunitiesSet baseline

Acquisitionsearch

Target assess-mentFinancial

evaluation

Negotia-tion/bid supportPost-

mergerintegra-tion

Growth strategy

Emerging

Channels/geos

Products/categories

Segments

Core New

Carve out

Industry landscaping/consolidation

Vision/capabilities

Portfolio assessment

?

Value

Str

ateg

y

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Rabobank:

Autonomous growth / Greenfield:

• Continuous growth in existing business and geographical coverage

• Recent greenfield activities:

2004/2007 International Direct Banking: Belgium, Ireland, New Zealand, Australia

2005 Farmer Financing, Brasil2006 Rabo Mobiel2007 Bizner2007 FREO, DLL

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• Accelerate growth• Overcome entry barriers• Access to technology, quality staff• Building a new business model• Synergy potential• Vertical/horizontal integration

Good reasons for acquisitive strategy

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Rabobank: Recent Acquisitions / Divestments

Acquisitions in international retail banking

2002 VIB, California, USA 2002 ACC, Ireland 2003 LendLease, USA 2003 AgServices, USA 2004 BGZ, Poland (35% in 2004, now 45%) 2006 Haga,Hagakita, Indonesia 2006 CBCC, California, USA 2007 HNS, Chile 2007 Mid-State Bank & Trust, California,

USA

Recent acquisitions: 2004 FGH Bank 2006 Athlon Car leasing, DLL 2006 Bouwfonds, Rabobank 2006 Altajo (JV with AA) 2007 ZAH.nl, Rabobank 2007 Sarasin, Rabobank (28% in 2002) 2007 SAM, Robeco 2007 Transtrend, Robeco (50% in 2002)

Divestments: 2005 Stroeve 2005 Rabo Travel agents 2005 Gilde Inv. Mgmt 2007 Alex 2007 Kobalt

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Preconditions for successful M&A

• Strategy resulting in well defined acquisition criteria

• Early definition of valuation

• Well run process, with clear defined roles

• Never forget the human/cultural factor in the process

• Realize value through effective Post Merger Implementation

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Reasons for failure

• Lack of SR management commitment• Failure to make tough decisions• Not addressing cultural differences• Failure to resource and prioritize the many issues

that need to be dealt with at once• Company is too inward looking, forgetting the

customer• Poorly planned integration process/moved too slow• Over-emphasis on cost cutting, under-emphasis on

change management (e.g., retention and motivation)

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M&A process and the role of finance

• Orientation • First decision moment• Initial meetings / investigation• Letter of intent• Investment proposal• Second decision moment• Due diligence• Drafting SPA• Final decision / signing• Fulfill CPs• Closing

• PMI

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Orientation, investigation, investment proposal, DD

Strategy- Greenfield / M&A assessment- Strategic fit- Evaluation previous M&A

Market- Competition- Benchmark M&A transactions

Internal embedding- Position in organization- Legal/fiscal aspects- Governance

Defining success factors- ROI (valuation, CoE, growth/synergy assumptions)- Risk profile

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Role of finance: M&A process

Strategy- Greenfield / M&A assessment- Strategic fit- Evaluation previous M&A

Market- Competition- Benchmark M&A transactions

Internal embedding- Position in organization- Legal/fiscal aspects- Governance

Defining success factors- ROI (valuation, CoE, growth/synergy assumptions)- Risk profile

Fin

an

ce

Business

Legal

Compliance

Tax

HR

External advisors / experts

(IB, Legal, HR, Tax, Trans. Services)

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Role of finance: Post Merger Integration

• Realisation of acquisition goals (immediate action or gradual process)

• Monitoring and acting upon SPA reps and warranties

• Evaluation acquisition / acquisition process

• Performance measurement

Essential role for finance

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Does Rabo beat ‘M&A failure’ statistics ?

Apart from the earlier mentioned aspects :

We do…..but why?

- Non aggressive M&A approach

- Rabo as AAA Co-operative attractive partner

- No stock market pressure

- Balance in governance

- Constructive/critical role from finance allowed by SR management !

• Kees Luijben• Executive Vice

President Global Finance & Control Organon

Organon

Conference for Financial Executives12 December 2007

Organon 2002 - 2007

• Strong internal growth in the 90’s– USA, new innovative products (R&D output)

• Increase strategic presence in the USA– Strategy of mix of internal growth with external partnerships

– Move parts of Head Office to the USA in 2002

• Prepare for IPO (Organon BioSciences)– Partial float planned for early 2007

– Strategy continued internal growth, partnerships and selected acquisitions

• Acquisition by Schering-Plough– Announced 12 March; Completed 19 November

Organon 2002 - 2007

• Original role Finance– Challenger, business partner (alignment with strategic objectives)

– Safeguard sound financials; compliance

• Develop people and promote learning organization– Deal with changing environment and requirements

– Provide strong and inspirational leadership

• Re-define Finance’s value proposition– Rework Finance Mission and Strategy

– Excellence in Finance (model)

• Bernard Bos• Senior Project

Manager Acquisitions and Divestments Shell E&P

M&A versus Autonomous Growth Strategies

Bernard BosSenior Project Manager Acquisitions & Divestments

Shell International Exploration and Production

12 December, 2007

Shell – World Wide Presence in all Business Segments of the Energy Value Chain

Strategy on Track

CONTEXT

GROWTH ENERGY DEMAND

• Cash generation + reinvestment

• Environment + sustainability

• Competition

STRATEGY

MORE UPSTREAM, PROFITABLE DOWNSTREAM

• Portfolio choices

• Unconventionals + renewables

• Downstream includes ChemicalsPRIORITIES

DELIVERY + GROWTH

• Top quartile performance

•Project excellence

•Technology + people

Industry consolidation continues in 2006-2007

Burlington$36 bln

                  

$29 bln

Western$23 bln

$6 bln$10 bln IPO

Udmurtneftegas

$3 bln

Ichthus acqu. $1 bln

Despite high market valuation and oil prices….(re-based to January 2003)

Large Caps: ExxonMobil, Shell, BP, Chevron, Total, Conoco; Mid Caps: 19 companies

Mid-Caps have outperformed the Oil Price and the Large Caps.Break Even prices for Mid Caps have typically moved to the $60/bbl+ range

Mid-Caps have outperformed the Oil Price and the Large Caps.Break Even prices for Mid Caps have typically moved to the $60/bbl+ range

0

100

200

300

400

500

2003 2004 2005 2006 2007

%

Sep 07Jan 03

Monopoly Cluedo Mastermind 06Mastermind 07Rome

US$ 590bln

US$ 78/bbl

US$ 1500bln

US$ 31/bbl

Combined Market Cap of MM07 Mid Caps

Combined Market Cap of Large Caps

Brent

Combined Market Cap of Selected Small Caps

0

100

200

300

400

500

2003 2004 2005 2006 2007

%

Sep 07Jan 03

US$ 590bln

US$ 78/bbl

US$ 1500bln

US$ 31/bbl

Combined Market Cap of Mid Caps

Combined Market Cap of Large Caps

Brent

Recent Shell M&A transactions (since 2005)

Sakhalin/Gazprom

Latin American & Carribeanmarketing

divestments

InterGen

Crux

Showa Shell

BlackrockShell Canada

minority

California refineries

US pipelines

Basell

Chinabitumen &lubricants

Iogen

Choren

South Texasswap

RD/ST&T Unification

French refineries

Skarv

Shell TechnologyVentures Fund 1

Approximately $30 bln in transactions since 2005

PacificIslandsDivestments

Turcas JVTupras JV

2007 – M&A versus organic growth

Organic growth: $ 24-25 bn

A&D: $ 16 bn

CUMULATIVE DIVESTMENT PROCEEDS ($BLN)

CAPITAL SPENDING ($BLN)

Shell – M&A versus Organic Growth – considerations..

ORGANIC GROWTH PROS CONS

• Cheaper way to grow (?)

• More control

• operator

• technical standards

• Sometimes only way to get access

• Risk exposure single project

- country risk / fiscal terms

- technology / costs

• Exposed to capex increase

• Not enough to realize growth ambitions

• Inherent risk diversification

• Faster to realize strategy

• Immediate production - benefit when oil prices go up

• less exposed to capex inflation

• Often fully price

• Synergy realization

• Limited opportunities for value uplift, apart from oil price

M&A ACTIVITY e.g.

US$ 6.5 bln acquisition in 2002

e.g Sakhalin JV (> inv.US$ 20 bln)

Shell needs both M&A and organic growth to realize its strategy

Finance in M&A

ROYAL DUTCH SHELL PLC BOARD

CHIEF EXECUTIVE & CHIEF FINANCE OFFICERS

EXECUTIVE COMMITTEE

BUSINESSES

• Corporate Strategy & Business Development

• Business VP – Acquisitions & Divestments

• Project Teams

FUNCTIONS

• Corporate finance M&A Group

• Corporate Investor Relations Group

• Commercial Finance Advisors

• Idem for Legal, Tax, IR, EA, HSSE

TARGETS COMPANIES & BUYERS

M&A Strategy

INDUSTRY LANDSCAPE

SHELL STRATEGY

Higher prices & costs

New competitors

Complex projects

ENERGY CHALLENGE

Managing risk

Sustained investment

Standardization

Competitive returns

PORTFOLIO SHIFT

• New legacy assets

• Growth markets EastTECHNOLOGY

• Unconventionals + exploration

• Cleaner fuels, CO2 solutions

• Back-up

Major growth hubs and key progress

Source: Sri-Roadshow-London-09032007

Oil Sector M&A Transaction Valuations

2003-2006

0

5

10

15

20

2003 2004 2005 2006

Tran

sact

ion

Val

uatio

ns $

/boe

P1

rese

rves

0

10

20

30

40

50

60

70

Oil

Pri

ce $

/bbl

US Worldwide Oil Price

2006 by Quarter

0

5

10

15

20

Q1 Q2 Q3 Q4

Tran

sact

ion

Val

uatio

ns

$/bo

e P

1 re

serv

es

0

10

20

30

40

50

60

70

Oil

Pri

ce $

/bbl

US Worldwide Oil Price

Role of the CFO in Shell

CHIEF EXECUTIVE OFFICER

&

CHIEF FINANCE OFFICER

INVESTOR RELATIONS

• EVP – IR

BUSINESSES

• EVP – Finance

BUSINESSES

• Executive Directors (Member of the Executive Committee)

CORPORATE STRATEGY & BUSINESS DEVELOPMENT

• Director Strategy & Business Development

Acquisitions & Divestments in Shell

PEOPLE

• 75+ PROFESSIONAL STAFF

• AD Project Managers

• AD Finance Advisors

• AD Legal Counsel

• AD Tax Advisors

• AD Implementation Managers

• AT CORPORATE LEVEL

• AT DEVISIONAL LEVEL

• IN FINANCE ADVISORY GROUP

SYSTEMS & PROCESSES

• Worldwide standardized

• Virtual teams

• Top-league MBA training courses

• All capabilities in-house available

• Use of major investment banks and legal firms

• PRO-ACTIVE SELECTION & SCREENING

• TOP-DOWN & BOTTOM-UP APPROACH

• GENERALLY, NO OPPORTUNISTIC DEALS

TYPE OF PROJECTS

• Corporate acquisitions

• Asset transactions

• Portfolio divestments

• Swaps

• Listed and private

• IN ALL DIVISIONS AND IN ALL PARTS OF THE LIFE CYCLE

• FROM A COUPLE OF $ 100 MLN TO $ 10 BLN +

Drivers to do A&D

• Portfolio optimization– Size– Scale– Location– Change of local investment climate– Position in life cycle of industry– Natural owner of asset / business and parenting advantage

• Growth– Access – Organic growth can’t deliver the strategic objectives– Size of existing business and opportunity to grow– Fit with strategy and competitive capabilities

• Future profit zones in (dynamic and changing) value chain– Fit with current business philosophy and competitive capabilities

– e.g. technology – Change in industry and markets

Acquisitions & Divestments in Action1. ORGANIC GROWTH VERSUS INORGANIC GROWTH

• Clear understanding and alignment where and when to acquire and divest

2. A&D AS PART OF YOUR CORPORATE STRATEGY & VISION

• No hobby-horses, testing opportunities against preference target list

3. CORPORATE FIT, FIT WITH BUSINESS AND PARENTING ADVANTAGE

• Really understand the new business and its drivers and competitive field

4. PRO-ACTIVE SELECTION AND SCREENING

• Analyze potential targets and make selection which to make deal ready

5. CHECK AND BALANCES

• Business versus Finance: understand how much the business is worth for your shareholder

6. SYNERGY

• Be careful about synergistic value

7. POST-ACQUISITION INTEGRATION

• Plan in advance, start already during the Selection and screening phase

8. RESOURCES

1. Do not underestimate the time and staff resources required to be successful in acquiring and implementing a deal

9. ECONOMICS AND VALUATION

1. Share price plus premium versus valuation of the existing business and growth opportunities

Private Equity and Sovereign Wealth Funds

• Private Equity

– Shell welcomes Private Equity investors to the market– In general, they are buyers of relatively smaller

divestments by Shell (e.g. Wavin)– No competitive force in the industry

• Sovereign Wealth Funds (from Asia and Major Resource Holders)

– New and Growing– Expected to become active Buyers and, in some cases

even Competitors

Petro-dollars: fueling global capital markets

• The largest Sovereign Wealth Funds in the oil exporting countries:– UEA Abu Dhabi Investment Authority $ 500 – 875 bn– Kuwait Investment Authority $ 200 bn– Saudi Arabia Pension Fund $ 130 – 150 bn– Norway $ 300 bn

• In addition, there are substantial Fx reserves

Petro-dollars: fueling global capital markets

• In 2006, oil-exporting countries became the largest source of net global capital flows in the world– Petro-dollar investors – government and private – have

between $ 3.4 and $ 3.8 trillion in foreign financial assets– By 2012, it will grow to $ 7 trillion @ $70/b oil price

35 62 42 7 60192 127 108 167 238

429 484

133 98 156 240 218

198169 224

292359

435446

132121

129

184

273

268308

42

830

30

110151

12589

9193

42

49

56

6981

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

282 301351 371 411

509417 503

692

926

12011319

Petro-dollars

East Asia

Western Europe

Rest of World

Net capital outflows from countries with current-account surpluses in $ billion

Source of chart: McKinsey

New competitive structure

NOC / SOEs

Chinese, Russian, Indian, Algerian...

Govt. to Govt. leverage

Mid-Caps

Competing in ‘traditional’ parts of the value chain

Increasing international focus

IOC’s

Head-to-head in integrated projects

Diminishing differentiation

Service Providers

Value leakage to service providers and suppliers

Utilities

Backward integration

Emerging competition from mid-stream players (e.g. Transneft)

Quasi-State Entities

Competing in integrated value chain

More impact in short term than NOCs

The opportunities available

to IOCs are those technically

or commercially challenging

“old”, “new”, “nasty”

Shell - Technology & Innovation

• LNG

• Catalysts (XTL)

• Seismic Imaging

• Smart wells

NON STOP INNOVATION

DELIVERING GROWTH

SHAPING THE FUTURE

• Tight Gas

• Deepwater

• Gas-to-Liquids

• Oil Sands

• Arctic

• Wind, Solar

• Biofuels, Hydrogen

• Coal-to-Liquids

Shell Canada – deal overview

Deal rationaleDeal rationaleDeal dimensionsDeal dimensions

Unification and consolidation: one company, one strategy, global choices

Simplified and rationalised N. American business

Increase exposure to unconventionals in OECD: control, integration, technology, and growth• 22%

Cash US$7.5 Bln (C$45/sh)38% premium to

pre-offer closing

4% discount to all time high

SCAN Sharehol

ders

20

25

30

35

40

45

50

55

C$60

Nov-04 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Oct-05 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Sep-06 Nov-06 Jan-07 Mar-07

SCAN

Peers+ 122%

+ 93%

20/10: Approach with C$40 (pre-close price $32.60)

24/1: Announcement SCAN Board support for C$45 offer

• Premiums paid have risen to a level at which shareholder value is virtually impossible to create

• The CFO is becoming too dominant in the M&A process

• M&A leads to too much inward-looking due to post merger integration

• Key to beating the 33% success average of M&A is to make it a repeatable process

• Buyers from OPEC and BRIC countries disrupt the European M&A market