M&A versus autonomous growth strategies

1. M&A versus autonomous growth strategies

2. Harry de Roo • Executive Member of the Managing Board and Chief Financial Risk Officer Rabobank International

3. Rob Wismans • Head Control Subsidiaries & Wholesale Rabobank Netherlands

4. M&A versus Autonomous Growth Harry de Roo Rob Wismans

5. Agenda • Rabobank at a glance • M&A versus autonomous growth • Role of finance

6. Rabobank at a glance AllFinanz banking in the Netherlands and first steps abroad Retail banking in NL Co-operative farmer banks 1898 1960 1978 2005 Balance Sheet: € 2 bln € 34 bln € 475 bln

7. Investor Relations Rabobank at a glance • Cooperative bank • All-Finanz leader in domestic market • Predominant focus on Dutch Market • Global food & agri bank Triple-A ratings since Standard & Poor’s AAA 1981 Moody’s Investor Service Aaa 1981 DBRS AAA 2001

8. Local cooperatives basis of Rabobank 9 million clients 1.7 million members 183 local cooperative Rabobanks 1,193 domestic branches ownership andcross-Guarantee Rabobank Nederland division: Rabobank International specialised subsidiaries insurance, asset management, real estate, leasing, mortgages, banking, private banking

9. Subsidiaries service their own client base and customers of local Rabobanks asset management & investment leasing real estate financing & development mortgage brokerage insurance Rabo (38% stake)

10. Six strategic priorities “continuity through durable growth” 1 2 3 4 Affiliated Institutions “Nearby bank” of the future The top ofthe market International Growth • Renewed elaboration of “nearby” in order to retain our distribution position • Differentiated service concepts with own cost structures • Improved cost allocation • Growth of our market share in the top of the market • Both among retail and business customers • Focus on urban area • Optimum utilisation of the combined strength within the Rabobank Group • Realisation of synergy potential • 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 5 Co-operative, high-quality and sustainability-focused organisation 6 Healthy profitability

11. Rabobank’s international ambition is to become the global Food & Agri bank InternationalGrowth • 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 Leading Food & Agri Bank

12. M&A versus autonomous growth "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

13. Acquisition search Target assess- ment Financial evaluation Negotia- tion/bid support Post- merger integra- tion Portfolio management, growth strategy Set baseline Frame opportunities Search, select, execute Growth strategy M&A Process Industry landscaping/consolidation Segments Channels/geos Portfolio assessment Strategy ? Emerging Core New Value Products/categories Carve out Vision/capabilities

14. 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, Brasil • 2006 Rabo Mobiel • 2007 Bizner • 2007 FREO, DLL

15. Good reasons for acquisitive strategy • Accelerate growth • Overcome entry barriers • Access to technology, quality staff • Building a new business model • Synergy potential • Vertical/horizontal integration

16. Rabobank: Recent Acquisitions / Divestments 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 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

17. 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

18. 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)

19. 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

20. 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

21. Role of finance: M&A process External advisors / experts (IB, Legal, HR, Tax, Trans. Services) • 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 Legal Compliance Finance Business Tax HR

22. 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

23. Does Rabo beat ‘M&A failure’ statistics ? We do…..but why? Apart from the earlier mentioned aspects : • 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 !

24. Kees Luijben • Executive Vice President Global Finance & Control Organon

25. Organon Conference for Financial Executives 12 December 2007

26. 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

27. 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)

28. Bernard Bos • Senior Project Manager Acquisitions and Divestments Shell E&P

29. M&A versus Autonomous Growth Strategies Bernard Bos Senior Project Manager Acquisitions & Divestments Shell International Exploration and Production 12 December, 2007

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

31. Strategy on Track • CONTEXT • GROWTH ENERGY DEMAND • Cash generation + reinvestment • Environment + sustainability • Competition • STRATEGY • MORE UPSTREAM, PROFITABLE DOWNSTREAM • Portfolio choices • Unconventionals + renewables • Downstream includes Chemicals • PRIORITIES • DELIVERY + GROWTH • Top quartile performance • Project excellence • Technology + people

32. $29 bln $36 bln $10 bln IPO Burlington $6 bln Udmurtneftegas $3 bln Western $23 bln Ichthus acqu. $1 bln Industry consolidation continues in 2006-2007

33. 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 500 400 300 200 100 0 Despite high market valuation and oil prices….(re-based to January 2003) 500 Combined Market Cap of Selected Small Caps Combined Market Cap of Mid Caps Combined Market Cap of MM07 Mid Caps US$ 590 US$ 590 400 Combined Market Cap of Large Caps Combined Market Cap of Large Caps bln bln Brent Brent US$ 1500 US$ 1500 300 % % bln bln US$ 78 US$ 78 /bbl /bbl 200 US$ 31 US$ 31 /bbl /bbl 100 Rome Monopoly Cluedo Mastermind 06 Mastermind 07 0 Sep 07 Sep 07 Jan 03 Jan 03 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 Large Caps: ExxonMobil, Shell, BP, Chevron, Total, Conoco; Mid Caps: 19 companies

34. Recent Shell M&A transactions (since 2005) Shell Canada minority French refineries Basell Skarv Sakhalin/Gazprom Turcas JV Tupras JV Blackrock Choren US pipelines Iogen Showa Shell InterGen Chinabitumen &lubricants California refineries South Texasswap PacificIslandsDivestments Crux Latin American & Carribeanmarketing divestments RD/ST&T Unification Shell Technology Ventures Fund 1 Approximately $30 bln in transactions since 2005

35. 2007 – M&A versus organic growth CUMULATIVE DIVESTMENT PROCEEDS ($BLN) CAPITAL SPENDING ($BLN) Organic growth: $ 24-25 bn A&D: $ 16 bn

36. CONS ORGANIC GROWTH PROS • Risk exposure single project • country risk / fiscal terms • technology / costs • Exposed to capex increase • Not enough to realize growth ambitions • Cheaper way to grow (?) • More control • operator • technical standards • Sometimes only way to get access e.g Sakhalin JV (> inv.US$ 20 bln) M&A ACTIVITY e.g. • 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 US$ 6.5 bln acquisition in 2002 Shell – M&A versus Organic Growth – considerations.. Shell needs both M&A and organic growth to realize its strategy

37. 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

38. M&A Strategy INDUSTRY LANDSCAPE SHELL STRATEGY Higher prices & costs • PORTFOLIO SHIFT • New legacy assets • Growth markets East New competitors ENERGY CHALLENGE • TECHNOLOGY • Unconventionals + exploration • Cleaner fuels, CO2 solutions Complex projects Managing risk Sustained investment Standardization Competitive returns

39. Back-up

40. Major growth hubs and key progress Source: Sri-Roadshow-London-09032007

41. Oil Sector M&A Transaction Valuations

42. Role of the CFO in Shell • CORPORATE STRATEGY & BUSINESS DEVELOPMENT • Director Strategy & Business Development • BUSINESSES • Executive Directors (Member of the Executive Committee) CHIEF EXECUTIVE OFFICER & CHIEF FINANCE OFFICER • BUSINESSES • EVP – Finance • INVESTOR RELATIONS • EVP – IR

43. 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 • 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 + • 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

44. 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

45. Acquisitions & Divestments in Action • ORGANIC GROWTH VERSUS INORGANIC GROWTH • Clear understanding and alignment where and when to acquire and divest • A&D AS PART OF YOUR CORPORATE STRATEGY & VISION • No hobby-horses, testing opportunities against preference target list • CORPORATE FIT, FIT WITH BUSINESS AND PARENTING ADVANTAGE • Really understand the new business and its drivers and competitive field • PRO-ACTIVE SELECTION AND SCREENING • Analyze potential targets and make selection which to make deal ready • CHECK AND BALANCES • Business versus Finance: understand how much the business is worth for your shareholder • SYNERGY • Be careful about synergistic value • POST-ACQUISITION INTEGRATION • Plan in advance, start already during the Selection and screening phase • RESOURCES • Do not underestimate the time and staff resources required to be successful in acquiring and implementing a deal • ECONOMICS AND VALUATION • Share price plus premium versus valuation of the existing business and growth opportunities

46. 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

47. 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

48. Net capital outflows from countries with current-account surpluses in $ billion 1319 Rest of World 1201 81 69 Western Europe 926 308 268 56 692 East Asia 273 509 49 503 417 411 184 371 351 30 42 301 282 30 8 89 3 129 2 91 9 125 4 Petro-dollars 121 151 484 132 429 110 238 192 167 127 108 62 60 42 35 7 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 446 435 359 292 198 169 224 218 240 156 98 133 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 Source of chart: McKinsey

49. New competitive structure NOC / SOEs • Competing in integrated value chain • More impact in short term than NOCs Quasi-State Entities • Chinese, Russian, Indian, Algerian... • Govt. to Govt. leverage The opportunities available to IOCs are those technically or commercially challenging “old”, “new”, “nasty” IOC’s • Head-to-head in integrated projects • Diminishing differentiation Utilities Mid-Caps • Backward integration • Emerging competition from mid-stream players (e.g. Transneft) • Competing in ‘traditional’ parts of the value chain • Increasing international focus Service Providers • Value leakage to service providers and suppliers

50. Shell - Technology & Innovation SHAPING THE FUTURE NON STOP INNOVATION DELIVERING GROWTH • Arctic • Wind, Solar • Biofuels, Hydrogen • Coal-to-Liquids • LNG • Catalysts (XTL) • Seismic Imaging • Smart wells • Tight Gas • Deepwater • Gas-to-Liquids • Oil Sands