Developing and Delivering Successful M&A Capability

DRAFT FOR REVIEW ONLY Developing and Delivering Successful M&A Capability Research August 26, 2008

Executive Summary Background Approach Research Results Recommendation Next Steps Appendix

Cultural change from a reactive to a proactive, value-oriented environment with clearly defined walk-away points Sophisticated knowledge of business structures (i.e., multiple holding companies) Comprehensive financing plan before pursuing M&A related activity Efficient corporate governance process allowing for rapid decision-making Acknowledgement that corporate strategy equals M&A strategy Proactive identification of targets coupled with specific approach strategies Transaction professionals, highly experienced in: Valuation Deal structuring Financing (transaction-related) Negotiation XXX’s move to holding company structure via “project XXX” signals a dramatic shift from an operationally driven business to a deal driven organization, which requires… To assist XXX in strengthening its pre-deal M&A process, xx has researched many organizations that are facing or have overcome similar challenges to XXX. This document summarizes that research. • External research: • Pre-deal M&A execution models • Factors impacting model selection • Pre-deal M&A playbook: • Processes • Roles and responsibilities • Governance • Templates NOTE: Please reference the supporting research deck for additional detail on research and findings

Our findings and recommendations draw on xx’s expertise in executing best in class deals and primary research of over 35 companies who are… in industries with high levels of M&A activity… of relevant size (gross profit) to XXX… = comparison category for XXX actively executing deals… …comparable size to those of XXX Source: CapitalIQ, MergerStat, xx Analysis Notes: * Average is of deals in 2005-2007, except for Wellpoint (2001-2004) *“Typical” is an average over years 2005-07 with major outliers excluded

Finding #1: M&A groups structure their organizations using one of four models, with nearly 60% centralized and nearly 30% hybrid Structure Description Examples Virtual • External resources perform M&A activities on an ad hoc basis • Senior advisors provide expertise in pre-deal activities and are generally familiar with the organization and specific industry • Western Refining • NCR Corp External Resources BU BU < 20% of companies researched Decentralized • Integrated Oil & Gas Company • BP (moving to a centralized model) • M&A practitioners are located in each business unit (BU) • BU(s) defines strategy and conducts all pre-deal activity • Approvals may still be required from corporate depending on corporate governance process Corp BU BU BU Centralized • Oil Refining Co. A • Oil Refining Co. B • Family-Owned Consumer Goods Business • M&A group resides at Holding Company • Holding Company drives overall M&A process, including setting strategy across all BUs • Central team works closely with relevant specialists as required • Central team involves relevant BU for diligence and synergies assessment to create buy-in and accountability for the transaction Corp 58% BU BU BU 85% of companies researched Hybrid • Corporate and BUs share responsibility for setting M&A strategy, M&A related resources, and activities • BUs typically lead, manage, and execute smaller deals • Parent-level M&A group leads larger “game-changing” deals • LG Electronics • SK Energy • Viacom Corp 27% BU BU BU = location of M&A capabilities

Finding #2: Regardless of the structure employed, nearly all M&A groups studied, lead and manage 100% of M&A-related activities from minority investment to divestiture Increased control, risk, cost, and resources Contractual Agreement Strategic Alliance Minority Investment Joint Venture Acquisition/Divestiture • Limits risk exposure • Includes licensing, co-marketing, supply agreements, etc. • Expresses a more serious commitment between the parties • Exchange of managerial talent, resources, and capabilities • Direct investment in another company • Creates an option for future strategic uncertainty • Creates a separate entity in which two companies invest • More serious commitment • Allows for knowledge transfer and experiences learned • Gain assets of strategic value • Mitigate risk of defection • Reduce competitive threat Informed or uninvolved Consulted or Responsible Responsible Involvement of M&A group Contracts are typically executed by business units While business units typically drive strategic alliances, M&A groups are often consulted; some M&A groups lead strategic alliances A vast majority of M&A groups lead all deal activity related to minority investments, joint ventures, and acquisitions/divestitures

… and most commonly have 3-5 people 85% of companies* employ centralized or hybrid models… Finding #3: M&A teams predominantly have 3-5 dedicated professionals Notes: * of companies in sample set * Number of M&A practitioners at the BU-level in a hybrid structure could not be determined Source: xx primary research and analysis

Finding #4: Focus on growth through acquisition, culture of strong corporate control, and/or substantially similar business units indicates a centralized model Virtual Decentralized Hybrid Centralized M&A activity as a core competency • M&A not a core competence • M&A activity complements organic growth • M&A performed on reactive / ad hoc basis • Growth fueled primarily through M&A-related activities • Frequent M&A activity using repeatable, rigorous processes • Portfolio approach Culture of control • High reliance on external expertise • Divisions empowered to set strategy • Corporate retains approval authority but does not actively determine division strategy • Corporate actively participates in or sets divisions’ strategies, whether by direct influence or via economic incentives (e.g., capital distributions) Similarity of business units / divisions • NO IMPACT in adoption of virtual model • Divisions operate in different industries • Little or no overlap in customer segments • Wide variation in products or services • Strategy dramatically varies by division • Business units are geographically dispersed • Divisions operate in same industry • Similar or overlapping customer segments • High degree of commonality or complementing products / services • Similar divisional strategies

Finding #5: Greater scale of deal activity, in terms of both volume and value, suggests selection of centralized over hybrid model Average number of deals* Deal Value as % of Gross Profit maximum 75th percentile median 25th percentile minimum Virtual Decentralized Hybrid Centralized Deal Activity • Low deal volume • High deal volume • Larger deals • Smaller deals Note: due to sample size, this is indicative, however not statistically significant 70% 60 60% 50 50% 40 40% Avg Annual Deal Value as % of Avg Annual Gross Profit (2005-2007) Avg # of Deals 30 30% 20 20% 10 10% 0 0% Virtual Decentralized Hybrid Centralized Virtual Decentralized Hybrid Centralized Corporate Development Structure M&A Structure Source: CapitalIQ, MergerStat, xx primary research and analysis Notes: * Average is of deals in 2005-2007, except for Wellpoint (2001-2004) *“Typical” is an average over years 2005-07 with major outliers excluded

Recommendation: Hold Co. portfolio management strategy suggests XXX adopt a centralized M&A structure, staffed with 2-4 M&A professionals Virtual Decentralized Hybrid Centralized M&A activity as a core competency • M&A is not currently a core competency, but through Project X, XXX intends to move toward a portfolio approach in which M&A is necessarily a core competency Culture of control • Hold Co. retains significant control over BUs through capital allocation Similarity of business units / divisions • XXX’s divisions largely operate at different points in the value chain of the same industry Deal Activity • XXX intends to become more active in M&A and execute larger more transformative deals = Less dominant factors for XXX = More dominant factors for XXX = Recommended structure

Implication #1: XXX’s M&A group leads and coordinates all acquisitions regardless of deal size; BU provides operational and integration planning expertise Business Unit External Advisor Holding company/ Corporate headquarters Location of activity • Candidate profiles • Target screening • Valuation Modeling • Due diligence: IT • Due diligence: HR • Due diligence: Market and financial • Management of process execution • Due diligence: IT • Due diligence: Accounting • Due diligence: IT • Due diligence: Environmental • Due diligence: HR • Target valuation Process Focused • BU M&A strategy • Potential acquisition candidates identification • Due diligence: Market • Synergies analysis • Financial forecasts assessment • Integration assessment • Company-wide and BU M&A strategy • Screening criteria • Universe of candidates definition and selection • Methodology of approach • Due diligence management • Financial forecast assessment • Deal structuring • Diligence results summary • Synergies analysis • Integration assessment • Deal negotiation • Legal: Diligence, deal execution, approvals, close deal • Deal structuring • Financing options • Tax implications/strategy Type of activity Knowledge / Expertise driven Bold = M&A group activities

Implication #2: The corporate M&A group focuses Hold Co management on long-term portfolio management strategies and fosters an unbiased approach in determining transaction pursuits Expansion into new markets Completion of larger, transformative transactions Investments for financial vs. strategic purposes Focus on longer time horizons

Implication #3: A corporate M&A group improves control of confidentiality in large, transformational deals and mitigates over-exposure to financial risk Control of confidentiality Limits over-exposure to risk

Implication #4: A corporate group allows development of M&A expertise, ensures BU adherence to M&A strategy and process, and allows efficient execution of deals Build M&A transactional expertise Maintain control over M&A strategy Faster execution of large transactions

Implication #5: Cultural considerations strongly impact successful deal execution requiring active management by the corporate development group

XXX has completed a number of acquisitions, strategic alliances, and divestitures to date Smaller scale and asset purchases rather than large acquisitions with company-wide implications Frequently reactive regarding targets (i.e., waits for an auction) Evaluation and negotiation processes primarily owned by business units Divestitures occur opportunistically to generate cash without continual assessment of portfolio Decisions are not made within context of an overall portfolio but on ad-hoc basis More recently, XXX attempted larger scale, game-changing acquisitions but found many challenges No formally stated M&A strategy against which to evaluate fit Minimal documentation of processes putting knowledge transfer at risk Pursuit of deals for perceived benefits as opposed to fulfillment of pre-defined criteria Unclear roles and responsibilities due to lack of core deal team As XXX implements “Project X” and moves to a new business model, successful deal execution requires sophisticated and efficient transaction processes Need for greater emphasis on growth through acquisition, divestiture, and alliances Move to a holding company structure with greater separation between divisions Need for comprehensive financing plan before pursuing M&A-related activity Need for greater certainty of deal’s ability to add value or address strategic need XXX’s move to a holding company structure via “Project X” signals a dramatic shift from an operationally driven business to an M&A driven organization • To assist XXX in strengthening its pre-deal M&A process, xx has researched many organizations who are facing or have overcome similar challenges as XXX, to understand: • Options for organization of pre-deal M&A capabilities • Factors impacting which option is most suitable for an organization • An M&A playbook will follow the research. The playbook will detail processes, roles and responsibilities required to execute pre-deal M&A activities.

We have focused our research on pre-deal activities in the M&A lifecycle • M&A Strategy • Define goals for M&A activity • Establish the role of M&A as part of the organization’s growth strategy M&A Strategy Definition • Target Screening • Proactively identify potential targets • Develop screening criteria to assess fit • Evaluate against screening criteria Divestiture • Divestiture • Plan and manage the divestiture transaction • Capture divestiture value • Complete post-divestiture activities for a clean separation Target Screening • Due Diligence • Develop an understanding of a target’s strategy, operation, and organization through a comprehensive repeatable process for evaluating fit, value, and risk of target • Validate acquisition economics • Assess potential revenue and cost synergies Due Diligence Integration • Integration • Develop detailed integration plan • Plan and track synergy achievement • Transition Planning • Develop integration strategy • Establish Integration Management Office Transaction Execution Transition Planning • Transaction Execution • Draft letter of intent • Determine final valuation of target • Facilitate development of deal structure • Negotiate and close the deal Key = pre-deal activity = out of scope of research

We appraised the M&A functions of 36 companies through discussion with Subject matter experts and individuals with experience from M&A or Corporate Development groups Individuals with direct M&A experience from 30 xx clients The profile of the companies considered in our research is: 7 oil and gas companies, including, Valero, Tesoro, Western Refining, BP, and Sunoco 1 – 50 transactions completed per year $1 billion - $400 billion in annual revenue Companies from the following industries: Technology, media, and telecommunications Financial services Oil & gas Consumer packaged goods Life sciences Manufacturing We reviewed literature to include 17 business journal papers and articles 5 xx Research articles Corporate Dealmaker, Harvard Business Review, McKinsey Quarterly Various other publications and industry observers We considered results from 3 surveys which, in aggregate, studied: Activity of 1,800 companies Responses to interviews with 85 senior execs of prolific acquirers 24 private equity firms who completed 490 acquisitions and 225 divestments in aggregate We have based our research and findings upon primary and secondary sources

Our findings and recommendations draw on xx’s expertise in executing best in class deals and primary research of over 35 companies who are… in industries with high levels of M&A activity… of relevant size (gross profit) to XXX… = comparison category for XXX actively executing deals… …comparable size to those of XXX Source: CapitalIQ, MergerStat, xx Analysis Notes: * Average is of deals in 2005-2007, except for Wellpoint (2001-2004) *“Typical” is an average over years 2005-07 with major outliers excluded

Executive Summary Background Approach Research Results An internal M&A group confers multiple benefits upon XXX Potential organizational models for M&A groups Factors impacting the selection of a particular model Recommendation and Implications Next Steps Appendix

Nearly all M&A groups studied lead and manage 100% of M&A-related activities from minority investment to divestiture Increased control, risk, cost, and resources Contractual Agreement Strategic Alliance Minority Investment Joint Venture Acquisition/Divestiture • Limits risk exposure • Includes licensing, co-marketing, supply agreements, etc. • Expresses a more serious commitment between the parties • Exchange of managerial talent, resources, and capabilities • Direct investment in another company • Creates an option for future strategic uncertainty • Creates a separate entity in which two companies invest • More serious commitment • Allows for knowledge transfer and experiences learned • Gain assets of strategic value • Mitigate risk of defection • Reduce competitive threat Informed or uninvolved Consulted or Responsible Responsible Involvement of M&A group Contracts are typically executed by business units While business units typically drive strategic alliances, M&A groups are often consulted; some M&A groups lead strategic alliances A vast majority of M&A groups lead all deal activity related to minority investments, joint ventures, and acquisitions/divestitures

Possessing in-house M&A capability enables XXX to conduct the right transactions with greater efficiency and lower risk… Ensures selection of most suitable targets • Allows adoption of an “always on” approach and continual evaluation of potential deal • Ensures compatibility between M&A strategy and overall corporate strategy • Allows for consideration of all M&A opportunities when approving transactions • Increases likelihood of dispassionate, objective approach Increases speed of transaction lifecycle • Employs an efficient, repeatable process executed by trained resources • Makes efficient use of experts, reducing impact on the business operations • Provides opportunity to incorporate key lessons learned from previous deal experience Reduces subjectivity in decision making • Employs strict deal metrics and objectives that the organization must meet • Reduces likelihood of over-payment from over-eagerness to complete transactions • Reduces dependency on outside advisors who may be incentivized to complete a deal Strengthens credibility as acquirer • Strengthens reputation as a sophisticated and serious acquirer with ability to execute • Enhances ability to obtain future deal financing based on proven track record • Creates a more positive view for target employees through a standardized and efficient M&A process and generates greater respect from target’s leadership and management Increases likelihood of transaction success • Improves quality of proactive or auction based bid • Provides clear accountability for successful close • Allows post-deal value tracking • Creates clear mechanism to communicate to integration team / BU synergies identified during diligence

…and will bring the required skills to M&A activities A Life Sciences Manufacturer staffs M&A group primarily with ex-investment bankers Financial analysis • Applies rigorous financial screening criteria • Develops valuation models, synergy estimates, earnings forecasts, and value-creation analyses • Tests validity of business case and commercial viability of projections Members of a Healthcare Company’s M&A team focus on a BU to become familiar with the industry Industry expertise • Requires general understanding of business drivers and industry trends to facilitate and manage meaningful commercial diligence process • Assesses strategic fit of potential targets • Develops negotiation strategy, trade-offs and walk-away points • Frequently acts as lead negotiator in a frequently complicated, high-stakes, and combative negotiation Thermo Fisher Scientific M&A group members are directly involved in the negotiations Negotiation “an in-house team provides a higher level of customization of the process” Process management • Leads the deal team, co-ordinating input of external and internal resources • Mitigates risk by monitoring all activities and ensuring progress to plan • Manages overall deal execution Political savvy • Requires ability to motivate and obtain input from others even when no formal reporting line exists • Needs to be able to work with target’s management teams in potentially hostile environment “even scheduling a deal meeting can be difficult given the seniority of the people involved” High level functional knowledge • Prioritizes functional diligence requirements based on deal objectives • Summarizes risks arising from any functional area • Identifies need for involvement of functional experts in high risk areas “The M&A group presents deals for approval and must clearly understand and describe the results of all due diligence”

M&A groups structure their organizations using one of four models, with nearly 60% centralized Structure Description Examples Virtual • External resources perform M&A activities on an ad hoc basis • Senior advisors provide expertise in pre-deal activities and are generally familiar with the organization and specific industry • Western Refining • NCR Corp External Resources BU BU < 20% of companies researched Decentralized • Integrated Oil & Gas Company • BP (moving to a centralized model) • M&A practitioners are located in each business unit (BU) • BU(s) defines strategy and conducts all pre-deal activity • Approvals may still be required from corporate depending on corporate governance process Corp BU BU BU Centralized • Oil Refining Co. A • Oil Refining Co. B • Family-Owned Consumer Goods Business • M&A group resides at Holding Company • Holding Company drives overall M&A process, including setting strategy across all BUs • Central team works closely with relevant specialists as required • Central team involves relevant BU for diligence and synergies assessment to create buy-in and accountability for the transaction Corp 58% BU BU BU 85% of companies researched Hybrid • Corporate and BUs share responsibility for setting M&A strategy, M&A related resources, and activities • BUs typically lead, manage, and execute smaller deals • Parent-level M&A group leads larger “game-changing” deals • LG Electronics • SK Energy • Viacom Corp 27% BU BU BU = location of M&A capabilities

… and most commonly have 3-5 people 85% of companies* employ centralized or hybrid models… M&A teams predominantly have 3-5 dedicated professionals Notes: * of companies in sample set * Number of M&A practitioners at the BU-level in a hybrid structure could not be determined Source: xx primary research and analysis

Virtual Model: Characteristics Characteristics • Adds “virtual breadth” through selected use of partners familiar with the organization and with specific subject matter expertise • After identifying a specific target of interest, partners may assist in developing the M&A strategy, and/or selecting specific targets or may be included after target selection • Partners are experts in pre-deal M&A activity and/or the relevant industry Business Unit External Advisor Holding company/ Corporate headquarters Location of activity • Due diligence: IT • Due diligence: HR • Due diligence: Market and financial • Due diligence: IT • Candidate profiles • Target screening • Target valuation • Due diligence: Accounting • Due diligence: IT • Due diligence: Environmental • Due diligence: HR • Target valuation Repetitive / Transaction Bold = Activities generally provided by internal M&A group in other models Type of activity Knowledge / Expertise driven • BU M&A strategy • Potential acquisition candidates identification • Due diligence: market • Synergies analysis • Financial forecasts assessment • Integration assessment • Legal: diligence, deal execution, approvals, close deal • Deal structuring • Financing options • Tax implications/strategy • Corporate and BU M&A Strategy • Screening criteria • Universe of candidates definition and selection • Corporate and BU M&A Strategy • Screening criteria • Universe of candidates definition and selection • Methodology of approach • Approach methodology • Due diligence management • Financial forecast assessment • Deal structuring • Diligence results summary • Synergies analysis • Integration assessment • Deal negotiation

Virtual Model: Pros and Cons Pros Cons • Greatest flexibility / use of resources • Skilled resources can be added “on demand” which can be more cost effective than having dedicated internal resources • External resources provide new perspectives • Organizational knowledge may be lost if virtual resources are not well managed • A single view may result with little internal validation • External advisors may bring bias towards deal completion rather than strategic fit of target due to compensation mechanisms • NCR wanted to acquire several companies in the short-term but did not have a long-term M&A strategy. The virtual model allowed NCR to gain temporary M&A experts without adding permanent resources • Investment bankers and other external advisors rarely have deep industry knowledge in comparison to a company’s employees • External advisors are less familiar with the business model and strategy than employees, which may impede the M&A process

Virtual Model: Examples

Large (transformational) deals Small (transactional) deals Decentralized Model: Characteristics Characteristics • BUs drive their own M&A strategy and target screening • BUs move at their own timeline and pace, creating teams as necessary, primarily drawing from BU staff • BUs execute transactions using M&A SWAT teams with staff from corporate for functional expertise and BUs for industry and operational expertise Entirely Parent-driven Entirely Division-driven Transaction process • M&A Strategy • Screening Criteria • Target screening & selection • Methodology of Approach • Valuation • Due diligence • Deal execution • Negotiation • Integration 0% 25% 50% 75% 100% Level of divisional ownership

Decentralized Model: Characteristics Business Unit External Advisor Holding company/ Corporate headquarters Location of activity • Candidate profiles • Target screening • Valuation Modeling • Due diligence: IT • Due diligence: HR • Due diligence: Market and financial • Management of process execution • Due diligence: IT • Due diligence: HR • Due diligence: Accounting • Due diligence: IT • Due diligence: Environmental • Due diligence: HR • Target valuation Process Focused Bold = M&A Group activities Type of activity Knowledge / Expertise driven • BU M&A strategy • Screening criteria • Potential acquisition candidates identification • Due diligence: market • Synergies analysis • Financial forecasts assessment • Deal structuring • Diligence results summary • Integration assessment • Deal negotiation • Legal: diligence, deal execution, approvals, close deal • Deal structuring • Financing options • Tax implications/strategy

Decentralized Model: Pros and Cons Pros Cons • M&A strategy tuned to the unique needs of BUs • Enhances BU ability to respond quickly • Consistency of approach and resources from pre-deal to integration relative to BUs particular needs • Ensures early involvement and communication with BUs to plan integration • Less central ‘overhead’ required • No centralized coordination of M&A strategy • Potential duplication of M&A capabilities across businesses • Lack of knowledge retention / sharing across units • Smaller BUs may not be able to staff up as needed • Increased risk exposure • Raises potential confidentiality concern • A major integrated oil and gas company’s decentralized structure allows for the M&A group to unemotionally execute transactions – strict guidelines for deal metrics provided by Strategy Group ensure that M&A group objectively executes transactions • BP’s M&A groups became “too big for their own good” and there was no communication between the BU M&A groups leading to a reorganization into centralized model • Prior to a reorganization to a centralized model, a global financial services center utilized a decentralized model in which BUs executed their own deals without standardized processes and corporate approval

Decentralized Model: Examples

Large (transformational) deals Small (transactional) deals Centralized Model: Characteristics Characteristics • Corporate level M&A group drives overall pre-deal M&A process, including M&A strategy setting, target identification and screening, due diligence, transaction structuring and deal execution • Maintains standardized tools and repeatable processes • Depending on scale may have in-house SMEs who are aligned with specific BUs • Involves BU management and other corporate functions for industry and functional expertise, respectively • Works as a networked team by drawing expertise from multiple sources Entirely Parent-driven Entirely Division-driven Transaction process • M&A Strategy • Screening Criteria • Target screening & selection • Methodology of Approach • Valuation • Due diligence • Deal execution • Negotiation • Integration 0% 25% 50% 75% 100% Level of divisional ownership

Centralized Model: Characterisitics Business Unit External Advisor Holding company/ Corporate headquarters Location of activity • Candidate profiles • Target screening • Valuation Modeling • Due diligence: IT • Due diligence: HR • Due diligence: Market and financial • Management of process execution • Due diligence: IT • Due diligence: Accounting • Due diligence: IT • Due diligence: Environmental • Due diligence: HR • Target valuation Process Focused • BU M&A strategy • Potential acquisition candidates identification • Due diligence: Market • Synergies analysis • Financial forecasts assessment • Integration assessment • Company-wide and BU M&A strategy • Screening criteria • Universe of candidates definition and selection • Methodology of approach • Due diligence management • Financial forecast assessment • Deal structuring • Diligence results summary • Synergies analysis • Integration assessment • Deal negotiation • Legal: Diligence, deal execution, approvals, close deal • Deal structuring • Financing options • Tax implications/strategy Type of activity Knowledge / Expertise driven Bold = M&A group activities

Centralized Model: Pros and Cons Pros Cons • Builds in-house expertise that can be shared and leveraged • Provides ability to manage and control M&A strategy, ensuring consistency of portfolio • Enables faster transaction execution • Allows greater focus on longer time horizons • Enables expansion into new markets and execution of larger, transformative deals • Allows for investments for financial purposes • Reduces risk exposure through holistic view of approach and targets • Requires deep understanding of each BU • Requires BUs to cede M&A strategy • Potential tension between BU and M&A group requires open and clear communication to mitigate any risk • Often different groups accountable for evaluation and delivery of synergy targets • Central team regarded as ‘overhead’ • Cisco’s M&A group, which is regarded as a core function of the company, completed 110 acquisitions between 1993 and 2006 to enter into new product categories or improve its existing products with newer technology • J&J developed a centralized group to focus exclusively on long-term strategic options in emerging technologies unrelated to its decentralized operating companies; the emerging technologies are not within the 2-5 year time horizon of the BUs, but may become of strategic value in the future • A beverage manufacturer’s centralized M&A group assesses deal synergies and develops forecast financials without the involvement of the BUs that would ultimately achieve synergy and financial targets • A public consumer goods company’s centralized structure creates tension with the BUs. Both BUs and the M&A group perform target screening with little communication between them

Centralized Model: Examples

Large (transformational) deals Small (transactional) deals Hybrid Model: Characteristics Characteristics • M&A groups at both corporate and BU level, both contribute to setting M&A strategy • Corporate M&A group sources and manages larger “game-changing” deals • BU M&A team(s) leads smaller BU-specific deals, drawing from expertise of centralized group as required • Collaborative approach to M&A strategy across organization, team rotation and sharing as required Division of responsibilities reflect the scale and nature of the deal Entirely Corporate-driven Entirely BU-driven Transaction process • M&A Strategy • Screening Criteria • Target screening & selection • Methodology of Approach • Valuation • Due diligence • Deal execution • Negotiation • Integration 0% 25% 50% 75% 100% Level of BU responsibility

Hybrid Model: Pros and Cons Pros Cons • Builds in-house expertise that can be shared and leveraged • Provides ability to manage / control M&A strategy and ensures consistency across portfolio • Allows all BUs to be served effectively • Provides succession planning and job rotation for staff • Ensures M&A staff have deep understanding of industry and BU requirements • Capabilities may not always be aligned with needs • Risk of M&A strategy being dominated by one group / area • Central team regarded as ‘overhead’ - may be costly to keep SMEs who are not fully deployed • Requires critical mass to ensure M&A capabilities are not too fragmented • Requires open and clear communication between corporate and BU M&A groups • Viacom’s hybrid model enables BUs to control their unique strategy. The corporate M&A group provides support on deals and also focus on larger, “game-changing” deals for the company • SK Energy often misses out on deals because its hybrid structure is very bureaucratic

Hybrid Model: Examples

Focus on growth through acquisition, strong corporate control, and/or similarity of business units indicates a centralized model Virtual Decentralized Hybrid Centralized M&A activity as a core competency • M&A not a core competence • M&A activity complements organic growth • M&A performed on reactive / ad hoc basis • Growth fueled primarily through M&A-related activities • Frequent M&A activity using repeatable, rigorous processes • Portfolio approach Culture of control • High reliance on external expertise • Divisions empowered to set strategy • Corporate retains approval authority but does not actively determine division strategy • Corporate actively participates in or sets divisions’ strategies, whether by direct influence or via economic incentives (e.g., capital distributions) Similarity of business units / divisions • NO IMPACT in adoption of virtual model • Divisions operate in different industries • Little or no overlap in customer segments • Wide variation in products or services • Strategy dramatically varies by division • Business units are geographically dispersed • Divisions operate in same industry • Similar or overlapping customer segments • High degree of commonality or complementing products / services • Similar divisional strategies

Greater scale of deal activity, in terms of both deal volume and typical deal size, suggests selection of centralized over hybrid model Average number of deals* Deal Value as % of Gross Profit maximum 75th percentile median 25th percentile minimum Virtual Decentralized Hybrid Centralized Deal Activity • Low deal volume • High deal volume • Larger deals • Smaller deals Note: due to sample size, this is indicative, however not statistically significant 70% 60 60% 50 50% 40 40% Avg Annual Deal Value as % of Avg Annual Gross Profit (2005-2007) Avg # of Deals 30 30% 20 20% 10 10% 0 0% Virtual Decentralized Hybrid Centralized Virtual Decentralized Hybrid Centralized Corporate Development Structure M&A Structure Source: CapitalIQ, MergerStat, xx primary research and analysis Notes: * Average is of deals in 2005-2007, except for Wellpoint (2001-2004) *“Typical” is an average over years 2005-07 with major outliers excluded

Factors impacting M&A group model employed:Oil & Gas Industry • Low deal volume • High deal volume • Smaller deals • Larger deals Integrated Oil & Gas Company = Oil Refining Company A = Oil Refining Company B = Western Refining = SK Energy = BP = Sunoco Virtual Decentralized Hybrid Centralized M&A activity as a core competency • Non core activity • M&A fundamental Culture of control • Divisions are empowered • Control is held centrally Similarity of business units / divisions • Similar industry, customer, product, strategy • Different industry, customer, product Deal Activity Key:

Factors impacting M&A group model employed:Companies averaging 0 to 2 deals • Low deal volume • High deal volume • Smaller deals • Larger deals = Beverage Manufacturer = Western Refining = Consumer Goods Company A = Oil Refining Company A = LG Electronics = Oil Refining Company B = SK Energy = Sunoco Virtual Decentralized Hybrid Centralized M&A activity as a core competency • Non core activity • M&A fundamental Culture of control • Divisions are empowered • Control is held centrally Similarity of business units / divisions • Similar industry, customer, product, strategy • Different industry, customer, product Deal Activity Key:

Factors impacting M&A group model employed:Companies with revenues of $10-$15B • Low deal volume • High deal volume • Smaller deals • Larger deals = Thermo Fisher Scientific = Viacom = Beverage Manufacturer Virtual Decentralized Hybrid Centralized M&A activity as a core competency • Non core activity • M&A fundamental Culture of control • Divisions are empowered • Control is held centrally Similarity of business units / divisions • Similar industry, customer, product, strategy • Different industry, customer, product Deal activity Key:

Factors impacting M&A group model employed:Companies with operating margin of 2-5% • Low deal volume • High deal volume • Smaller deals • Larger deals = Oil Refining Company B = Fidelity National Financial = Sunoco = SK Energy = NCR Corporation Virtual Decentralized Hybrid Centralized M&A activity as a core competency • Non core activity • M&A fundamental Culture of control • Divisions are empowered • Control is held centrally Similarity of business units / divisions • Similar industry, customer, product, strategy • Different industry, customer, product Deal Activity Key:

Developing and Delivering Successful M&A Capability