Increasing Rigor in Divestitures: M&A Transactions

1. TRANSACTION ADVISORY SERVICES Increasing Rigor in Divestitures: M&A Transactions October 5, 2006

2. Divestiture Management Office The Divestiture Roadmap Announcement Day Day One Pre-Close Due Diligence / Pre-Announcement Post-Close Monitor and Ongoing First 90 Days Data Room / Management Presentations Negotiation and Execution Pre-sale Planning Post-Closing Identifying Separation Issues and Transition Support Requirements Day One Readiness Planning the Migration Away from Transition Support Arrangements

3. Divestiture Process Insights • Plan Ahead of the Deal: Key issues should be identified during the due diligence phase to help to increase likelihood of divestiture and carve-out success. • Determine Service Agreement Needs: Develop complete and accurate contracts for services the divested entity will continue to need from the former parent. • Implement Financial Controls Early: Project accurate financial statements for the stand alone entity, establish financial baseline, and integrate financial targets; separate internal audit, financial systems, and treasury functions early. • Align Strategic Rationale and Divestiture Activities: Establish a vision for the future, agree on rationale for divestiture, and make certain carve-out plan will accomplish those objectives. • Establish Clear Goals and Manage Expectations: Clearly define and establish goals for the carve-out effort and your organization, proactively manage all stakeholder expectations through the carve-out. • Establish Organizational Leadership Quickly: Establish leadership structure, clarify roles and responsibilities to minimize confusion. • Focus Significant Attention on Carve-Out: Dedicate senior leadership to carve-out structure and carve-out teams to bring discipline and focus, establish clear success criteria, decision making processes, and create a sense of urgency. • Prioritize and Manage Risks Rigorously: Prioritize initiatives most critical to success and establish a comprehensive risk mitigation plan; conduct periodic assessments. • Communicate and Manage Change: Establish a frequent, clear, and timely communication process for all stakeholders; implement change management programs to address cultural issues.

4. E&Y Observations of Corporate Sellers • The complexities of stand-alone or separate financial statements catch senior management by surprise • Supporting detail is not adequate to support an audit or to enable a smooth diligence process • Corporate allocations can not be reconciled and eliminated • Private company financials in a public offering (fair value of common stock and IPRD) • Sarbanes-Oxley considerations • Operational complexities and interdependencies between Corporate and Business Unit are not initially recognized • TSA strategy are not developed proactively (pricing, length/term, etc.) • Ability to balance transaction value with residual cost elimination • Organizations lack the infrastructure to support new obligations • Inward focus throughout the transaction process destroys value • Customer communication and retention issues are not anticipated and addressed • Employee communication and retention issues are not anticipated and addressed • Residual costs are not planned for and are often underestimated • Carve-out execution does not receive the proper attention from senior management