A Joint Stock Company - Registered Office in Genoa - Via Dante, 1 - Head Office in Milan – Piazza Cordusio; Registered with CAPITALIA - Registered Office in Via Marco the Genoa Courts in the Companies Minghetti, 17, Rome – Share Capital € Register, fiscal code and VAT number 3,123,792,732 – Rome Register of Companies, Tax 00348170101; Registered in the Register of Registration Number 00644990582 – Member of the Banking Groups and Parent Company of Interbank Guarantee Fund – The Company is a the UniCredito Italiano Banking Group Registered Bank and is the Parent Company of the registered with code 3135.1 - Member of CAPITALIA Group, a Registered Banking Group the Interbank Fund for Deposit Protection Capital: € 5,222,465,096.50 fully paid up.
IINNFFOORRMMAATTIIOONN DDOOCCUUMMEENNTT
MERGER
INTO UNICREDIT S.P.A.
OF CAPITALIA S.P.A.
DRAWN UP PURSUANT TO SECTION 70, PARAGRAPH 4, OF THE REGULATIONS CONCERNING ISSUERS - CONSOB REGULATION NO. 11971/99, AS AMENDED
This is an English translation of the original Italian document. This translation has been prepared solely for the convenience of the reader. The original version in Italian takes precedence.
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NOTICE OF CALL OF A SHAREHOLDERS’ MEETING PUBBLISHED ON GAZZETTA UFFICIALE – II part - n. 64 DATED JUNE 5, 2007
UNICREDITO ITALIANO
A Joint Stock Company Registered in the Register of Banking Groups and Parent Company of the UniCredito Italiano Banking Group registered with code 3135.1 Member of the Interbank for Deposit Protection Fund Registered Office in Genoa - Via Dante, 1 Head Office in Milan – Piazza Cordusio Capital: € 5,222,465,096.50 fully paid up Registered with the Genoa Courts in the Companies Register fiscal code and VAT number 00348170101
NOTICE OF CALL
The Shareholders of UniCredito Italiano are hereby convened to an Ordinary and Extraordinary Shareholders’ Meeting to be held in Genoa, Via Dante 1, on 28th July 2007 at 9:00 am, and, if necessary, with regard to the extraordinary session, in second call, on 29th July 2007 at 18:30 pm in the same location. If the necessary quorum is not reached, the Shareholders’ Meeting is convened in second call for the ordinary session and in third call for the Extraordinary session, on 30th July 2007 in Genoa at 10:00 am at the same location, to discuss and to resolve on the following
AGENDA Ordinary Part 1. Appointment of a Director.
Extraordinary Part 1. Approval of the merger plan concerning the merger by way of incorporation into UniCredit S.p.A. of Capitalia S.p.A. pursuant to articles 2501 and the following of the Italian Civil Code and subsequent amendments of the Articles of Association; 2. Authorization to allocate part of the own shares held by UniCredit to service the 425,000 option rights to be assigned in favour of managing directors (not employees) of Capitalia Group’s companies in exchange for an equal number of warrants previously attributed to them, for this purpose changing the allocation of the such own shares resolved by the Shareholders’ Meeting of UniCredit of 16th December 2005; 3. Amendments of Section 27, sub 2 and 3, of Section 28, sub 1, 2 and 3, and of Section 32, sub 1, of the Articles of Association.
The Directors’ report related to the item on the Agenda on the Ordinary part will be available pursuant to the terms of the law at the Company’s Registered Office and the Head Office, as well as at Borsa Itlaliana S.p.A. and will be also available on the Company’s website at www.unicreditgroup.eu. This documentation may be examined by the Shareholders. Concerning this, it is pointed out that the Company, in line with the guidelines of the Corporate Governance Code of the Listed Companies, would appreciate that the possible candidatures for the office of directors be deposited with the registered office, together with their curricula vitae, at least 15 days prior to the scheduled Shareholders’ Meeting.
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The documentation related to the envisaged Transaction pursuant to Art. 2501 septies of the Italian Civil Code (the merger project and related attachments, the Directors’ report, the financial statements and the experts’ valuation on the adequacy of the exchange ratio) is made available to Shareholders at the Company’s Registered Office and Head Office as well as at Borsa Italiana S.p.A. pursuant to art. 2501 septies of the Italian Civil Code during the 30 days preceding the Meeting. This documentation is also made available in the same terms on the Company’s website at www.unicreditgroup.eu. No later than 18th July 2007, the Information Document (documento informativo) relating to the merger pursuant to Art. 70 of Consob Regulation on Issuers (Regolamento Emittenti) will be made available in the same manner. Shareholders can require for copy of the above documentation. Please be also informed that Banca D’Italia was provided with the request of authorization for implementing the merger transaction and for adopting the amendments to the Company’s Articles of Association. The proceedings for the issuing of such authorizations by the Supervision Authority is at the time of the publication of the present notice in progress. Under article 12 of the Company's Articles of Association and article 3 of its Shareholder Meeting Regulations, meetings may be attended by those holders of ordinary shares who display a copy of the notification that Monte Titoli participant issued to the Company and which, in compliance with applicable law, are obliged to make available to them. It has been recalled that, in accordance with article 12 of the company’s Articles of Association, the company must receive the notification sent by Monte Titoli participant at least two days prior to the date set for the first call of the Meeting. Dieter RAMPL (CHAIRMAN OF THE BOARD OF DIRECTORS)
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NOTICE OF CALL OF A SHAREHOLDERS’ MEETING PUBBLISHED ON GAZZETTA UFFICIALE – II part - n. 64 DATED JUNE 5, 2007
CAPITALIA
Società' per azioni Registered Offices in Via Marco Minghetti, 17, Rome – Share Capital € 3,119,605,842 – Rome Register of Companies, Tax Registration Number 00644990582 – Member of the Interbank Guarantee Fund – The Company is a Registered Bank and is the Parent Company of the CAPITALIA Group, a Registered Banking Group
Notice of Shareholders’ Meeting
Dear Shareholder, you are kindly invited to attend the Extraordinary Shareholders’ Meeting, which will be held in first call on July 28, 2007, at 8:30 a.m., at the Company’s Registered Offices in Via Marco Minghetti, 17, Rome, and, if necessary, in second call, on July 30, 2007, at 10:30 a.m., at the Registered Offices of Banca di Roma in Viale Umberto Tupini, 180 – Rome, Italy. Should a quorum not be reached and, consequently, the Extraordinary Meeting not be held on the above mentioned dates, the date of third call of the Shareholders’ Meeting will be announced as per legal requirements.
The Shareholders will be asked to vote on the following agenda items:
- Approval of the merger project of Capitalia S.p.A. into UniCredit S.p.A., as per Article 2501 and those immediately following of the Italian Civil Code. Related resolutions. The documentation regarding the operation foreseen by Article 2501 septies of the Italian Civil Code (Merger project and related documents, Report of the Board of Directors, Balance sheet and Experts’ valuation on the congruity of the exchange ratio between ordinary shares) will be made available to the public at the Company’s Registered Offices and at Borsa Italiana S.p.A. during the 30 days before the Shareholders’ Meeting. This documentation will also be available on the Company’s website www.capitalia.it. By July 18, 2007, in the same manner, the Information Memorandum regarding the merger, which will be written in compliance with Art. 70 of the Consob Rules Governing Issuers, will be made public. Shareholders may obtain copies of the aforesaid documents. The request for authorization to perfect the merger operation has been submitted to the Bank of Italy for approval. The authorization procedure by the Regulatory Authority is in progress as of the date of publication of this notice. To participate in the Meeting, Shareholders must request from the intermediary which is a registered member of the Italian Central Securities Depository as per Art. 80 of Legislative Decree n. 58 of February 24, 1998, the issuance of the relevant certificate pursuant to Articles 33 and 34-bis of Consob Resolution 11768 of December 23, 1998, as subsequently amended. Subject to the provisions of Art. 2372 of the Italian Civil Code and of Legislative Decree #58 of February 24, 1998, on proxies, Shareholders entitled to participate in the Meeting are permitted to vote by written proxy issued to third parties, including individuals who are not Shareholders in the Company. Proxies shall bear the Shareholder’s signature as certified by a Director or a
- 5 - duly authorized company employee or, alternatively, by a notary public, consular official, an Italian or foreign bank or a member of the Central Securities Depository, which issued the documents required to participate in the Meeting in accordance with Art. 8 of the Company’s Bylaws. In accordance with the Meeting Rules, for easier verification of representative powers, any parties intending to participate in the Meeting in their capacity of legal or voluntarily appointed proxy of any Shareholder or any other persons entitled to participate in the Meeting may deliver the original documentation confirming such powers or a copy thereof to the Corporate and Legal Affairs Department prior to the date of the first call of the Meeting. Said documentation can be either mailed to CAPITALIA S.p.A. – Area Affari Legali e Societari – Affari Societari – Via Marco Minghetti, 17 – 00187 Rome, Italy, or faxed to any of the following numbers: +39 06 6707 0958, +39 06 6707 0319, +39 06 6707 0050. Any such communication must contain the telephone or facsimile number or email address to which the results of the verification can be sent. If copies are delivered, the original documentation must be presented on the day of the Meeting.
On behalf of the Board of Directors Cesare Geronzi, Chairman
Rome, May 29, 2007
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CONSOLIDATED PRO-FORMA FIGURES AS AT DECEMBER 31, 2006
(€ million) AMOUNTS AS AT 31.12.2006 UNICREDIT CAPITALIA ADJUSTMENTS PROFORMA TOTAL
Net interest margin 12,860 2,756 0 15,616 Operating income 23,464 4,766 -5 28,225 Operating profit 10,206 1,792 -22 11,976 Profit before tax 8,210 1,822 -22 10,010 Profit (Loss) for the year 5,448 1,162 -15 6,595 Financial asset held for trading 191,593 9,370 -756 200,207 Loans and receivable with banks 83,715 12,516 -1,259 94,972 Loans and receivable with customers 441,320 96,012 0 537,332 Total assets 823,284 137,132 7,596 968,012 Deposits from customers and debt securities in issue 495,255 96,753 -289 591,719 Minorities 4,274 55 0 4,329 Shareholders' equity 38,468 9,717 9,478 57,663 Consolidated Net Earnings Per Share (euro) 0.53 0.45 0.50 Consolidated Net Equity Per Share (euro) 3.72 3.74 4.35
CONSOLIDATED PRO-FORMA SHARE INDICATORS
DECEMBER 31, 2006 DECEMBER 31, 2006 EFFECTIVE PROFORMA
Shares outstanding 10,329,544,981 13,245,190,391 Consolidated gross profit per share (€) 0.79 0.76 Consolidated earning per share (€) 0.53 0.50 Consolidated cash flow per share (€) 0.21 0.16 Consolidated net equity per share (€) 3.72 4.35
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Index
1. DISCLAIMER – RISK FACTORS page 11
2. INFORMATION page 25 2.1 BRIEF DESCRIPTION OF THE TERMS AND CONDITIONS OF THE MERGER page 25 2.1.1 The Merger Entities page 25 2.1.2 Procedure, terms and conditions of the Merger page 31 2.1.3 Impact of the Merger on the Shareholding Structure of UniCredit page 49 2.1.4 The effects of the Merger on the shareholders agreements page 54 concerning the shares of the companies involved in the Merger
2.2 RATIONALE AND MAIN ELEMENTS OF THE MERGER page 57 2.2.1 Rationale of the Merger page 57 2.2.2 Programs made by UniCredit with reference to business prospects page 59 and potential resctructuring and/or reorganizations 2.3 DOCUMENTS AT THE DISPOSAL OF THE PUBLIC page 62 3. SIGNIFICANT EFFECTS OF THE MERGER page 63 3.1 EXPECTED SYNERGIES page 63 3.1.1 Overall Synergies page 63 3.1.2 One-off integration costs page 64 3.2 THE EFFECTS OF THE MERGER ON CAPITAL STRUCTURE AND PROFITABILITY page 64 4. STATEMENT OF INCOME, BALANCE SHEET AND FINANCIAL HIGHLIGHTS OF CAPITALIA page 65 4.1 COMPARATIVE TABLE OF THE RECLASSIFIED BALANCE SHEET AND INCOME STATMENT FOR THE page 65 LAST TWO YEARS 4.2 AUDIT OF FINANCIAL ACCOUNTS page 70 4.3 NET FINANCIAL POSITION page 71 5. UNICREDIT CONSOLIDATED PRO-FORMA FINANCIAL FIGURES page 73 5.1 CONSOLIDATED PRO-FORMA BALANCE SHEET AND INCOME STATEMENT – BASES FOR page 73 PREPARATION 5.1.1 Consolidated Pro-Forma Balance Sheet and Income Statement as at page 74 December 31, 2006 5.1.2 Explanatory notes page 76 5.2 CONSOLIDATED PRO-FORMA SHARE INDICATORS page 79 5.3 INDEPENDENT AUDITORS’ REPORTS ON PRO-FORMA STATEMENT OF INCOME AND BALANCE page 79 SHEET FIGURES 6. PROSPECTS OF UNICREDIT AND ITS GROUP page 80 6.1 CAPITAL STRUCTURE AND RECENT RESULTS page 80 6.2 FORECASTS page 80
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Index of Annexes
- Explanatory Report pursuant to art. 2501-quinquies of the Italian Civil Code of the Board of Directors of UniCredit S.p.A. - Explanatory Report pursuant to art. 2501-quinquies of the Italian Civil Code of the Board of Directors of Capitalia S.p.A. - Merger Plan in accordance with art. 2501-ter of the Italian Civil Code - Articles of Association of UniCredit S.p.A. - Financial statements pursuant to art. 2501-quater of the Italian Civil Code relative to Capitalia S.p.A. - Financial statements pursuant to art. 2501-quater of the Italian Civil Code relative to UnCredit S.p.A. - Report on the adequacy of the exchange ratio pursuant to art. 2501-sexies of the Italian Civil Code prepared for UniCredit S.p.A. - Report on the adequacy of the exchange ratio pursuant to art. 2501-sexies of the Italian Civil Code prepared for Capitalia S.p.A. - Fairness opinion on the estimate of the exchange ratio prepared by Citigroup Global Markets Limited for the Board of Directors of Capitalia S.p.A. - Fairness opinion on the estimate of the exchange ratio prepared by Citigroup, Credit Suisse Securities Limited for the Board of Directors of Capitalia S.p.A. - Fairness opinion on the estimate of the exchange ratio prepared by Rothschild for the Board of Directors of Capitalia S.p.A. - Fairness opinion on the estimate of the exchange ratio prepared by Merrill Lynch International for the Board of Directors of UniCredit S.p.A. - Examination report of KPMG S.p.A. on the pro-forma consolidated balance sheet and pro-forma consolidated income statements as at and for the year ended at 31 December 2006 - Esamination report of KPMG S.p.A. on prospective financial information - Statement of Income, Balance Sheet and Financial Highlights Pro-Forma of UniCredit: breakdown and reconciliation of reclassified Accounts to Mandatory Reporting Schedule
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This document (“Information Document”) has been prepared and is published jointly by UniCredit S.p.A. (hereafter also “UniCredit” or “Incorporating Company”) and Capitalia S.p.A. (hereafter also “Capitalia” or “Incorporated Company”) according to the provisions contained in attachment 3B pursuant to art. 70, par. 4, of the Consob Regulation approved with resolution no. 11971 of 14th May 1999 and subsequent amendments and integrations (hereafter also “Issuers Regulations”).
The Information Document intends to provide the shareholders of UniCredit and Capitalia (jointly hereafter also the “Companies”) and the market extensive and detailed information regarding the merger into UniCredit of Capitalia (hereafter also the “Merger”); the Merger, approved by the relevant Boards of Directors on 20th May 2007, will be submitted to the approval of the Extraordinary Shareholders’ Meetings of Capitalia - called on 28th and 30th July 2007 on first and second call – and of UniCredit - called on 28th, 29th and 30th July 2007 on first, second and third call.
The Information Document was notified to Commissione Nazionale per le Società e la Borsa (Consob). Moreoever, it is available for the public, both in Italian and in the English translation, at the Registered office of the Incorporating Company (Genova, Via Dante 1) and of the Incorporated Company (Rome, Via Minghetti 17), as well as on the relevant websites (www.unicreditgroup.eu and www.capitalia.it), as well as at Borsa Italiana S.p.A.
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1. DISCLAIMER - RISK FACTORS
Shareholders are invited to carefully read the risk factors as described herein and the uncertainties directly connected with the Merger and the business of the Incorporating Entity and the Group resulting from the Merger (thereafter, also defined as the “Combined Group”). Within their investment decision, also on the basis of recent UniCredit and Capitalia business developments, investors are invited to consider the specific risk factors of the Companies, their activities and financial instruments which will be issued following the Merger. Within their operations, UniCredit and the Combined Group could be exposed to a series of risks typical of the banking sector, such as the risk of interest rates fluctuation and hedging strategies carried out on this regard, as well as more generic risks such as potential slowdown of the economy and financial markets volatility. Some of the main risks that could significantly affect the financial and operating results of the Incorporating Entity and of the Combined Group, as result of the Merger, are detailed below. A) RISK CONNECTED TO ECONOMY SLOWDOWN AND FINANCIAL MARKETS VOLATILITY – CREDIT RISK Banking and financial services market, in which UniCredit and Capitalia operate their business, is affected by several non predictable factors including the overall economy development, fiscal and monetary policies, liquidity and expectations within capital markets and consumers’ behaviour in terms of investment and saving. Considering traditional lending operations, in particular, demand for financial products could experience a contraction, within periods of downturn. The overall economy development can furthermore negatively impact the solvency of mortgage debtors and other borrowers of UniCredit and Combined Group such to affect their overall financial condition, recovery of loans and of the amounts due by the counterparties of the Companies, together with an increase of insolvent clients compared to outstanding loans and other obligations (i.e., credit risk). UniCredit and Capitalia are – and the Combined Group will be – exposed to potential losses linked to credit risk, deriving from the potential impossibility or refusal by the customers to honour their contractual obligations, in connection with granting of financing, commitments, credit letters, derivative instruments, currency transactions or of other nature. The above factors could have a significant impact also in terms of capital market volatility. As a result, volumes, revenues and net profits in banking and financial services business can vary significantly over the time.
B) NON TRADITIONAL BANKING ACTIVITIES WHICH EXPOSE THE COMBINED GROUP TO ADDITIONAL CREDIT RISKS Several banking operations of the Combined Group, different from traditional banking lending and deposits activity, will expose the Combined Group to additional credit risk. For example, credit risk deriving from non traditional activities may arise from: (a) open derivative contracts that require the counterparty to make payments to entities part of the Combined Group; (b) trading of securities, futures, currencies or commodities, not settled within the terms agreed due to failed delivery by the counterparty or due to systems and procedures adopted by clearing agents, stock exchanges, clearing houses or other financial intermediaries (included also the Combined Group); (c) owning third-party securities; and (d) extending credit through other arrangements. The parties involved in these transactions, such as the trading counterparties or issuers of securities held by entities of the Combined Group, could become insolvent in respect of their obligations as a
- 11 - result of default, political and economic events, lack of liquidity, operative problems or other reasons. Default in relation to a significant number of transactions, or one or more transactions with relevant volumes, would have a material adverse impact on the business, financial condition and operating results of the Combined Group. C) CREDIT LOSSES Some banks of the UniCredit and Capitalia Groups are among the main lenders to several corporate clients of relevant dimension which are insolvent, are undergoing a restructuring process and/or which are in payment default. If the realization value of collaterals underlying non performing/impaired loans or the number of future insolvencies and defaults exceed the anticipated levels, the Combined Group may require higher provisions for loan losses and advances or incur loan losses in excess of provisioned amounts.
D) RISKS RELATED TO INTEREST RATES FLUCTUATIONS The performance of UniCredit and Capitalia is – and the performance of the Combined Group will be - affected by the development and the fluctuations in interest rates. In particular, lending and deposits activities are strictly dependent on the interest rate risk hedging policies of the two banking groups, and of the Combined Group in the future, or in other words on the correlation between changes in the interest rates in the reference markets and those in the interest margin. Although the Companies, whereas appropriate, carry out strategies hedging the risk of interest rate fluctuations via derivative contracts, such hedging strategies could result inadequate. As a result, a misalignment between the interest income realised by the two banking groups – and to be realised by the Combined Group – and the interest expenses due to them, following the movement in interest rates, could significantly affect the financial position and operating results of UniCredit and the Combined Group.
E) VOLATILITY OF THE TRADING INCOME The trading income of UniCredit and Capitalia has been in the past volatile and the same level of fluctuation is expected to continue in the future also for the Combined Group. Such trading income depends on a number of factors which are beyond the control of the Company, such as market and macroeconomic factors. There can be no certainty that the Combined Group will be able to sustain its historic levels of trading income in the future.
F) OPERATIONAL RISK UniCredit and Capitalia, as other banks and financial institutions, are exposed to several operating risks, including the risk of any fraud by their own employees and other external persons/entities, risk of unauthorised operations performed by their employees and the risk of losses resulting from operating errors, including those caused by inadequate or failed IT or telecommunication systems. The operational risk management systems and methodologies of UniCredit and Capitalia are designed to guarantee that the risks connected with their own activities are kept under adequate control. Any problem or failure of these systems could negatively affect the financial position and the operating results of the Combined Group. Moreover, the dependency of the Companies on the automatic systems of registration and management of their own operations could further increase the operational risk due to personnel inefficiencies, or problems or failure of the information and telecommunication systems.
G) RISK MANAGEMENT Risk management mechanisms, procedures and strategies of the Combined Group may fail and generate unexpected losses on the Combined Group due to unidentified or incorrectly evaluated market developments, trends or other circumstances. These risks and the adverse effects resulting from them may be further aggravated by the integration of the risk management systems of UniCredit and Capitalia.
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H) RISK CONNECTED TO LAWSUITS There are lawsuits pending against UniCredit and Capitalia and other companies falling within the perimeter of the consolidation. They are ordinary, physiological and split litigations, that have been duly analyzed – each as far as of its concern – by UniCredit, Capitalia and the concerned companies falling within the respective perimeters of consolidation in order, when seen as appropriate or necessary, to effect provisions in the amount believed suitable according to the circumstances or to make a mention thereof in a supplementary note to the balance, according to correct accounting principles. In particular, as at the date of March 31 2007, provisions were made as to risks and charges for lawsuits and revocatory actions (excluding employment, tax and credit recovery lawsuits) by the UniCredit Group for an amount of about €. 540,4 billion and by the Capitalia Group for an amount of about €. 393,6 billion. The unfavourable outcome of said lawsuits might, however, determine for UniCredit, Capitalia and for the companies within the respective consolidation perimeters – and also, in the future, for the Consolidated Group – negative effects on the economic and financial situation of the companies themselves, even though – as far as one can foresee at the moment – not such as to significantly effect their activities or solvency.
H.1) UNICREDIT GROUP - PASSIVE LITIGATIONS IN AMOUNT EQUAL OR HIGHER THAN 100 MILLION EUROS, PENDING AS AT 19 JUNE 2007
Cirio In April 2007 some companies belonging to the Cirio Group in extraordinary administration (“amministrazione straordinaria”) (i.e. Cirio Holding S.p.A., Cirio Finanziaria S.p.A. (formerly Cirio S.p.A.), Cirio Del Monte N.V., Cirio Del Monte Italia S.p.A., Cirio Finance Luxembourg S.A., Cirio Holding Luxembourg S.A., Del Monte Finance Luxembourg S.A., Cirio Agricola S.p.A., Cirio Immobiliare S.p.A., Cirio Ricerche S.c.p.a.) started a lawsuit against UniCredit Banca Mobiliare S.p.A. and other six banking intermediaries claiming a joint liability of all the above banks arising from their participation, as arrangers, to six bond issues by companies belonging to the Cirio Group from 2000 to 2002 for a total amount of €1.125 million. Those bond issues, according to the claimants, were arranged by the “banks sued when the insolvency of the issuer, of the guarantors and of the whole Cirio Group was already clear and irreversible”, and such a situation could not have been ignored by “highly qualified entities (as the sued banks are) on which there is the duty to: a) act diligently, fairly and transparently in the interests of customers and the integrity of the market, b) acquire the information necessary for the customers (art. 21 Financial Services Act)”. Such behaviour of the banks, i.e. the granting of credit to an apparently insolvent entity, would be "per se illegal, as against the prohibition to allow the fictitious maintenance in life of an insolvent company”. The damage has been quantified as follows: a) the damage suffered by each claimant as a consequence of the increase of its difficulties has been determined by using three possible criteria: • as a first request, pursuant to the criterion of the “insolvency deficit”, i.e. the difference between the insolvency assets and the insolvency loss, corresponding to the total amount of €2.082.249.718 million; • as a subordinated request, pursuant to the criterion of the difference between the net assets at the date of 31 December 1999 and the net assets at the date of 7 August 2003, corresponding to the total amount of €1.055.151.123 million; • as a more subordinated request, on the basis of the operational losses increased with financial burdens accrued on the basis of the carrying on of the activities, corresponding to the total amount of €421.671.050 million;
- 13 - b) the damage suffered by Cirio Finanziaria S.p.A. (formerly Cirio S.p.A.) in respect of the loss of the possibility, as a consequence of the alleged fictitious maintenance in life of the company, to recover, through the actions to obtain revocation, under articles 64-67 of the Italian Insolvency Law, of the acts by which the debtor disposed of his assets before the declaration of Insolvency (azioni revocatorie fallimentari), at least the amount of money used by Cirio Finanziaria S.p.A. between 1999 and 2000 to cover the debts of some companies of the Group, directly or indirectly referred to Dr. Cragnotti, in respect of Banca di Roma, Banca Commerciale Italiana and Banca Popolare di Lodi, will have to be determined during the proceedings. c) the damage suffered by Cirio Holding Luxembourg S.A., Cirio Finanziaria S.p.A., Cirio Del Monte N.V., Cirio Finance Luxembourg S.A, Cirio Del Monte Finance Luxemburg S.A., as a consequence of the payment of the fees to the Lead Managers in respect of the placement of the bonds, has been determined in a total amount corresponding to €9.812.000 million All the above with the addition of interest and currency appreciation from the date owed to the date of payment. The claimants, having chosen the so called “rito societario”, have decided on July 2 2007 as the date within which the defendants must file their statement of defence (“comparsa di risposta”). UniCredit Banca Mobiliare has duly entered into appearance. Judging by the initial checks made one is lead to believe that the claimants’ requests are procedurally misplaced and groundless in their merit apart from being undetermined and generic. In the defence statement the following, in particular, have been challenged: • the trustee’s legitimation to a lawsuit for extra-contract damages due to illicit credit granting; • the lack of legitimation also as far as concerns the extra-contract damages assertedly directly and immediately suffered by the Cirio group companies; • the affirmed complicity of the banks with the previous managers of the Cirio group; • the methods of determining the damages. Moreover, in the defence statement it has been affirmed, inter alia, that: (i) the subject matter of the lawsuit is only the analysis of the relationship, during the sale period, between the issuer and the guarantor, on the one side, and the intermediaries, on the other; (ii) UniCredit Banca Mobiliare diligently abided by the obligations undertaken (towards the issuer) during the sale period; (iii) the bond issues were part of a wider project aimed at restructuring the debt and consolidating the group structure, which was accompanied by another project of industrial upgrading (that envisaged the sale of non-strategic assets, the reduction of both the global and the banking indebtedness, a focus on the core business). In consideration of the above, UniCredit Banca Mobiliare has so far made no provision.
Parmalat During 2005 Parmalat S.p.A., Parmalat Finanziaria S.p.A., Parmalat Finance Corporation B.V., Parmalat Soparfi S.A., Parmalat Netherlands B.V., Parmalat Netherlands B.V., Parmalat Capital Netherlands B.V. – all of which in extraordinary administration – filed two lawsuits against some UniCredit Group entities. We highlight hereunder the main items: • in a lawsuit UniCredit S.p.A., UniCredit Banca d’Impresa S.p.A., UniCredit Banca Mobiliare S.p.A., and two other banking intermediaries, are involved as joint debtors (payment claim in the aggregate amount of approximately €4.4 billion for the recovery of damages caused by “participating as co-lead manager” (partecipazione in qualità di co-lead manager), together with other intermediaries, in the issuance of bonds from 1997 to the first half of 2001 and for having entertained “numerous banking current account relationships with companies of the insolvent group” (una fitta rete di rapporti bancari in conto corrente con le società del gruppo insolvente).
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Two hearings were held on 22 May 2006 and on 19 December 2006. During the latter the so called “Assuntore” entered the lawsuit. The lawsuit is not in the preliminary investigation phase yet and has been postponed to the hearing of 18 September 2007; • in a second lawsuit UniCredit Banca Mobiliare S.p.A. and other two banking intermediaries are involved: a joint and several payment claim in the aggregate amount of €1.861,8 million has been filed for damages caused by having first promoted and then participated in the renewal of a programme (i.e. Debt Issuance Programme) for the issuance on the Euromarket of medium-term bonds through which, between the second half of 2001 and the end of 2003, bonds for the total nominal amount of €1,870 million were issued (the above, however, in no way detracting from the concurring liability of the other intermediaries – not summoned – who subscribed the bonds issued through the Programme as “relevant dealers”), as well as for damages caused by their activities as “co-lead managers” on another issuance (external to the Programme) in 2002 in the nominal amount of €306,8 million. During the hearing held on 24 October 2006 the so called “Assuntore” entered the lawsuit. The lawsuit is not in the preliminary investigation phase yet and has been postponed to the hearing of 20 November 2007.
Though considering the complexity of both lawsuits, the UniCredit Group – with its legal consultants’ advice – believes it will be able to prove the correctness of its behaviour and the fact that the Group was not aware, nor could have been aware, of the insolvency situation of the Parmalat Group with reference both to moment of the bonds issuance and to the preparation and (then) renewal of the Debt Issuance Programme. Based on that and also considering that no new substantial facts have emerged and that both lawsuits are in a preliminary phase, the Group companies have decided not to make any provision.
• We also point out that in October 2006 the TAR Lazio declared that the petitions (ricorsi) filed by UniCredit S.p.A. and UniCredit Banca Mobiliare S.p.A. asking for the voiding (annullamento) of the ministerial decrees (decreto ministeriale) admitting to the extraordinary administration procedure the Parmalat Group companies having their registered office and operating abroad, could not be received due to the delay in their filing (irricevibili per tardività).
The TAR did not examine the merits of the case nor even did it give a negative evaluation on the reasons on which the illegitimacy of the decrees was founded but, at the same time, stressed that there is the right to “even ask for the disapplication of the decrees” in the civil lawsuits which the banks are part of. Again about the “Parmalat” case, we also point out that: • An action to prevent the diminution of the debtor’s estate by his fraud (“azione revocatoria”) has been filed by Parmalat S.p.A. against UniCredit Banca d’Impresa S.p.A. for a total amount of €611.578.370. By this lawsuit the “procedura” claims all the amounts credited during the year before Parmalat entered the extraordinary administration based on the subjective assumption (“presupposto soggettivo”) that the bank could not not have been aware of the insolvent situation (“stato di decozione”) of the company and also on the fact that the transactions were made on an overdrawn account. The bank has presented its reasons, underlyning, in particular, the inadmissibility and the claim preclusion of the action within the extraordinary administration because of the conflict with art. 87 of the European Treaty: whenever the procedure is not in a liquidating phase it would be a sort of State aid (the Court of Justice has already taken a decision in favour of the banks with reference to the “Legge Prodi” that, due to that, was then amended). The bank therefore requested the remittal of the suit to the European Court of Justice (on the issue the judges have not taken a decision yet).
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As the merits of the case is concerned, the bank has denied the existence of the subjective assumption and has argued that the principle introduced by the amendment of the Italian Insolvency Law on the quantification of the revoked amounts (“massimo scoperto”), strongly reducing the risk of the proceeding, is applicable in this particular case. For the above mentioned lawsuit provisions have been made for a total amount of €23.600.000.
Treuhandanstalt There is pending against Bank Austria Creditanstalt AG a lawsuit related to alleged claims of Treuhandanstalt, the German public body for the new Lander reorganization, the predecessor of the Bundesanstalt für vereinigungsbedingte Sonderaufgaben (“BvS”), against Bank Austria (Schweiz) AG, a former subsidiary of Bank Austria Creditanstalt AG. One of the claims in the proceedings is that the former subsidiary participated in the embezzlement of funds from companies in the former East Germany. BvS seeks damages in the amount of approximately €128 million plus interests. However, Bank Austria Creditanstalt AG believes that the claims are groundless: for that reason there are no provisions.
Divania Srl Divania Srl has filed a legal action against UniCredit Banca d’Impresa (UBI) disputing the transactions in financial derivative instruments (on interest rates and forex) effected between January 2000 and May 2005 by Credito Italiano first and then by UBI (in all 206 contracts were executed). The writ of summons (“atto di citazione”), by which the claimant asks for a judgement declaring the inexistance, or as a subordinated request the avoidance or the discharge of the contracts and the award of payment by the bank of the total amount of €276.564.502 as well as costs and interests maturing afterwards (with reservation to file an independent lawsuit for the recovery of the alleged suffered damages), was filed on 26 March 2007 before the Court of Bari as per the new corporate procedure (“nuovo rito societario”). The bank filed an entry of appearance giving the counterpart a time upon 20 July 2007 for filing its defence briefs. According to UniCredit Banca d’Impresa the claimed amount is absolutely disproportionate in respect of the real risk brought up in the lawsuit; in order to come to its determination there are ongoing verifications since the amount claimed has been determined by making a sum of all the debit entries made, without considering the credit entries which drastically reduce the claimant’s demands. Further, the writ of summons (“atto di citazione”) does not take into consideration the fact that a settlement (executed on 8 June 2005) had been reached referring to the challenged transactions, by which the company declared to have nothing else to claim for any cause with reference to the transactions now disputed. In consideration of the above and due to the fact that the lawsuit is recent, UBI has not made any provisions so far.
Damages request by minority shareholders of Bayerische Hypo- und Vereinsbank AG Eight companies having registered office in the United States, in the Virgin Islands, in the Cayman Islands, in the British West Indies and in Bermuda at the beginning of July 2007 notified Mr. Wolfgang Sprissler, Spokesman of Bayerische Hypo- und Vereinsbank AG (HVB), a writ of summons before the Munich Court (Germany) for damages allegedly suffered as a consequence of some share transfer operations regarding shareholdings or business lines from HVB (after its entry into the UniCredit Group) to other UniCredit Group companies (or viceversa). The defendants in the lawsuit are also UniCredit and its Managing Director that, however, as at the date of the Prospectus (July 16 2007), have not yet received any formal notification to the effect. The plaintiffs state that the fact that the above operations were carried out on the basis of evaluations made by independent advisors does not detract from the defendants’ responsibilities as they ought to
- 16 - have effected said operations by way of competitive auctions, in order to obtain the highest possible price (to take into account the majority award). The plaintiffs ask: • for damages, in the amount of €. 17,35 billion; • for the Munich Court to order UniCredit to pay to HVB, as damages, further amounts as from December 19 2006. The defendants consider the lawsuit completely devoid of grounds, bearing in mind that all the operations taken into consideration by the plaintiffs were effected on payment of consideration considered fair also on the basis of external and independent opinions and evaluations.
H.2) CAPITALIA GROUP - PASSIVE LITIGATIONS IN AMOUNT EQUAL OR HIGHER THAN 100 MILLION EUROS, PENDING AS AT 19 JUNE 2007 Cirio In April 2007, some companies of the Cirio Group under extraordinary administration (“amministrazione straordinaria”) [Cirio Holding S.p.A., Cirio Finanziaria S.p.A. (formerly Cirio S.p.A.), Cirio Del Monte N.V., Cirio Del Monte Italia S.p.A., Cirio Finance Luxembourg S.A., Cirio Holding Luxembourg S.A., Del Monte Finance Luxembourg S.A., Cirio Agricola S.p.A., Cirio Immobiliare S.p.A., Cirio Ricerche S.c.p.a.] also notified Capitalia and Banca di Roma of the proceedings to jointly sue them for damages resulting from their involvement, in the capacity as dealers, in six bond issues by Cirio Group companies during 2000-2002 for a total of EUR 1,125 million. Given that said lawsuit is the same as that brought against UniCredit Banca Mobiliare Spa, please refer to the contents listed under point H.1) “Cirio” above with regard to the basic elements of the case in question. Still with regard to “Cirio”, it must also be noted that: In April 2004, the extraordinary administration of Cirio Finanziaria Spa notified Sergio Cragnotti and various banks including Capitalia and Banca di Roma of the proceedings to obtain a judgement declaring the invalidity of an alleged illegal agreement with Cirio S.p.a., whose purpose was the sale of the dairy company Eurolat to Dalmata S.r.l. (Parmalat). The extraordinary administration subsequently requested that Capitalia and Banca di Roma be jointly sentenced to pay back a sum of approximately EUR 168 million, as well as joint sentencing of all the defendants to pay compensation of damages set at EUR 474 million. The extraordinary administration also requested, in a subordinate manner, the revocation pursuant to Article 2901 of the Italian Civil Code of the deeds of covenant implemented by Cirio Spa and/or repayment by the banks of the sums handed over by Cirio on the basis of the agreement in question, given that they were obtained illegally. During the appearance before the court, some preliminary objections were raised by Capitalia and Banca di Roma’s defence with regard to the vagueness of the subject matter and reason for the suit and with regard to the applicability of corporate procedure (the latter objection was also raised by Cragnotti’s defence). In February 2005, the judge ordered the procedure to be changed and the lawsuit to be cancelled from the register. In March 2005, the extraordinary administration of Cirio Finanziaria sent notice of resumption of the proceedings, restating the same claims, objections and deductions already advanced during the previous lawsuit. The extraordinary administration likewise formulated new preliminary claims and produced additional documentation.
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Following discussion, the lawsuit was suspended during the last hearing of May 28, 2007. As regards said dispute, and given the opinion of the defence counsel, it was not deemed necessary to make any provisions in the balance sheet insofar as the claim, albeit reformulated following resumption of the proceedings, seems unfounded both from a litigation viewpoint and with regard to its general, rather vague, nature.
Parmalat In December 2004, action for revocation pursuant to Article 67, paragraph 2 of the bankruptcy laws, was brought by the extraordinary administration of Parmalat Group against numerous banks including Banca di Roma, Bipop-Carire, MCC and BdS for the sum of approximately EUR 630 million. Said action is aimed at rendering the payments made during the year prior to declaration of the insolvency of Parmalat S.p.A. ineffective when there are the conditions required by Italian bankruptcy laws. In the briefs presented by the various banks, the defence’s arguments rest preliminarily on non- awareness of Parmalat Group’s insolvency. Moreover, objections were raised with regard to the non-referrability of most of the payments in question to the list of payments that can be revoked. Several hearings were held. At present, the lawsuits are still not in the preliminary phase. For said proceedings, at present, given the groundlessness of the claims and the aforementioned pre- preliminary phase, and given the opinion of the defence counsel, the Capitalia Group banks involved, together with Capitalia, have decided not to make any provisions in the balance sheet. With regard to the latter, it should be noted that only the preliminary phase will allow for additional considerations in relation to the defence put forward by the banks with regard to the non-existence of “scientia decotionis” and the actual revocability of the payments given that quantification criteria may be adopted when technical consultancy is provided, which may lead to extremely diverse results. For example, application of the “balance difference” criterion rather than the “available balance” criterion may, in the case of Banca di Roma, lead to the revocability of current account payments for an amount which can vary significantly.
Still with regard to “Parmalat”, it must be noted that: in September 2005, the extraordinary administration of Parmalat SpA notified Banca di Roma of the proceedings to sue for damages in which it asked for the bank to be sentenced: a) for its alleged involvement in the bankruptcy of Parmalat Group taking into account that the worsening of the group’s bankruptcy amounts to EUR 4,299 million as the negative difference between Parmalat’s net equity at December 31, 2003, compared to December 31, 2002, which it is claimed is linked to an EUR 50 million loan granted by Banca di Roma to HIT (tourism company controlled by the Tanzi family); b) to pay EUR 8.5 million for the acquisition of Ciappazzi; c) to pay EUR 258 million or EUR 103 million for the acquisition of Eurolat (depending on the technical report used regarding the fairness of the price); d) for the granting of loans by Banca di Roma upon the submission of cash orders (RI.BA.) issued in relation to totally or partially non-existent credits. On February 10, 2006, Banca di Roma appeared before the court, organising its defence along the following lines:
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1. the legality of bringing lawsuits for damages is the exclusive right of the individual creditors that incurred damages and not the extraordinary administration of Parmalat, given that said legal action is not a “group” action; 2. the bank was not aware of Parmalat’s real financial and equity situation; 3. there is no evidence with regard to the pressure said to have been brought to bear by the bank on the management of Parmalat in order to convince the latter to acquire Azienda Ciappazzi or Eurolat; 4. there is no evidence that the advances on cash orders can be equalled to the disbursement of loans and that the EUR 50 million loan granted to HIT contributed in any way to delaying the collpase of Parmalat Group. At present, the lawsuit is still not in the preliminary phase. The next hearing will be held on October 1, 2007. In order to correctly assess the possibility or not, with regard to the case in question, of making provisions in the balance sheet, it should be noted that, in the absence of a preliminary phase which provides the bank with information regarding the judge’s consideration of the defence, no hypothesis can be advanced with regard to the outcome of the lawsuit which, in any case, is based on claims deemed as groundless in facto and in jure. In consideration of the above, at present and given the opinion of the defence counsel, Banca di Roma, together with Capitalia, has decided not to make any provisions in the balance sheet.
I) RISKS RELATED TO INTEGRATION PROCESS OF RECENTLY ACQUIRED COMPANIES During 2007 UniCredit has negotiated and/or entered into a series of acquisition agreements, among which important acquisitions in Central and Eastern European (CEE) countries. The subsequent integration process has involve and will involve in the future complexity to the Combined Group, particularly where management information and accounting systems differ materially from those used elsewhere in the Combined Group. Despite the management believes to have the required resources to successfully integrate these operations, it is possible that further integration difficulties could arise or that unanticipated problems could be discovered in one or more of the acquired entities. If the Combined Group were to conclude further significant acquisitions in the near future, these risks would be enhanced.
J) RISKS RELATED TO FUTURE EXPANSION OF THE COMBINED GROUP IN CEE An important element of Combined Group’s strategy is represented by the business expansion in CEE. CEE countries have undergone rapid political, economic and social change since the end of the 1980s and this process was accelerated by the accession to the European Union in May 2004 of many of the CEE countries, in which companies of the Combined Group operate. Economic growth of CEE countries might slow down in the coming years, due to the evolution of legal, fiscal and monetary disciplines, of the European Union, which could limit the ability of a country of matching the needs rising in the local economic context. Moreover, delays and disruptions of the accession process of the CEE countries not yet part of the European Union (Croatia and Turkey) might determine negative effects on the economies of those countries and on the Combined Group businesses in such areas. In addition, an increase of the competitive pressure in CEE is expected, considering the expansion in those areas of groups already active in the banking sector or of new competitors.
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K) RISKS RELATED TO EXPOSURE TOWARDS CEE COUNTRIES Although the management believes there are significant growth opportunities and interesting perspectives to reach significant additional margins with limited costs, several risks still exist in connection with the businesses in those countries. While there are occasionally significant differences in the nature of risks in each country, they generally include economic fluctuations, exchange rate and stock markets conditions, as well as, often, a lower development level of political, financial and legislative infrastructures. The materialization of one or more of the mentioned risks might have a negative effect on the financial condition and economic results of the Combined Group. L) INTERNATIONAL EXPOSURE The business operated abroad by UniCredit and Capitalia involves a series of risks and exposures for the Companies and for the future Combined Group as well. Such risks include the difference in terms of legislative systems and political and economic conditions. M) EXCHANGE RATIO RISK A significant amount of the activities of UniCredit and Capitalia is conducted in currencies other than euro, mainly in currencies of the CEE area and in US Dollars. This causes the exposure of the Companies – and in the future of the Combined Group - to exchange risks and currency trading risks. N) INCREASE OF COMPETITIVE PRESSURE Intense competition, particularly in the Italian market, where UniCredit and Capitalia realise a significant part of their activities, could have a negative impact on the economic result and financial condition of the Combined Group. Main business areas in Italy and in the other countries where UniCredit e Capitalia operate are characterized by a high degree of competition. The Companies realize a sizeable portion of their revenues from banking business in Italy, a mature market where competitive pressures have rapidly grown. In case UniCredit and the Combined Group were unable to cope with the competitive environment with interesting products and profitable service offerings, the Combined Group could lose market share in relevant business areas or suffer losses in all or some operating segments. Moreover, an economic recession in Italy could increase the competitive pressure through, e.g., an increase in the pressure on prices and a reduction of business volumes to compete for. O) CHANGES IN THE ITALIAN AND EUROPEAN REGULATOR CONTEXT THAT COULD NEGATIVELY AFFECT UNICREDIT AND COMBINED GROUP’S BUSINESSES UniCredit and Capitalia are – and the Combined Group will be – subject to the extensive regulatory and supervisory activity of Banca d’Italia, Commissione Nazionale per le Società e la Borsa (CONSOB), of the European Central Bank, the European System of Central Banks as well as the banking Supervisory Authorities and markets where the companies of the Combined Group are present. The banking regulation to which the Companies are subject set, among others, the activities that can be pursued by the banks and it is aimed to guarantee the solidity and the solvency of the banking system, limiting its exposure to risk factors. In addition, the Group must comply with the law on financial services that disciplines the marketing and sale practices adopted by banks and financial institutions. Any change in the application of such laws or the implementation of the New Capital Accord (Basel II) on prudential requirements for financial institutions could materially affect the activities and businesses of the Combined Group. As some of the rules affecting the Companies have been only recently adopted, the way these rules are applies are still evolving. The adoption of new rules and regulations, or the implementation or interpretation of such rules, could negatively affect the business, financial condition, cash flows and results of operations of the Combined Group. P) RATING UniCredit currently has ‘‘A+’’ rating from Standard & Poor’s, ‘‘A+’’ from Fitch and ‘‘Aa2’’ from Moody’s. While determining the rating assigned to UniCredit, these agencies have considered and will
- 20 - continue to consider several indicators of the performance of the Combined Group, such as UniCredit’s profitability and its capacity to maintain those capital indicators within certain target levels. Failure by UniCredit and Combined Group to maintain one or more indicators, among which the consolidated capital ratios with the target levels, could determine a downgrade of UniCredit by Standard & Poor’s, Fitch or Moody’s. Any worsening of UniCredit’s or other Combined Group entities’ rating would rise refinancing cost for the Combined Group and could limit the access to financial markets and other liquidity sources, which could determine a negative impact on the business, financial condition and operating results. A credit rating is not a recommendation to buy, hold or sell securities and may be subject to revision, suspension or withdrawal at any time by the relevant rating organisation. Q) RISKS RELATED TO CHANGES IN FISCAL REGULATION AND ITS IMPLEMENTATION Fiscal discipline and its interpretation by the fiscal authorities and courts are subject to constant changes, the effect of which, occasionally, may have retroactive nature. Therefore, potential changes may negatively affect the Combined Group operations. Moreover, in some countries, where the Combined Group will operate, political elections could take place during the current calendar year. The political views in those countries may cause modifications to existing fiscal structures affecting the Combined Group fiscal position. R) UNICREDIT SAVING SHARES HOLDERS ARE ENTITLED TO AN INCREASED DIVIDEND DISTRIBUTION THAT REDUCES THE AMOUNT OF EARNINGS POTENTIALLY DISTRIBUTABLE TO UNICREDIT COMMON SHARES HOLDERS UniCredit Articles of Association provides all saving shares, having face value of € 0.50 (the ‘‘UniCredit Savings Shares’’), are entitled an increased dividend up to 5% of their face value (up to € 0.025 per share), payable on the Incorporating Entity’s net income after the appropriation of profits to statutory reserves. Should an amount of less than 5% of the nominal value of the UniCredit Savings Shares be distributed within a financial year to the holders of such shares, the difference is added to the preferential dividend for the following two years; any net profit available for dividend distribution after allocation of the preferred dividend described above is distributed among all shareholders in such a way that UniCredit Saving Shares holders receive a total dividend higher than the one of the ordinary shares (the “UniCredit Ordinary Shares”) by 3% of share face value. Notwithstanding this requirement as to the preferred dividend to be assigned to the UniCredit Saving Shares, UniCredit Ordinary Shares are entitled to a dividend up to 5% of their nominal value. The remaining net income, should the Shareholders’ Meeting pass a resolution with respect to the distribution thereof, is allocated to all outstanding shares on top of allocations above described. Before the issuance of new UniCredit Ordinary Shares, UniCredit Saving Shares account for approximately 0.2% of total shareholders’ capital of UniCredit. The price of UniCredit Ordinary Shares has been in the past – and it may continue to be in the future – volatile, as a result in part of a high volatility of stock markets in general, of financial institutions stock prices in particular and also for the evolutions that contributed to determine the business, the financial situation and the operating result of UniCredit Group. Further factors that could affect the price of UniCredit Ordinary Shares include, as an example, the Combined Group strategy described in this Document; the investors’ perception about the Merger in general; the status of approvals by Regulatory Authorities to which the merger is conditional; the progress in the integration of the Combined Group’s businesses; a downgrade or rumour about a downgrade of credit ratings of the Combined Group; risk of prosecutions or regulatory suits involving Combined Groups’ entities or any segment towards which Combined Group’s entities are significantly exposed; market expectations about financial institutions performance and capital adequacy in general; investors perception of other institutional institutions performance, as well as the effective performance; communications involving bankruptcy or similar reorganization procedures involving other banks, as well as inquiry procedures about accounting practices, and market volatility in general.
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S) SISKS RELATED TO THE MERGER Unforeseen difficulties related to the Merger might negatively affect Combined Group’s activities, financial situation and operating results. The Merger will determine the integration of two large banking groups previously managed as separate and competing entities. Such a complex integration process will expose the Combined Group, and thus UniCredit’s shareholders, to specific risks, including: UNCERTAINTIES IN SYNERGIES REALISATION. Although UniCredit expects the Merger to produce synergies, the integration of two large banking groups with different businesses and operating structures, each active in broad geographic areas, presents significant managerial challenges. As a consequence, the integration and expected synergies could be reached in times and amounts different from those initially foreseen. COMPLEX HARMONIZATION OF IT SYSTEMS OF UNICREDIT GROUP AND CAPITALIA GROUP. The harmonization of information systems of UniCredit Group and Capitalia Group in order to create an IT architecture consistent with the Combined Group presents specific risks to the Combined Group, being these systems extremely complex. COMPLEX INTEGRATION OF RISK MANAGEMENT SYSTEMS OF UNICREDIT GROUP AND CAPITALIA GROUP. UniCredit Group and Capitalia Group currently use different methodologies to measure and manage risks. The integrations of the risk management systems after the Merger may worsen the risk of a crisis or inadequacy of the risk management systems of the Combined Group, particularly during the early phase of the integration. USE OF MANAGERIAL RESOURCES TO SOLVE INTEGRATIONS PROBLEMS. The integration of UniCredit Group and Capitalia Group will require a significant amount of time and involvement of the management of the Combined Group. In accordance with the level of involvement of the management in the administration of issues related to the integration process, the activities of the Combined Group may be affected in different ways. NEED TO COMMUNICATE EFFECTIVELY TO PARTNERS AND CUSTOMERS. The Combined Group will have to communicate effectively to partners and customers in order to let them understand new products and services offered by the Combined Group and the related points of strength of these products and services. Any ineffective communication may lead to failed exploitation of opportunities and to loss of customers and business. POTENTIAL LOSS OF KEY PEOPLE. The Combined Group will refer to senior management of UniCredit Group and Capitalia Group in order to successfully integrate the two groups, implementing a common strategy. The potential loss of key people from the Combined Group may determine higher difficulties in the completion of the integration within the anticipated timeline and in taking advantage of the respective points of strength of the UniCredit Group and Capitalia Group. FISCAL IMPLICATIONS. According to the current national fiscal policy, the Merger is fiscally neutral and, therefore, mostly unable to determine the rise of taxable earnings for UniCredit or Capitalia. Nevertheless, balance sheet items acquired or entered by UniCredit as consequence of the Merger will maintain the same fiscal value they had in Capitalia. Such circumstance could determine a misalignment between accounting and fiscal valuation of some balance sheet items of UniCredit with possible occurrence of effective costs in terms of direct taxes exceeding those estimated considering reported figures.
THE PROCESS OF APPROVAL OF THE ANNOUNCED MERGER BY THE REGULATORY AND BANKING MARKET SUPERVISORY AUTHORITIES IS STILL OUTSTANDING. At the date of this Information Document (17 July 2007), the announced Merger between UniCredit and Capitalia is still subject to approval by the Italian Antitrust Authority. The Merger approval may be conditional to certain provisions, such as the sale of some branches or of shareholdings in other banks. Compliance with such provisions could negatively affect the Combined Group’s ability to realize the expected synergies in certain markets/segments.
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In addition, the Merger must be submitted to the Antitrust Autority in Turky and USA as well as to the competent Supervisory Authorities in Turky and Singapore.
NOTE ON ESTIMATES AND FORECASTS The Information Document contains estimates and forecasts related to the business, financial performance, results of operations and the related risk factors of UniCredit, UniCredit Group and the Combined Group, and to business lines through which UniCredit, UniCredit Group and the Combined Group operate or, potentially, will operate after the Merger completion. These estimates and forecasts concern future events, results and other elements other than historical facts, and can be identified with expressions such as “it is deemed”, “it is forecast”, “it is meant”, “it is projected”, “it is planned”, “it is estimated”, “it is expected”, “it is anticipated”, “we aim to”, “it is foreseen that” and other similar expressions. These statements reflect only the Companies’ expectations with respect to future events and are therefore subject to risks and uncertainties. In the Information Document, estimated and forecasts are present in particular in the sections “Disclaimer – Risk factors”, “Determination of the value of UniCredit and Capitalia and the Exchange Ratio”, “Impact of the Merger on the Shareholding Structure of UniCredit”, “Rationale and main elements of the Transaction”, “Significant effects of the Merger”, “Prospects of UniCredit and its Group”, as well as in statements regarding: (i) the implementation of the strategy of the Combined Group in particular as to the assumptions and the forecasts underlying this strategy; (ii) implementation of integration plans of the two Groups; (iii) the development of significant effects in connection with the financial conditions and results of Combined Group’s operations; (iv) Company’s forecasts about the impact of economic, operational, legal and of other nature risks that affect the Combined Group’s operations, particularly regarding risks pertaining: a) interest rates and stock prices changes; b) functioning of complex information systems; c) risk management strategies and techniques; and d) legal uncertainties regarding problems of fiscal and other nature; and (v) every other statement regarding the future development of the Combined Group’s activities and economic results and, in general, forecasts of economic and development trends. These estimates and forecasts are based on Consensus data – i.e. on average of forecasts published by third parties/external companies, for which UniCredit is not aware of the assumptions used – and on the estimates of the expected synergies calculated by the Companies that, although currently considered reasonable by the Companies, may prove wrong in the future. Several factors may cause differences in the actual development, in the results or in the performance of the Combined Group with respect to what explicitly or implicitly expressed in terms of estimates and forecasts. Those factors include: - changes in the economic, business or legal conditions in general; - changes and volatility in the interest rates and stock prices; - changes in the government policies and regulation; - changes in the competitive scenario of UniCredit and/or the Combined Group; - the success of acquisitions (particularly of banks and loan portfolios), mergers and strategic alliances realized by the Combined Group;
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- the ability of the Combined Group to realize cost and revenue synergies and to improve productivity; - other factors that are treated in detail in the section “Disclaimer – Risk factors”; and - factors that are currently unknown to the Companies. The actual event of one or more risks or the incorrectness of the underlying assumptions elaborated by the Companies could determine substantially different results with respect to those described in the estimates and forecasts contained in the Information Document. As a consequence, UniCredit and/or the Combined Group may not be able to reach the stated strategic/industrial targets. Companies do not intend to and will endorse no obligation, such as the updating of Consensus estimates and of synergies forecasts and/or of any other information related to the sector or clients contained in the Information Document, other than those required by Law.
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2. INFORMATION
2.1 BRIEF DESCRIPTION OF THE TERMS AND CONDITIONS OF THE MERGER
2.1.1 The Merger Entities
INCORPORATING ENTITY UniCredito Italiano S.p.A.
LEGAL FORM AND DATA OF THE COMPANY
• Registered Office in Genoa, Via Dante 1;
• Head Office in Milan, Piazza Cordusio;
• Fiscal Code and registration number with the Company Register of Genoa: 00348170101;
• Company registered in the Register of Banking Groups and Parent Company of the UniCredito Italiano Banking Group with code 3135.1;
• Company member of the Interbank Fund for Deposit Protection.
CORPORATE PURPOSE The purpose of the Incorporating Company is to engage in deposit-taking and lending in its various forms, in Italy and abroad, operating wherever in accordance with applicable law and practice. It may execute, while complying with prevailing legal requirements, all permitted transactions and services of a banking and financial nature. In order to achieve its corporate purpose as efficiently as possible, the Bank may engage in any activity that is instrumental or in any case related to the above. The Incorporating Company, in compliance with current legal provisions, may issue bonds and acquire shareholdings in Italy and abroad. The Incorporating Company, in its role of parent to the Banking Group UniCredito Italiano, pursuant to the provisions of article 61 of Legislative Decree no. 385 dated 1 September 1993, issues – in undertaking its management and co-ordination activities – instructions to other companies of the Group in respect of the fulfilment of requirements laid down by the Bank of Italy in the interest of the Group’s stability.
SHARE CAPITAL At the date of preparation of the Information Document the share capital of the Incorporating Company fully-paid in, amounts to euro 5,222,465,096.50 divided into 10,444,930,193 shares with a par value of 0.50 euro each, of which 10,423,223,641 are ordinary shares and 21,706,552 savings shares; during the Merger procedure, and before the effective date of the Merger, the share capital may vary, should the Board of Directors exercise the authority - granted to it by the Extraordinary Shareholders’ Meeting of UniCredit dated 10 May 2007 pursuant to article 2443 of the Italian Civil Code - to increase the share capital for the purpose of possible acquisitions. The Extraordinary Shareholders’ Meeting of UniCredit dated 12 May 2006 also granted to the Board of Directors, in accordance with article 2443 of Italian Civil Code, the power to resolve on
- 25 - one or more tranches for a maximum period of five years starting from the date of the above shareholders' resolution, to carry out a free capital increase, pursuant to article 2349 of the Italian Civil Code, for a maximum nominal amount of euro 6,500,000.00 corresponding to up to 13,000,000 ordinary shares of par value of euro 0,50 each to be granted to the Management of UniCredit, of the Banks and of the Companies that belong to UniCredit Group. The Board of Directors of the Incorporating Company is also allowed, always pursuant to article 2443 of Italian Civil Code, to resolve, in one or more tranches and for a maximum period of five years starting from the shareholders' resolution dated 10 May 2007, upon a free capital increase pursuant to article 2349 of Italian Civil Code, for a maximum nominal amount of euro 5,500,000.00 corresponding to up to 11,000,000.00 ordinary shares of par value of euro 0,50 each, to be granted to the Management of UniCredit, of the Banks and of the Companies that belong to UniCredit Group. Based on the powers received from the Extraordinary Shareholders’ Meeting dated 2 May 2000, the Board of Directors of UniCredit, in accordance with article 2443 of Italian Civil Code, granted to the Executive Staff of UniCredit, of other Banks and Companies of the UniCredit Group identified by the Board of Directors, on 23 May 2000 no. 18,635,000.00 option rights to be exercised up to 2009 at a unit price of euro 4,53 and on 28 March 2001 no. 31,365,000 option rights to be exercised up to 2009 at a unit price of euro 4,99. Based on the powers received from the Extraordinary Shareholders’ Meeting dated 6 May 2002, the Board of Directors of UniCredit issued no. 35,000,000.00 option rights granted to the Executive Staff of UniCredit, of other Banks and Companies of UniCredit Group identified by the Board of Directors, to be exercised up to 2011 at a unit price of euro 4,263. Based on the powers received from the Extraordinary Shareholders’ Meeting dated 6 May 2002, the Board of Directors of UniCredit further issued no. 585,899 “Option Rights UniCredito Italiano S.p.A. 2001 – 2010 – Ex Option Rights Rolo Banca 1473 S.p.A. 2001-– 2005” and no. 738,667 “Option Rights UniCredito Italiano S.p.A. 2002 – 2010 – Ex Option Rights Rolo Banca 1473 S.p.A. 2002-2005” issued and allotted to replace the same number of option rights granted to the members of the Executive Staff of Rolo Banca 1473 S.p.A. Based on the powers received from the Extraordinary Shareholders’ Meeting dated 4 May 2004, the Board of Directors of UniCredit then issued: - on 22 July 2004 no. 14,568,700 option rights to be exercised from 2008 to 2017 at a unit price of euro 4,018; - on 18 November 2005 no. 41,630,000.00 option rights to be exercised from 2009 to 2018 at a unit price of euro 4,817; - on 15 December 2005 no. 1,500,000 option rights to be exercised from 2009 to 2018 at a unit price of euro 5,301, to be granted to the Executive Staff of UniCredit, of the Banks and of other Companies of the Group who hold positions considered highly relevant for the attainment of the overall Group targets. Based on the powers received from the Extraordinary Shareholders’ Meeting dated 10 May 2007, on 12 June 2007 the Board of Directors of UniCredit issued no. 29,809,423 option rights to be exercised from 2011 to 2017 at a unit price of euro 7,094, to be granted to the Executive Staff of UniCredit, as well as of the other Banks and Companies of the Group, who hold positions considered highly relevant for the attainment of the overall Group targets. During the same meeting, the Board of Directors of UniCredit undertook to issue free of charge no. 8.205.268 UniCredit ordinary shares (performance share) in one tranche in the year following the relevant three-year period (2008/2010), provided that the performance goals, both of the Group and of
- 26 - each business line, outlined in the strategic plan as approved and amended by the Board of Directors of UniCredit, are met, as verified at the end of the relative three-years period. The ordinary shares and savings shares of UniCredit, representing its entire capital, are listed on the Milan Stock Exchange organised and managed by Borsa Italiana S.p.A. The ordinary shares of UniCredit are also listed with the Frankfurt Stock Exchange.
CORPORATE BODIES BOARD OF DIRECTORS At the date of preparation of the Information Document, the Board of Directors of UniCredit is composed of 23 members, appointed until the Shareholders’ Meeting called to approve the 2008 financial statements. Dieter Rampl* - Chairman Gianfranco Gutty * - Stand-in Chairman Franco Bellei * - Vice Chairman Fabrizio Palenzona * - Vice Chairman Anthony Wyand * - Vice Chairman Alessandro Profumo * - Managing Director Roberto Bertazzoni * Manfred Bischoff Vincenzo Calandra Buonaura Antonio Maria Marocco ** Volker Doppelfeld Giancarlo Garino Francesco Giacomin * Piero Gnudi Friedrich Kadrnoska * Max Dietrich Kley Luigi Maramotti Dieter Münich * Carlo Pesenti Hans Jürgen Schinzler Giovanni Vaccarino Paolo Vagnone * Nikolaus Von Bomhard *
* Member of the Executive Committee ** Appointed by the Board of Directors dated 20 May 2007 in order to replace Mr Giovanni Desiderio, who resigned from his office on 16 May 2007
BOARD OF STATUTORY AUDITORS At the date of preparation of the Information Document, the members of the Board of Statutory Auditors appointed until the approval of the 2009 financial statements are: Giorgio Loli - Chairman Gian Luigi Francardo – Standing Auditor Siegfried Mayr – Standing Auditor Aldo Milanese – Standing Auditor Vincenzo Nicastro – Standing Auditor.
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Massimo Livatino and Giuseppe Verrascina are appointed as Alternate Auditors. Investigation concerning the requirements of honorableness, professionalism and independency of UniCredit’s Directors and Statutory Auditors have been carried out as provided for by applicable law.
ACCOUNTING AUDIT On 10 May 2007 the Shareholders’ Meeting extended the appointment of KPMG S.p.A. for a period of 6 years (i.e. until 2012) for the accounting audit of the company’s financial statements and consolidated financial statements, for assessing the proper account book-keeping and accurate disclosure of operating events in the accounts, in compliance with article 155 of Legislative Decree no. 58 dated 24 February 1998, and for the performance of limited auditing of the half- yearly report, in compliance with the provisions set forth in Consob communication no. 97001574 of 20 February 1997.
* * *
INCORPORATED ENTITY Capitalia S.p.A.
LEGAL FORM AND DATA OF THE COMPANY
• Registered Office in Rome, Via Marco Minghetti 17;
• Fiscal Code and registration number with the Corporate Registry of Rome: 00644990582 and VAT Code: 00919681007;
• Company registered in the National Registry of Banks under no. 5525 and Parent company of the Capitalia Group registered in the National Registry of Banks under no. 3207.8;
• Company member of the National Interbank Deposit Guarantee Fund and the National Guarantee Fund.
CORPORATE PURPOSE The purpose of the Incorporated Company is to raise funds and to grant credit in its various forms. The Incorporated Company may, in compliance with law, carry out any permitted banking and financial business and services, may establish open-end pension funds and manage other forms of supplementary pension funds within the limits of current legislation and may carry out any other business instrumental to or otherwise connected with the achievement of the Company’s purposes. The Incorporated Company may issue bonds in accordance with current law provisions. It may also issue bonds which are convertible into either its own shares or subscription warrants, again in accordance with current law provisions. The Incorporated Company, in the exercise of its supervision and coordination duties as parent company of the Capitalia Group, shall give to the Group’s Companies directions for the application of the Bank of Italy’s instructions in the interest of the stability of the Group.
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SHARE CAPITAL As at the date of drafting of this Information Document (July 17, 2007), the Incorporated Company’s share capital amounts to Euro 3,123,995,610.00, fully-paid in (including 2,850 new shares to be issued within July 18, 2007, in relation to the exercise of warrants which has been communicated to the Incorporated Company on the date of this Information Document), divided in 2,603,329,675 ordinary shares with a par value of Euro 1.20; during the merger procedure, and before the effective date of the merger, the share capital may change as a result of the exercise of the right to subscribe ordinary shares, granted to the employees of Capitalia Group pursuant to the applicable terms and conditions of the stock incentive plans described below. The shares representing the entire Capitalia’s share capital are listed on the Milan Stock Exchange (Mercato Telematico Azionario) organized and managed by Borsa Italiana S.p.A.
CORPORATE BODIES BOARD OF DIRECTORS As at the date of drafting of this Information Document (July 17, 2007), the Board of Directors of Capitalia is composed of nineteen members, whose mandate on Capitalia’s board will expire at the Shareholders’ Meeting to be held for the approval of 2008 annual accounts: Cesare Geronzi – Chairman* Paolo Savona - Deputy Chairman* Paolo Cuccia - Deputy Chairman* Silvio Bianchi Martini Pasquale Cannatelli Carlo Colaiacovo Roberto Colaninno Paolo Fresco Salvatore Mancuso Alfio Marchini Paolo Mariotti Ahmed A. Menesi Ernesto Monti* Massimo Pini* Alberto Rossetti Carlo Saggio Antonio Scala Pierluigi Toti* Walter Vezzosi
* Members of the Executive Committee
BOARD OF STATUTORY AUDITORS As at the date of drafting of this Information Document, the Board of Statutory Auditors of Capitalia is composed of the following Standing Auditors, whose mandate will expire at the Shareholders’ Meeting to be held for the approval of 2009 annual accounts: Umberto Bertini - Chairman Franco Luciano Tutino - Standing Auditor Vasco Giovanni Palombini - Standing Auditor.
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Francesco Colombi, Stefano Ciccioriccio and Marcello Pasquale Maria Mingrone were also appointed as Alternate Auditors. For all the Board’s Members and Auditors of Capitalia, the requirements for honorability, professionalism and independence were certified as required by current law.
ACCOUNTING AUDIT Pursuant to Legislative Decree 58/1998 and Consob regulations (Communication 91001574/97 of 20 February 1998) the Shareholders’ Meeting voted to engage Reconta Ernst & Young S.p.A. to audit the financial statements for the current year and for the consolidated financial statements for 2006 to 2011.
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2.1.2 Procedure, terms and conditions of the Merger
2.1.2.1 PROCEDURE, TERMS AND CONDITIONS OF THE MERGER
Brief description of the corporate steps The Merger will be carried out by way of incorporation of Capitalia into UniCredit pursuant to articles 2501 and following of the Italian Civil Code. As a result of the same, at the effective date of the Merger the Incorporated Company will estinguish and all Capitalia’s assets, rights and obligations will be transferred to UniCredit. Pursuant to article 57, last paragraph, of the Legislative Decree no. 385 dated 1° September 1993 (the “TUB”), charges and guarantees of whatever kind, by whomever granted or however existing in favour of the Incorporated Company, shall maintain their validity and their priority, without the need for any formality or recording, in favour of the Incorporating Company. The Merger Plan, prepared in accordance with article 2501-ter of the Italian Civil Code, has been approved by UniCredit and Capitalia Boards of Directors on 20 May 2007 – together with the Explanatory Reports of the Boards of Directors prepared pursuant to article 2501-quinquies of the Italian Civil Code – and will be submitted to the approval of UniCredit’s Shareholders’ Meeting, convened for 28, 29 and 30 July 2007 (in first, second and third call, respectively), and of Capitalia’s Shareholders’ Meeting, convened for 28 and 30 July (in first and second call respectively). Since it involves banks, the Merger has been authorized by the Bank of Italy with measure no. 637424 dated 26 June 2007. Pursuant to article 2501-ter of the Italian Civil Code on 26 June 2007 the Merger Plan has been registered with the Companies’ Register of Rome and on 27 June 2007 with the Companies’ Register of Genoa. In addiction, the transfer of the shareholdings in supervised companies has been notified to the competent Authorities as well the procedures before the competent anti-trust Authorities have been initiated. It is provided that the Merger will become effective at the beginning of the last quarter of the year 2007.
Capital increases instrumental to the Merger Further to the Merger, the Incorporating Company – on the basis of the Exchange Ratio determined as illustrated in paragraph 2.1.2.2. below – will proceed to the issuance of maximum 2.947.094.176 ordinary shares with a par value of euro 0,50 each to be allocated in exchange for the outstanding Capitalia’s ordinary shares as of the effective date of the Merger; elapsed such term the share capital will be deemed increased of an amount equal to the par value of the shares issued as a consequence of the aforesaid exchange.
Effects of the merger on the incentive plans adopted by Capitalia The Incorporated Company has resolved upon some capital increases connected to various incentive plans; with regard to such plans, at the date of July 14, 2007 (last available data as at the date of the drafting of the Information Document July 17, 2007), the following warrants result existing and exercisable: • n° 3,738,950 warrants granting the right to subscribe ordinary shares Capitalia, assigned free of charge to Capitalia Group’s employees in execution of a share capital increase resolution adopted on 16th May 2002 of up to a maximum nominal amount of Euro 20,000,000 to be effected through the issue of up to a maximum 20,000,000 ordinary share
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and of a resolution adopted on 19th April 2007 in order to change the residual maximum nominal amount of the capital increase to Euro 5,468,460 to service the possible subscription of 4,557,050 shares (“Employees Warrants A”); • n° 16,811,750 warrants granting the right to subscribe ordinary shares Capitalia, assigned free of charge to Capitalia Group’s employees in execution of a share capital increase resolution adopted on 4th April 2005 of up to a maximum nominal amount of Euro 22,000,000 to be effected through the issue of up to a maximum 22,000,000 ordinary share and of a resolution adopted on 19th April 2007 in order to change the residual maximum nominal amount of the capital increase to Euro 25,518,000 to service the possible subscription of 21,265,000 shares (“Employees Warrants B”); • n° 338,475 warrants – formerly assigned to Fineco Group’s employees and FinecoBank’s network of private bankers - granting the right to subscribe ordinary shares Capitalia pursuant to the exchange ratio established for Fineco’s shareholders under the merger into Capitalia, in execution of a share capital increase resolution adopted on 28th November 2005 of up to a maximum nominal amount of Euro 3,466,650 to be effected through the issue of up to a maximum 3,466,650 ordinary share and of a resolution adopted on 19th April 2007 in order to change the residual maximum nominal amount of the capital increase to Euro 1,823,970 to service the possible subscription of 1,519,975 shares (“Fineco Warrants A”); • n° 7,115,235 warrants – formerly assigned to Fineco Group’s employees and FinecoBank’s network of private bankers - granting the right to subscribe ordinary shares Capitalia pursuant to the exchange ratio established for Fineco’s shareholders under the merger into Capitalia, in execution of a share capital increase resolution adopted on 28th November 2005 of up to a maximum nominal amount of Euro 10,543,334 to be effected through the issue of up to a maximum 10,543,334 ordinary share and of a resolution adopted on 19th April 2007 in order to change the residual maximum nominal amount of the capital increase to Euro 12,652,000,80 to service the possible subscription of 10,543,334 shares (“Fineco Warrants B”); • n° 425.000 warrants assigned in favour of the managing directors of the Capitalia Group’s companies who have not an employment relationship with such companies; each warrant grants the right to purchase one ordinary Capitalia share, by way of transferring own shares held by Capitalia itself (“MD Warrants 2005”).
Whereas between the date of approval of this Merger Plan and the effective date of the Merger any of the warrants “Warrants Employees A”, “Warrants Employees B”, “Warrants Fineco A”, and “Warrants Fineco B” may be exercised, the warrants which as at the effective date of the Merger, will be existing and outstanding will be cancelled and replaced with an equal number of subscription rights: (i) “Subscription Rights UniCredit S.p.A. 2007-2008 - Former Warrants Capitalia 2002”; (ii) “Subscription Rights UniCredit S.p.A. 2007-2011 - Former Warrants Capitalia 2005”; (iii) “Subscription Rights UniCredit S.p.A. 2007-2009 - Former Warrants FinecoGroup 2003”; (iv)“Subscription Rights UniCredit S.p.A. 2007-2011 - Former Warrants FinecoGroup 2005”. Each of such rights will entitle to the subscription of newly issued ordinary shares of UniCredit on the basis of the exchange ratio, pursuant to the terms and conditions set forth in the respective regulations. The rights relating to the Warrants MD 2005 outstanding as at the effective date of the Merger will be cancelled and replaced by an equal number of purchase rights “Option Rights UniCredit S.p.A. 2007-20011 – Former Warrants Capitalia 2005 MD” which will grant the right to purchase ordinary UniCredit shares held by UniCredit as own shares, on the basis of the Exchange Ratio.
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Amendments to the Articles of Association of the Incorporating Company As a consequence of the above, the extraordinary shareholders’ meeting of UniCredit will be asked to resolve upon the following capital increases simultaneously with the approval of this Merger Plan: a) a separable capital increase of UniCredit up to the maximum nominal amount of Euro 1,473,547,088 through the issuance of maximum 2,947,094,176 ordinary shares with nominal value equal to Euro 0.50 each, serving the exchange of the ordinary shares of Capitalia outstanding (excluding the treasury shares) as at the effective date of the Merger; b) a separable capital increase, with exclusion of the option right in accordance with article 2441, paragraph 8, of the Italian Civil Code of up to the maximum nominal amount of Euro 2,205,812, to be executed through the issue of maximum 4,411,624 ordinary shares having a nominal value of Euro 0.50 each, to service the exercise of the “Subscription Rights UniCredit S.p.A. 2007-2008 – Former Warrants Capitalia 2002” granted in replacement of an equal number of Warrants Employees A previously granted, free of charge, to the employees of Capitalia Group and outstanding on the effective date of the Merger. Such subscription rights may be exercised, as for no. 118,950 , at a price equal to Euro 1.214 and, as for no. 3,820,000 at a price equal to Euro 2.4743 for each newly issued share and the share capital increase shall be completed within 10 October 2008; following the latter date the share capital shall be deemed to have been increased by an amount equal to the subscriptions received within such date; c) a separable capital increase, with exclusion of the option right in accordance with article 2441, paragraph 8, of the Italian Civil Code of up to a maximum nominal amount of Euro 9,940,980, to be executed through the issue of maximum 19,881,960 ordinary shares having a nominal value of Euro 0.50 each, to service the exercise of the “Subscription Rights UniCredit S.p.A. 2007-2011 – Former Warrants Capitalia 2005” granted in replacement of an equal number of Warrants Employees B previously granted, free of charge, to the employees of Capitalia Group and outstanding on the effective date of the Merger. Each of such subscription rights may be exercised at a price equal to Euro 4.1599 and the share capital increase shall be completed within 31 December 2011; following the latter date the share capital shall be deemed to have been increased by an amount equal to the subscriptions received within such date; d) a separable capital increase, with exclusion of the option right in accordance with article 2441, paragraph 8, of the Italian Civil Code of up to a maximum nominal amount of Euro 261,436, to be executed through the issue of maximum 522,872 ordinary shares having a nominal value of Euro 0.50 each, to service the exercise of the “Subscription Rights UniCredit S.p.A. 2007-2009 – Former Warrants Fineco Group 2003” granted in replacement of an equal number of Warrants Fineco A previously granted, free of charge, to the employees of Fineco Group and the financial promoters network of the FinecoBank and outstanding on the effective date of the Merger. Each of such subscription rights may be exercised at a price equal to Euro 4.24 and the share capital increase shall be completed within 31 December 2009; following the latter date the share capital shall be deemed to have been increased by an amount equal to the subscriptions received within such date; e) a separable capital increase, with exclusion of the option right in accordance with article 2441, paragraph 8, of the Italian Civil Code of up to the maximum nominal amount of Euro 5,322,800, to be executed through the issue of maximum 10,645,600 ordinary shares having a nominal value of Euro 0.50 each, to service the exercise of the “Subscription Rights UniCredit S.p.A. 2007-2011 – Former Warrants FinecoGroup 2005” granted in replacement of an equal number of Warrants Fineco B previously granted, free of charge, to the employees of Fineco Group and the financial promoters network of the FinecoBank and outstanding on the effective date of the Merger. Each of such subscription rights may be exercised at a
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price equal to Euro 3.9348 and the share capital increase shall be completed within 31 December 2011, following the latter date the share capital shall be deemed to have been increased by an amount equal to the subscriptions received within such date. Therefore, in the same shareholder’s meeting which shall resolve upon the Merger envisaged by this Merger Plan and upon the above mentioned capital increases, the extraordinary shareholders meeting of UniCredit shall resolve upon the consequential amendments of articles 5 and 6 of the company’s Articles of Association. In relation to the Merger, article 2 of the company’s current Articles of Association shall be amended to reflect the transfer of the registered office to Rome, Via Minghetti 17. Lastly, according to the corporate governace agreements, to the Extraordinary Shareholders’ Meeting will also be submitted the proposal to amend articles 27, 28 and 32 of the Articles of Association, in order to state explicitly that the Chairman of the Executive Committee may be a person other than the Chairman of the Board of Directors. The amendments to articles 2, 5 and 6 of the Articles of Association shall take effect from the effective date of the Merger; the amendments to articles 27, 28 and 32 of the Incorporating Company’s Articles of Association shall take effect from the date of registration of the shareholders’ resolution with the competent Company Register.
2.1.2.2 DETERMINATION OF THE VALUE OF UNICREDIT AND CAPITALIA AND THE EXCHANGE RATIO Valuations of Companies involved in the transaction also considering Auditors’ expert Opinion In order to determinate the exchange ratio, underlying valuations of the companies and the number of share to be issued within the Merger, UniCredit Board of Directors has been advised by Merrill Lynch International while Capitalia’s Board of Directors by Citigroup Global Market Limited, Credit Suisse Securities Limited and Rothschild S.p.A. With respect to the values of the companies involved in the Merger determined by UniCredit and Capitalia Board of Directors shareholders are invited to read the Board of Directors Explanatory Reports attached to this Information Document. In order to understand the criteria and the valuation methods chosen for the determination of the exchange ratio, shareholders are invited to read, in addition to UniCredit and Capitalia Board of Directors’ Explanatory Reports, the following paragraphs. Criteria and valuation methods adopted for the exchange ratio determination Pursuant to the requirements of article 2501-quater of the Italian Civil Code, the reference financial statements -used to determine the exchange ratio – are respectively represented by: - annual accounts of UniCredit as at 31 December 2006, approved with resolution of the Ordinary Shareholders’ Meeting on 10 May 2007; - annual accounts of Capitalia as on 31 December 2006, approved with resolution of the Ordinary Shareholders’ Meeting on 19 April 2007. Pursuant to article 2501-sexies of the Italian Civil Code, an expert opinion on the adequacy of the share exchange ratio has been provided by the auditing firm Pricewaterhouse Coopers S.p.A.: (i) designated by the Courts of Genoa by its instruction dated 29 May 2007 with respect to UniCredit and (ii) designated by the Courts of Rome by its instruction dated 23 May 2007 with respect to Capitalia.
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On 26 June 2007, PricewaterhouseCoopers S.p.A. has provided UniCredit with an expert opinion on the adequacy of the exchange ratio, attached to this Information Document and deposited at UniCredit’s legal seat, pursuant to art. 2501-septies of the Italian Civil Code On 26 June 2007, PricewaterhouseCoopers S.p.A. has provided Capitalia with an expert opinion on the adequacy of the exchange ratio, attached to this Information Document and deposited at Capitalia’s legal seat, pursuant to art. 2501-septies of the Italian Civil Code. The reference date for the valuation is that of the Board of Directors’ Explanatory Reports submitted to UniCredit and Capitalia’s Boards for approval on 20 May 2007, and it is based on the assumptions detailed below. For the purposes of the valuation, it is assumed that both UniCredit and Capitalia – in the period between the latest available balance sheets and the date of the Boards of Directors explanatory reports approved on 20 May 2007 – have not undergone events such that their capital position or economic and financial condition would have been materially affected. For the analyses herein described the following documentation was also used: (i) in respect of Capitalia: ♦ annual accounts as at 31 December 2006 approved by the Ordinary Shareholders’ Meeting held on 19 April 2007; ♦ consolidated annual accounts as at 31 December 2006; ♦ recent financial research reports and analyses on Capitalia published by brokers and research analysts of investment banks (including the Consensus provided by Reuters); ♦ Business Plan of Capitalia Group approved by the Board of Directors of Capitalia on 4 July 2005 and presented to the market in macro-aggregate figures on 5 July 2005. (ii) in respect of UniCredit: ♦ annual accounts as at 31 December 2006, approved by the Ordinary Shareholders’ Meeting held on 10 May 2007; ♦ consolidated annual accounts as at 31 December 2006; ♦ recent financial research reports and analyses on UniCredit published by brokers and research analysts of investment banks (including the Consensus provided by Reuters); ♦ Business Plan of the UniCredit Group approved by the Board of Directors of UniCredit on 1 July 2006 and presented to the market in macro-aggregate figures on 5 July 2006. Other information publicly available at the time of the preparation of the mentioned Board of Directors’ Explanatory Reports was also used, including: ♦ research reports and analysis on companies operating in the banking sector with similar operational characteristics to those of UniCredit and Capitalia; ♦ market price trends over an appropriate period of time obtained from specialist databases. For the purposes of the valuation, Reuters Consensus estimates have been used as forecast on which the valuation methodologies below described have been based, as UniCredit and Capitalia currently available business plans do not reflect an updated representation of the perimeter of activities of the two Groups and are based on limited time horizons non consistent among each other.
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A. Valuation conducted by UniCredit
Limit of the Analysis and Difficulties of the Valuation The valuations determined by UniCredit Board of Directors, with the assistance and advise of Merrill Lynch International acting as financial advisor, should be considered in the light of certain limitations and valuation difficulties which in this case can be summarised as follows: • the analysis was limited to a review of the documentation above mentioned and no due diligence was carried out on Capitalia, and on the criteria used by the Incorporating Entity when preparing this documentation; • we relied on the fact that the documentations previously indicated, provides a true, accurate, up-to-date and complete picture of all risk factors, and that there are no facts or events, prior to or subsequent to the latest reference date of this documentation, that could give rise to third parties' rights, legal disputes or other consequences that would have a material adverse effect on the capital position or economic or financial condition or the valuation of UniCredit and Capitalia (including impairment losses on tangible or intangible assets, securities, derivatives, loans and receivables, or equity investments owned by Capitalia); • the forecast data used for the purposes of valuation, whether in relation to the projections of the two banks or to the integration synergies, are in many respects uncertain of their very nature Valuation Methods Adopted The methods chosen for the valuation of the adequacy of the exchange ratio, while being based on recognised international standards, should not be considered separately, but rather as an inseparable part of a single valuation process. The analysis of the results of each single valuation method on their own and not in light of their complementary relationship with the other criteria would render the whole valuation process meaningless. In light of these observations and bearing in mind the “qualitative” characteristics of the banks and the valuation practice used for similar transactions occurred in Italy and elsewhere, the valuation methods are indicated below and described in greater detail in later sections: Analysis of Market Prices; Market Multiples; Regression Analysis; Dividend Discount Model (“DDM”); Analysis of brokers' target prices as control method only. In determining the range of exchange ratios we also took into account the significant strategic value of the merger for UniCredit shareholders and the synergies created by the transaction, in the competitive context of a rapidly consolidating financial industry. The valuation methods used to account for these matters were: Analysis of comparable transactions; Analysis of value creation. When selecting and using these methods we took into account the advantages and limitations of each one on the basis of the valuation practice in the banking industry, as well as developments in the professional practice.
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Market Price Method The market price method determines the value of the company to be valued on the basis of the capitalisation indicated by prices of shares traded in regulated stock markets. The market price method is considered specifically relevant for the valuation of listed companies where the average volumes traded – as in the case of UniCredit and Capitalia – are meaningful. For the purposes of this method we analysed the performance of the share price of the companies to be valued over 6 months, i.e. a sufficiently long period of time such that short- term fluctuations would be smoothed out. The share prices of UniCredit and Capitalia were considered up to 8 May 2007, i.e. the last date before the beginning of significant market speculation with a marked influence on the performance of the two companies' shares. The range of values for the exchange ratio between the two shares using this method is 0.81 – 1.12 new UniCredit ordinary shares for each Capitalia ordinary share.
Market Multiples Method The market multiples method is based on the analysis of share prices of a sample of comparable banks to those under valuation. The method entails the calculation of a series of ratios or multiples – relating to the chosen sample of comparable companies – of market capitalisation to certain significant parameters (usually expected earnings and expected shareholders’ equity). The average multiples resulting from the calculation are then applied to the results of the companies under valuation in order to obtain the theoretical value attributed to them by the market. For the purposes of this valuation we referred only to the Price to Earnings or P/E multiple for the fiscal years 2007, 2008 and 2009, since the Price to Book Value or P/BV multiple is already considered by regression analysis as described below. The sample of banks considered comparable is made up of companies of similar size and characteristics to those being valued. Each P/E multiple was calculated on the basis of the estimated earnings published by Reuters. For each year of forecast we applied the median value of the sample to the results of UniCredit and Capitalia. The range of exchange ratios produced by this valuation method is 1.04 – 1.17 new UniCredit ordinary shares for each Capitalia ordinary share.
Regression Analysis Method The regression analysis method estimates the value of the economic capital of a bank on the basis of the correlation existing between expected return on equity, i.e. Return on Average Equity or RoAE, and the related premium or discount indicated by market prices over net shareholders’ equity for a sample of comparable banks as indicated by P/BV. From the analysis of these values it is possible to infer a prospective P/BV multiple justified by the expected earnings of the bank under valuation. The sample used for the purposes of this method is the same used for the market multiples method. To calculate the prospective earnings of the comparable banks we used the estimates of earnings and dividend published by Reuters. The regression used on the sample is of linear type as in the following equation: Price / BV = a + (b * expected RoAE)
- 37 - where: “a” is the intercept and “b” is the slope of the regression line The relationship obtained is considered to be highly significant statistically (R2>50% in all cases considered). The range of exchange ratios produced by this valuation method is 1.01 – 1.14 new UniCredit shares for each Capitalia ordinary share.
Dividend Discount Model Method The Dividend Discount Model in its excess capital version assumes that the economic value of a bank is the sum of: • the present value of future cash flows (i.e. dividends) generated in the chosen time horizon and distributable to the shareholders while maintaining a level of regulatory capital that is considered sufficient to make future growth possible, and • the terminal value, calculated on the cash flow (i.e. dividends) of the last year of explicit forecasts, the cost of capital and the perpetual growth rate. We preferred to use the excess capital version of the DDM as opposed to pure DDM (which discounts dividend considered distributable on the basis of the dividend policy of the company), since we believe this version is more suited to a uniform and consistent valuation of banks. This version is also unaffected by the announced or historic dividend policy of the banks under valuation, which could distort the analysis. The excess capital version of the DDM method therefore estimates the value of a bank's economic capital using the following: W = DIVa + Vta whereas: “W” economic value of the bank under valuation; “DIVa” is the present value of future dividend cash flow in an identified time horizon, maintaining a satisfactory level of capitalisation; “Vta” is the present value of the terminal value of the bank. The excess capital version of the DDM method is applied in the following stages: 1. Identification of future cash flows and the reference time frame: for the purposes of valuation we assumed the period 2007-2016 as the explicit time horizon for the determination of cash flows, beyond which the value of the banks was determined by discounting the terminal value taking into account the information and estimates of the Reuters’s Consensus. 2. Determination of the perpetual growth rate and the discount rate: the discount rate corresponds to the rate of return on equity required by investors or shareholders on investments with similar risk characteristics and was calculated on the basis of the Capital Asset Pricing Model, using the following formula: Ke = Rf + (Beta * (Rm – Rf)) whereas:
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“Rf” (risk-free rate) = the rate of return on risk-free investments (in the case under examination, in consideration of the time horizon of the valuation we chose to use the ten- year Euroswap yield of 4.6%); “Rm – Rf” (market premium), i.e. the premium for investor risk in shares as opposed to a risk-free investment. The rate used was 5.5%. “Beta” = correlation factor between the actual yield on shares in comparable companies and the overall yield of the reference market (i.e., the measure of the volatility of the share compared to the market portfolio). For this valuation we used Betas provided by Bloomberg for the set of comparable banks, in a time-frame of two years and paying particular attention to the statistical significance of the parameters chosen. For both UniCredit and Capitalia we took a range between 1.1 and 1.2. 3. Calculation of the Terminal Value: the terminal value is the present value of cash flows theoretically distributable to shareholders in the long term, beyond the explicit forecast period. Terminal value is calculated using the following formula: Terminal Value = Expected 2016 Dividend * (1 + g) / (Ke – g) whereas: “g” = the nominal rate of sustainable long-term growth; “Ke” = the discount rate, i.e. the cost of risk capital, calculated as in the preceding paragraph. The range of exchange ratios produced by this valuation method is 0.80 – 1.06 new UniCredit ordinary shares for each Capitalia ordinary share.
Control Method: Analysis of Brokers' Target Prices The main feature of this method lays in the possibility to identify the attributable value of the banks which the market considers reasonable and expressed in research reports published by brokers and research analysts of investment banks. We considered only research reports published after the announcement of the banks' respective fiscal year 2006 consolidated results. This method – on the basis of which it was identified a range of exchange ratios between 0.82 and 1.00 new UniCredit ordinary shares for each Capitalia ordinary share – was not taken into consideration for the purposes of the determination of the adequacy of the exchange ratio, but solely as a comparative analysis to set against the valuations obtained using the other methods described above.
Analysis of the Maximum Exchange Ratio: Comparable Transactions Method The application of the principle of comparable transactions identifies the value of a company's economic capital in the context of a specific transaction on the basis of the prices paid in similar transactions. These transactions may incorporate recognition of a premium relating to benefits obtainable in terms of realisable synergies arising from the transaction, acquisition of control or dominant influence or significant shareholdings, and the strategic value of the transaction for the parties involved. To estimate this premium – according to the most highly regarded scholarship – it is indispensable to refer to empirical methods. In this case we analysed the premium paid in mergers and acquisitions involving comparable listed companies, estimated by taking the difference between the recorded transaction price and the average share price over a significant period before the announcement of the transaction. It is therefore assumed that the
- 39 - market valuation of the companies prior to the announcement of the transaction indicates their stand-alone value. When applying the comparable transaction method the difficulty of identifying comparable companies in all respects directs attention to those companies that have particularly significant features in common with the companies under valuation, such as their business, their size, the technical and economic characteristics of the transaction under analysis and their geographical location. For the application of this method we considered recent domestic market transactions occurred in the Italian and European banking industry, where the strategic importance for the parties involved, the degree of potential competition in the process and the synergies to be gained justified the payment of a premium. The complexity of these factors is reflected in the wide range of premiums paid. Our analysis indicated premiums in a range of 15% to 30%, estimated by comparing the prices seen in the transactions we examined and the average share prices of the target companies prior to the announcement of the transaction. In the context of the merger between UniCredit and Capitalia, the application of a premium of 15% to 30% to the values determined on the basis of the stand-alone valuation methods produces an exchange ratio of 1.04 – 1.46 new UniCredit ordinary shares for each Capitalia ordinary share.
Analysis of the Maximum Exchange Ratio: Value Creation Method The value creation method is used to identify the maximum premium payable over the economic value of a company involved in a transaction in relation to its strategic value (which is reflected in terms of the creation of value for UniCredit shareholders). In this view the maximum premium payable to the shareholders of Capitalia is correlated with the whole value created for UniCredit shareholders as a consequence of the transaction, which can be estimated by adding the entire net present value of the synergies (net of restructuring costs) to the economic capital of Capitalia, such net present value being the discounted prudentially estimated cash flows arising from the synergies. The range of exchange ratios produced by this method is 1.27 – 1.53 new UniCredit ordinary shares for each Capitalia ordinary share, which should be considered as the maximum exchange ratio payable.
Summary of Results and Determination of the Exchange Ratio On the basis of the remarks and assumptions indicated in the preceding paragraphs, the following table summarises the results of applying the valuation methods indicated above.
Share Exchange Ratio
Valuation Method Minimum Maximum
Stand-Alone Methods (Simple Average) 0,91 1,12 Market Price Analysis 0,81x 1,12x Market Multiples (P/E) 1,04x 1,17x Regression Analysis 1,01x 1,14x
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Dividend Discount Model 0,80x 1,06x Stand-Alone Control Methods Analysis of Analysts' Target Prices 0,82x 1,00x Analysis of Highest Exchange Ratio Comparable Transactions Method 1,04x 1,46 Value Creation Method 1,27x 1,53x
The Board of Directors of UniCredit, in light of the observations given in the preceding paragraphs, the results of the valuation process and bearing in mind also the work done by Merrill Lynch International, has determined the Exchange Ratio as 1.12 UniCredit new ordinary shares for each Capitalia ordinary share. The Exchange Ratio has been set close to the upper range of exchange ratios determined on the basis of the average of the stand-alone methodologies, taking into account the strategic merit and the value creation potential of the transaction. No additional cash payment shall be made.
B. Valuation performed by Capitalia
Analysis limits and valuation difficulties The valuations performed by the Board of Directors of Capitalia, including with the assistance and support of Citigroup Global Market Limited, Credit Suisse Securities Limited and Rothschild S.p.A., must be considered in the light of some limits and valuation difficulties, which can be summarized as follows for the case in question: • given that Capitalia had no business plan drawn up, it was considered suitable to use the consensus of financial brokers as forecasts for both banks: it must be remembered that forecasts, by their very nature, are uncertain and potentially not homogeneous in relative terms; • valuation criteria: the estimates made are affected by the limits and specific characteristics of the valuation methods used, partially offset by the joint analysis of results. • Capitalia and UniCredit jointly agreed not to perform any due diligence.
Valuation Methods Adopted The methods chosen for the valuation of the adequacy of the exchange ratio, while being based on recognized international standards, should not be considered separately, but rather as an inseparable part of a single valuation process. The analysis of the results of each single valuation method on their own and not in light of their complementary relationship with the other criteria would render the whole valuation process meaningless. In light of these observations and bearing in mind the “qualitative” characteristics of the banks and the valuation practice used for similar transactions that have occurred in Italy and elsewhere, the valuation methods are indicated below and described in greater detail in later sections: • Discounted Dividend Model (“DDM”);
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• Market Multiples; • Analysis of Stock Market Prices In addition to the above mentioned methods, the following control methods were chosen: • Analysis of brokers' target prices; • Contribution analysis.
Dividend Discount Model Method The Dividend Discount Model in its excess capital version assumes that the economic value of a bank is the sum of: • the present value of future cash flows generated in the chosen time horizon and distributable to the shareholders while maintaining a level of regulatory capital that is considered sufficient to make future growth possible, and • the terminal value, calculated on the cash flow of the last year of explicit forecasts, the cost of capital and the perpetual growth rate. We preferred to use the excess capital version of the DDM as opposed to pure DDM (which discounts dividend considered distributable on the basis of the dividend policy of the company), since we believe this version is more suited to a uniform and consistent valuation of banks. This version is also unaffected by the announced or historic dividend policy of the banks under valuation, which could distort the analysis. The excess capital version of the DDM method therefore estimates the value of a bank's economic capital using the following: W = DIVa + Vta where: “W” is economic value of the bank under valuation; “DIVa” is the present value of future cash flows distributable to the shareholders in an certain time horizon, while maintaining a satisfactory level of capitalization; “Vta” is the present value of the terminal value of the bank. The excess capital version of the DDM method is applied in the following stages: 1. Identification of future cash flows and the reference time frame: for the purposes of valuation we assumed the period 2007-2009 as the explicit time horizon for the determination of cash flows, which were defined, for the two banks, on the base of the brokers’ consensus. 2. Determination of the perpetual growth rate and the discount rate: the discount rate corresponds to the rate of return on equity required by investors or shareholders on investments with similar risk characteristics and was calculated on the basis of the Capital Asset Pricing Model, using the following formula: Ke = Rf + (Beta * (Rm – Rf)) where: “Rf” (risk-free rate) = the rate of return on risk-free investments, defined as being equal to the ten-year BTP yield; “Rm – Rf” (market premium), i.e. the premium for investor risk in shares as opposed to a risk-free investment.
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“Beta” = correlation factor between the actual yield on shares in comparable companies and the overall yield of the reference market (i.e., the measure of the volatility of the share compared to the market portfolio). 3. Calculation of the Terminal Value: the terminal value is the present value of cash flows theoretically distributable to shareholders in the long term, beyond the explicit forecast period. Terminal value is calculated using the following formula: Terminal Value = Sustainable Dividend / (Ke – g) where: “g” = the nominal rate of sustainable long-term growth; “Ke” = the discount rate, i.e. the cost of risk capital, calculated as in the preceding paragraph.
Market Multiples Method The market multiples method is based on analysis of the stock market prices of a sample of banks that can be compared to the bank subject to valuation. To apply the method, a series of ratios (“multiples”) – referred to the selected sample of comparable banks – are calculated from stock market capitalization and some significant parameters (usually forecast net profit and net equity). The average ratios obtained in this manner are then applied to the results of the company subject to valuation so as to obtain the theoretical value attributed to said company by the market. For the purposes of this valuation, reference was made to (i) the “market capitalization/net equity” ratio (Price to Book Value or P/BV) and to (ii) the “market capitalization/expected net profit” ratio (Price to Earnings or P/E). The multiples considered are ex-dividend, based on the average prices at one month from May 17, 2007. The samples of comparable companies were formulated taking into account the specific characteristics of the two banks: • for Capitalia, average to large size Italian banks with supraregional coverage, not currently involved in M&A transactions, were taken into consideration; • for UniCredit, Italian and European banks with similar levels of operations were taken into consideration.
Analysis of stock market prices The stock market price method calculates the value of the company subject to valuation on the basis of capitalization determined in relation to the share prices traded on regulated stock markets. Specifically, the stock market price method is considered important for the valuation of listed companies in the event of significant average volumes of trading. Therefore, the ratio between the banks’ stock market prices makes it possible to refer to an implicit share swap ratio inferable by the market in relation to the various temporal horizons subject to observation. For Capitalia and Unicredit, it is felt that stock market capitalization is representative of their economic value insofar as (i) the two shares are traded in the Blue Chip segment of Italy’s electronic share market (MTA); and (ii) the shares offer a suitable daily level of liquidity.
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Share prices ex-dividend were taken into account for both banks in order to develop an analysis with homogeneous bases. The analysis of stock market prices was performed with reference to the period prior to May 8, 2007, i.e. the last date before the beginning of significant market speculation with a market influence on the performance of the companies’ shares.
Control method: Analysis of brokers’ target prices The main characteristic of this method is the possibility to identify the fair value attributed to the banks by the market, expressed in studies published by investment bank research analysts. When selecting studies, only those published subsequent to the announcement of the banks’ consolidated annual results for 2006 were taken into consideration. As regards Capitalia, the value that can be attributed to expectations for an M&A transaction was separated from the price shown.
Control method: Contribution analysis The contribution method identifies the relative importance of the companies involved in the merger. Therefore, said method does not express absolute values, but rather the contributions made by each company to the new company resulting from the merger. Specifically, the criterion in question is based on comparison between the banks’ economic-equity-operating dimensions deemed significant prior to the merger. In terms of application, the corresponding value per share was identified for each of the selected dimensions. The figures at December 31, 2006, were the basis of the analysis in question.
Summary of results and calculation of Exchange Ratio Without prejudice to the observations and theories outlined in the paragraphs above, the table below offers a summary of the results obtained from application of the valuation methods described above.
Exchange Ratio
Valuation Method Citigroup Credit Suisse Rothschild Dividend Discount Model [0,86 – 0,95] [0,85 – 0,92] [0,86 – 0,93] Market Multiples [0,83 – 0,97] [0,92 – 1,00] [0,92 – 1,01] Stock market price analysis [0,94 – 1,00] [0,96 – 0,98] [0,96 – 0,98] Reference interval [0,87 – 0,97] [0,91 – 0,97] [0,91 – 0,97]
Control Method Analysis of brokers’ target prices [0,77 – 1,01] [0,77 – 1,01] [0,77 – 1,01] Contribution analysis [0,67 – 1,02] [0,67 – 1,02] [0,67 – 1,02]
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In light of the observations contained in the paragraphs above, and taking into account the work of financial consultants, the Board of Directors of Capitalia calculated the Exchange Ratio at 1.12 new UniCredit ordinary shares for one Capitalia ordinary share. The Exchange Ratio includes a premium in relation to the reference interval set by Financial consultants at between 15.5% and 28.7%. The existence of said premium (”Control Premium”) is considered appropriate given the difference in size between Capitalia and UniCredit and the proposed governance set-up for the resulting group which implies transfer of control of Capitalia to UniCredit. The Control Premium is in line with the premiums acknowledged in recent amicable public share purchase offers involving the European banking market, which range between 14.3% and 18.2%. No cash settlements are planned.
2.1.2.3 CRITERIA OF ALLOCATION OF THE SHARES OF UNICREDIT AND ENJOYMENT
Subject to the completion of the merger transaction, UniCredit, Incorporating Company, will:
• cancel, without consideration, all own ordinary shares held by Capitalia, pursuant to art. 2504-ter of the Italian Civil Code; • cancel all the residual Capitalia’s ordinary shares by issuing and allocating to the holders of Capitalia’s ordinary shares (different from Capitalia) issued before the effective date of the merger, such number of ordinary shares of UniCredit calculated in accordance with the exchange ratio determined as above described; • allocate, in exchange for the Employees Warrants A, the Employees Warrants B, the Fineco Warrants A and the Fineco Warrants B that, at the effective date of the merger, result not to have been exercised, and that will be cancelled, an equal number of subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2008 – Ex Capitalia Warrants 2002”, “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia Warrants 2005”, “Subscription Rights UniCredit S.p.A. 2007 - 2009 – Ex FinecoGroup Warrants 2003” and “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex FinecoGroup Warrants 2005” each of which, on the basis of the exchange ratio determined as above described, will entitle to the subscription of newly issued ordinary shares of UniCredit; • allocate, in exchange for the “MD Warrants 2005” that, at the effective date of the merger, result not to have been exercised, and that will be cancelled, an equal number of option rights “Option Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia MD Warrants 2005” which will entitle to purchase ordinary shares of UniCredit held by UniCredit itself as own shares, on the basis of the exchange ratio determined as above described. UniCredit does not hold ordinary shares of Capitalia; for the shares that may be held by subsidiary companies of the Incorporating Company, the provisions of article 2357-bis of the Italian Civil Code will apply. At the time of the allocation, the UniCredit’s ordinary shares offered in exchanged for Capitalia’s shares will be listed on the Milan Stock Exchange at the same price of the existing shares. The new shares of UniCredit will have regular enjoyment. The ordinary shares of UniCredit, Incorporating Company, issued to service the exchange for the shares of Capitalia, Incorporated Company, will be provided to shareholders of the latter as de-materialized securities deposited with Monte Titoli S.p.A. starting from the first working day following the effective date of the merger, in compliance with the procedure which will be
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made public by UniCredit by way of publication of an ad-hoc notice on at least one newspaper distributed nationwide, as set forth by legislation in force. An equal number of own ordinary shares held by UniCredit will be allocated to service the “Option Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia MD Warrants 2005”; for this purpose the Extraordinary Shareholders’ Meeting will also be called to modify the allocation of the aforesaid shares resolved by the Shareholders’ Meeting of 16 December 2005. No expenses will be charged to the shareholders in relation to the exchange operations. For the purpose of ensuring entire exchange ratios, if necessary, an authorized company will be instructed to negotiate, at market prices, the residuals, without expenses, charges or commissions, for the purpose of reaching the minimum exchange ratio.
2.1.2.4 DATE FROM WHICH THE TRANSACTIONS CARRIED OUT BY THE COMPANIES INVOLVED IN THE MERGER SHALL BE ACCOUNTED, ALSO FOR TAX PURPOSES, TO THE FINANCIAL STATEMENTS OF THE INCORPORATING COMPANY AND OF THE COMPANY RESULTING FROM THE MERGER The merger deed will set the date from which the merger will take legal effect vis-à-vis third parties, which may also be later than the date of the last registration effected pursuant to article 2504-bis of the Italian Civil Code. The transactions carried out by Capitalia will be booked to the financial statements of UniCredit from the date that the merger takes effect for legal purposes. The merger will also take effect for tax purposes from the same date.
2.1.2.5 ACCOUNTING AND TAX ASPECTS OF THE MERGER
Accounting aspects Capitalia and UniCredit have both prepared IFRS-compliant consolidated financial statements from 2005. The consolidated and separate financial statements of the listed parent companies have been prepared according to IFRS from the year ended 31 December 2006. The merger will therefore be accounted for in both the separate and the consolidated financial statements of UniCredit, the merging company, with reference not only to the rules of Italian law, but also to IFRS 3 on business combinations. Even though the combination of Capitalia and UniCredit has been conceived as a merger, IFRS require that an acquirer be identified for all combinations. Under IFRS 3, a merger is considered an acquisition to the extent that it involves a transfer of control of the merged entity. The acquirer is identified by IFRS as the entity that obtains control, which is understood as being the power to determine the financial and operational policies of an entity in order to obtain benefits from its activities. To this end, the main indicators of this power, in the specific case of a merger, are (i) the number of new ordinary voting shares issued compared with the total number of ordinary voting shares that make up the share capital of the merging company after the merger, (ii) the fair value of the entities taking part in the merger, (iii) the composition of the new corporate bodies of the merging company, and (iv) the entity that issues the new shares. As regards the merger between Capitalia and UniCredit, based on the accounting standards mentioned above, UniCredit is considered the acquirer from an accounting/financial reporting point of view.
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The method of accounting to be used for acquisitions according to IFRS 3 is the purchase method, under which the operation has to be accounted for on the basis of the fair values of the acquired entity's identifiable assets, liabilities and contingent liabilities. IFRS 3 requires the cost of a business combination to be determined as the sum of the fair values at the date of the exchange: (i) of the assets transferred, (ii) of the liabilities taken on, and (iii) of the equity instruments issued by the acquirer in exchange for control of the acquired entity. To this value then have to be added (iv) the costs directly attributable to the combination. Therefore, in the case of the combination between Capitalia and UniCredit, the cost of the acquisition will be represented by the fair value at the date of the acquisition of the shares that the merging company, UniCredit, will issue in exchange for the shares of the merged company, Capitalia. Given that these are listed shares, the fair value of the UniCredit stock will be represented by the stock market price on the date of the acquisition. To this value have to be added the costs of the operation (professional fees paid to auditors, legal and financial consultants, expert appraisers and other consultants involved in the combination). The cost of the combination has to be allocated to the assets, liabilities and contingent liabilities of the merged company. A balance sheet therefore has to be prepared at the date of the acquisition, measuring the assets, liabilities and contingent liabilities of the merged company at fair value. The residual difference between the fair value of the shares issued, plus the costs of the operation and the values allocated to the assets and liabilities that already appear on the consolidated balance sheet of the merged company, can be allocated to any intangible assets and contingent liabilities that did not appear in the balance sheet of the merged company. Any balance left after this allocation has to be booked as goodwill. It should also be noted that IFRS 3 permits provisional determination of the fair values of the assets, liabilities and contingent liabilities of the acquired entity and therefore provisional allocation of the merger difference. However, the acquirer has to book any adjustments to the provisional figures and complete the initial accounting within twelve months of the date of acquisition and with effect from that same date. To facilitate the steps that have to be taken by the companies taking part in a merger, the statutory rules (art. 2504-bis, paragraph. 3 of the Italian Civil Code) allow the merger to run for accounting purposes from a date prior to the one on which the merger effectively takes effect for legal purposes. Under this rule, and until IFRS were adopted, it was normal to have mergers take effect for accounting purposes from 1 January of the year in which the operation was completed, to avoid having to prepare a separate set of financial statements for the merged company. The same approach was taken for tax purposes. Under the new international accounting standards, this approach is no longer applicable as the figures of the merged company have to be acquired by the merging company on the date on which control is transferred. The date that control is acquired is the date on which the acquirer effectively obtains control over the acquired company and is the date on which its balance sheet figures get written into the books of the acquirer for the first time. When the acquisition gets carried out with a single exchange of shares, the date of the exchange coincides with the acquisition date.
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Under IAS 27, control over a company is presumed when one has a majority of the voting rights or a majority of the directors, or the power to decide the financial and operating policies, or the power to appoint a majority of the directors. Therefore, as regards the provisions of art. 2501-ter, paragraph. 1, n° .6 of the Italian Civil Code, the transactions carried out by the company being merged will be booked to the accounts of the merging company, UniCredit, from the date of the acquisition.
Tax aspects Since the merger’s accounting effects cannot be retroacted to January 1, 2007, the companies taking part to the merger shall not even exercise such retroaction for tax purposes as provided forth by art. 172, ninth paragraph, of the Italian Income Tax Code (“TUIR”). Therefore, the merger shall have tax effects starting from the same day on which it gains the connected juridical effects. Consequently, UniCredit (Incorporating Company) shall determine its own tax income separately from the tax income of Capitalia (the Incorporated Company) with reference to the period starting on January 1, 2007 till the date of the merger juridical and tax effectiveness. Consequently, with regard to tax year 2007, UniCredit shall submit two different income tax returns: (i) in the first, UniCredit shall determine the income realized by Capitalia in the fraction of the tax year prior to the date of the merger effectiveness; (ii) in the second, which shall regard the whole tax year 2007, UniCredit shall declare its overall income, comprehensive of the income realized by UniCredit itself prior to the date on which the merger gains its juridical and tax effects. On the other hand, with reference to what stated below about the continuation of the domestic tax consolidation of UniCredit and Capitalia, it has to be pointed out that the prospective tax losses realized by Capitalia in the period between 1 January 2007 and the date of merger’s legal and tax effectiveness can be set off against UniCredit taxable income solely (therefore, not in the domestic tax consolidation). The merger is a “neutral” transaction for direct tax purposes. Merger’s neutrality disregards the accounting principles applied for the balance sheets. Therefore, the merger of Capitalia into UniCredit shall remain a tax neutral transaction even though it has to be accounted according to IAS/IFRS and, in particular, according to IFRS 3 with regard to “business combination”. According to article 172, TUIR, the merger shall not determine positive or negative items of income for tax purposes on UniCredit’s, Capitalia’s and the respective shareholders’ sides. Therefore: (i) the transfer of Capitalia’s net worth to UniCredit shall determine, in the hands of the former company, neither the realization of latent capital gains or capital losses connected to the transferred assets and liabilities, nor the realization of goodwill; (ii) in the hands of UniCredit assets and liabilities shall be given the same tax value they had in the hands of Capitalia. In other words, the accounting of the assets and liabilities received, included the goodwill, according to the fair value criteria provided for by IFRS 3, shall not constitute a taxable item of income in the hands of UniCredit, given that fair value is not relevant for tax purposes; (iii) the merger shall not even determine the realization of a taxable capital gain, if any, in the hands of Capitalia’s shareholders whose shares shall be object of the swap into UniCredit new shares. As a result of the merger, UniCredit shall succeed in Capitalia’s subjective tax positions. In more detail, UniCredit shall become the holder of Capitalia’s tax credits not yet reimbursed by the Tax Authorities at the time of the merger. The merger of Capitalia into UniCredit shall impact on the respective group taxation systems. More in detail, according to art. 124, fifth paragraph, TUIR and art. 11, third paragraph, Ministerial Decree 9 June 2006 about the Regulations for the application of the tax consolidation regime (the “Regulation”), the merger of Capitalia into UniCredit shall not cause
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the interruption of UniCredit’s tax group regime, given that UniCredit holds the control, as defined by article 117, TUIR on its “consolidated” entities. In these terms, the continuation of UniCredit’s tax group regime shall operate as an effect of law. On the other side, the provisions set forth by article 124, fifth paragraph, TUIR, shall apply to Capitalia’s tax group regime. As a result, the continuation of Capitalia’s tax group regime with UniCredit being the “new” consolidating entity shall not take place by effect of law, but has to be expressly authorized by the Tax Authorities by means of the filing of an appropriate request according to the procedure set forth by article 11, Law 27 July 2000, No. 212. In this request, Capitalia shall give evidence that the merger is grounded on valid economic reasons and that no undue tax saving may be achieved by UniCredit by virtue of the continuation in its hands of Capitalia’s tax group regime. As far as indirect taxes are concerned, the merger shall not determine the realization of relevant operations for VAT purposes, and is subject to registration, mortgage and cadastral taxes at the fix amount, each equal to euro 168.
2.1.3 Impact of the Merger on the Shareholding Structure of UniCredit The issue of UniCredit’s ordinary shares for the purposes of the exchange ratio resulting from the Merger would lead to a dilution of the participations of UniCredit’s current shareholders of approximately 22%.
Upon completion of the merger, the shareholding structure of UniCredit would change as follows:
Fondazione Cassa di Risparmio Verona, Vicenza, Belluno e Ancona 3,9%
Fondazione Cassa di Risparmio di Torino 3,7% Munich Re 3,7% Carimonte Holding 3,3% Gruppo Allianz 2,4% ABN Amro 1,9% Fondazione Cassa di Risparmio di Roma 1,1% Fondazione Manodori 0,9% Fondiaria - SAI 0,8% Regione Siciliana 0,6% Fondazione Banco di Sicilia 0,6% Libyan Foreign Bank 0,6% Assicurazioni Generali 0,5% Tosinvest S.A. 0,5% J P Morgan Securities Ltd. 0,4% Other Shareholders 76,0%
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Note: Data in percentage of total share capital on the basis of the Companies’ information on the shareholders’ base available as at 16 May 2007. There are indicated only: (i) with reference to UniCredit, the shareholders which hold as of date hereof a percentage in the company’s share capital exceeding the 2%, as resulting from the documentation prepared for the EGM and AGM held on May 10 2007; (ii) with reference to Capitalia, shareholders which hold as of the date hereof a percentage in the company’s share capital exceeding 2%.
2.1.3.1 POSSIBLE GRANTING OF THE WITHDRAWAL RIGHT
A Preconditions for the withdrawal right and eligible shareholders Capitalia’s shareholders who will not vote in favour of the resolution approving the Merger Plan will be entitled to exercise the withdrawal right pursuant to article 2437, paragraph 1, lett. g) of the Italian Civil Code, since the adoption of UniCredit’s By-laws as a consequence of the Merger tantamounts to an amendment of Capitalia’s By-laws concerning the voting rights. Article 5, paragraph 9, of the By-laws of the Incorporating Company provides that “no one entitled to vote may vote, for any reason whatsoever, for a number of shares exceeding five per cent of share capital bearing voting rights”; a similar limit to the exercise of the voting rights is not contained in Capitalia’s By-laws. The withdrawal right will be granted only to Capitalia’s shareholders who will not vote in favour of the shareholders’ resolution approving the Merger Plan, thus Capitalia’s shareholders who do not attend the meeting, abstain or vote against. Since it is not required to approve amendments to UniCredit’s By-laws which legitimate the exercise of the withdrawal right pursuant to article 2437 of the Italian Civil Code, the aforesaid right will not be granted to the shareholders of the Incorporating Company. B Conditions for the effectiveness of the withdrawal right The effectiveness of the withdrawal right exercised pursuant to the terms and conditions described below by eligible Capitalia’s shareholders will be subject to the satisfaction of the following conditions precedent: (i) the effectiveness of the Merger, as indicated in the Merger Plan and in the Explanatory Reports of UniCredit’s and Capitalia’s Board of Directors; in this respect it has to be pinted out that the execution of the Deed of Merger is subject in its turn to the granting of the authorizations – including the anti-trust clearance – provided for by the applicable laws; and (ii) the non adoption by UniCredit’s Extraordinary Shareholders’ Meeting of the resolution to amend the By-Laws by removing its article 5, paragraph 9, providing a limit to the exercise of the voting rights, within 90 days from the date of registration of the resolution approving the Merger adopted by Capitalia’s Shareholders’ Meeting. In fact, the amendment to UniCredit’s Article of Association would display the same effects deriving from a revoking resolution pursuant to article 2437-bis of the Italian Civil Code, since it removes the reason which legitimates the exercise of the withdrawal right by the shareholders. In order to properly assess the potential effects that the withdrawal right granted to the Capitalia’s shareholders might produce on the capital ratios of UniCredit, the Board of Directors of the Incorporating Company on 17 July 2007 adopted the decision to analyze during its meeting scheduled for the next month of September (currently envisaged for 18 September) the incidence of the withdrawal taking into consideration the numbers of shares for which such right has been exercised and the relevance of the capital impact and, on the basis of the result of such analysis, to submit to the Extraordinary Shareholders’ Meeting of UniCredit the proposal to remove Section 5, paragraph 9, of UniCredit’s By-laws which provides a limit to the voting rights.
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Therefore, the condition precedent under the above point (ii) will be deemed satisfied in case of failure by the Board of Directors to convene the Extraordinary Shareholders’ Meeting of UniCredit in order to amend article 5 of the By-Laws or, should the Shareholders’ Meeting be convened, in case of non adoption of the shareholders’ resolution to amend article 5 of the By-Laws.
C Withdrawal price The price at which the withdrawal right can be exercised has been determined in euro 7.015 for each share. Such price has been determined, pursuant to article 2437-ter, paragraph 3, of the Italian Civil Code, exclusively on the basis of the arithmetic average (calculated by Borsa Italiana S.p.A.) of Capitalia ordinary shares’ closing prices during the six months preceding 5 June 2007, date of publication on the Gazzetta Ufficiale della Repubblica Italiana of the notice of call of Capitalia’s Extraordinary Shareholders’ Meeting convened to approve the Merger Plan. Capitalia’s Extraordinary Shareholders’ Meeting has been convened for 28 July 2007 in first call and for 30 July 2007 in second call. The mentioned withdrawal price has been communicated by Capitalia by way of notices published on at least one primary newspaper as well as on its website www.capitalia.it, within 15 days prior to the mentioned Extraordinary Shareholders’ Meeting, as provided for in article 2437-ter, paragraph 5, of the Italian Civil Code. Each Capitalia shareholder shall be entitled to examine such notice and to obtain at his own expenses copies thereof. Pursuant to the regulation in force Capitalia will also timely communicate to all parties concerned, by way of a notice published on at least a primary newspaper as well as on its website www.capitalia.it, all other information in order to exercise the withdrawal right, and in particular: (i) the date of registration with the Companies’ Register of Rome of the shareholders’ resolution approving the Merger Plan, date from which the term for the exercise of the withdrawal right by eligible shareholders shall commence, and also (ii) the terms and conditions for the exercise of the withdrawal right. By way of subsequent notices will be also communicated the information and the terms concerning the liquidation procedure of the shares for which the withdrawal right has been exercised, as briefly described in paragraph F below, and also the information related to the satisfaction of the conditions to which the effectiveness of the withdrawal right is subject (as indicated in paragraph B above).
D Terms and conditions for the exercise of the withdrawal right The withdrawal right can be exercised by Capitalia’s shareholders who do not vote in favour of the approval of the Merger Plan during Capitalia’s Shareholders’ Meeting of 28/30 July 2007 (thus, shareholders who vote against or abstain or not attend the meeting, in person or by way of proxy) for all or a portion of the shares held, pursuant to article 2437-bis of the Italian Civil Code, by means of a registered letter to be sent to Capitalia within 15 calendar days from the date of registration with the Companies’ Register of Rome of the shareholders’ resolution approving the Merger Plan (the “Withdrawal Notice”). The Withdrawal Notice – which shall be addressed to “Capitalia S.p.A., Corporate Affairs Office, Via Minghetti, 17, 00187 Rome” – shall contain the following information: (i) the personal data and the Italian tax code of the withdrawing shareholder, and also the domicile (and, where possible, a telephone number) to which all the communications related to the withdrawal procedure are to be addressed; (ii) the number of the shares for which the withdrawal right is exercised; (iii) the details of the bank account opened in the withdrawing shareholder’s name to which the withdrawal price shall be credited; (iv) the details of the intermediary with which the shares for which the withdrawal right has been exercised are deposited.
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In addition, the Capitalia shareholder who intends to exercise the withdrawal right shall also send to Capitalia, as a condition for the validity of the withdrawal declaration, with the same procedures and together with the Withdrawal Notice, a certificate (the “Certificate”), issued by the authorised intermediary in accordance with the provisions set forth with regard to the dematerialised financial instruments admitted to the centralized administration system of Monte Titoli S.p.A., which attests: 1. the withdrawing shareholder’s ownership, without interruption, of the Capitalia’s shares for which the withdrawal right has been exercised from the date of the Extraordinary Shareholders’ Meeting approving the Merger Plan until the date of the exercise of the withdrawal right. For this purpose, shareholders who, having purchased Capitalia shares on the market, have received such shares due to settlment of the transaction before the opening of the Shareholders’ Meeting which will resolve upon the Merger Plan shall be deemed entitled to exercise the withdrawal right; 2. the absence of lien or other third party’s claim on Capitalia’s shares in relation to which the withdrawal right has been exercised; otherwise, the withdrawing shareholder shall send to Capitalia, as a condition for the validity of the withdrawal declaration, a statement by the security creditor, or by the claim holder, whereby such creditor or claim holder irrevocably consents to the liquidation of the shares for which the withdrawal right has been exercised in accordance with the instructions provided for by the withdrawing shareholder. It has to be pointed out that, should the shareholder who exercised the withdrawal right, by sending the Withdrawal Notice within 15 days from the date of registration of the shareholders’ resolution approving the Merger Plan, be unable to attach the Certificate to the Withdrawal Notice, the Certificate shall be sent by means of another registered letter to the same above indicated Capitalia’s address, within and no later than the third business day subsequent to the fifteenth day from the date of registration with the Companies’ Register of Rome of the shareholders’ resolution approving the Merger Plan, as a condition of the validity for the Withdrawal Notice.
E Lock-up of the shares Pursuant to article 2437-bis, paragraph 2, of Italian Civil Code, and to the regulations in force, the authorised intermediary issuing the Certificate will block the relevant shares (and therefore such share will not be disposable) until the liquidation procedure is completed. Withdrawing shareholders will be authorised to exercise the voting rights during this period and also during the Extraordinary Shareholders’ Meeting called to resolve upon the amendment of the Articles of Association by way of removing the provision set forth in article 5, paragraph 9, should the Shareholders’ Meeting be held after the effective date of the Merger.
F Liquidation procedure In case one or more shareholders exercise the withdrawal right, the liquidation procedure will be held pursuant to article 2437-quater of Italian Civil Code, and shall follow the steps described under the following sub-paragraphs of this paragraph F. At the effective date of the Merger, the shares for which the withdrawal right has been exercised will be exchanged, on the basis of the Exchange Ratio, into newly issued ordinary UniCredit shares, it being understood that also the newly issued UniCredit shares will not be transferable pursuant to paragraph E above and Capitalia shareholders who have exercised the withdrawal right will be entitled to receive the same withdrawal price indicated under paragraph C above. In light of the above, starting from the effective date of the Merger, the Offer of Option and the Offer to the Market (as hereinafter defined) and, more in general, the following steps of the liquidation procedure will have as object the UniCredit ordinary shares issued, on the basis of the Exchange Ratio, in place of the Capitalia’s shares for which the withdrawal right has been exercised.
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As outlined above, the effectiveness of the withdrawal right will be subject in any case to the satisfaction of the conditions precedent described under paragraph B above: on one side, the effectiveness of the Merger, on the other side, the resolution of the UniCredit’s Board of Directors, which will be held on September 18, to not call the Extraordinary Shareholders’ Meeting of UniCredit in order to remove the provision of the By-Laws concerning the limit to the exercise of the voting rights in the shareholders’ meeting, or, should the Board of Directors decide to convene the Shareholders’ Meeting, the non adoption of the shareholders’ resolution to amend the above mentioned provision of the By-Laws within the term of 90 days provided by article 2437-bis, paragraph 3, of Italian Civil Code. The same conditions precedent will apply to the payment of the shares by those who purchased them in the context of the Offer in Option described in sub-paragraph F.1 below and/or the Offer to the Market pursuant to sub-paragraph F.2 below and to the transfer of the relevant shares to them, whenever the steps of the liquidation procedure are taken before the satisfaction of the mentioned conditions precedent. Therefore, should the above mentioned conditions precedent not be satisfied, (i) Capitalia’s shares for which the withdrawal right has been exercised (or UniCredit’s shares assigned in exchange for Capitalia’s shares) will become again transferable and available to the withdrawing shareholder; and (ii) the liquidation procedure will be interrupted, whatever is the current stage.
F.1 The Offer in Option The shares for which the withdrawal right has been exercised will be first offered to the other Capitalia’s shareholders in proportion to the number of shares held by the latter (the “Offer in Option”). The term for exercising the option right will be no less than 30 days from the publication of the Offer in Option with the Companies’ Register of Rome. The shareholders who have exercised the option right pursuant to the Offer in Option may also exercise a pre-emptive right for the purchase of the shares for which the option has not been exercised, provided that they submit a simultaneous request to that effect; if the number of Capitalia’s shares for which the pre-emption right has been exercised is higher then the number of Capitalia’s shares for which the option right was not exercised at the end of the Option in Offer, the latter will be assigned to the shareholders who have exercised the pre-emptive right in proportion to the number of shares held by each of them. As outlined in paragraph C above, Capitalia will communicate the terms and conditions of the Offer in Option and any other relevant information by way of a notice deposited with the Companies’ Register of Rome pursuant to article 2437-quater, paragraph 2, and published on a primary newspaper as well as on the website www.capitalia.it.
F.2 Offer to the Market The shares which are not, in whole or in part, purchased by the shareholders of Capitalia shall be offered on the market (the “Offer to the Market”). The Offer to the Market will have a duration of no less than 5 consecutive trading days. If the Board of Directors of UniCredit resolved to convene the Extraordinary Shareholders’ Meeting of UniCredit prior to the expiry of the Offer in Option, in order to remove the limit to the exercise of the voting rights provided by article 5, paragraph 9, of the By-laws, pursuant to article 2437-bis, paragraph 3, of Italian Civil Code, UniCredit will be entitled to postpone the Offer to the Market after the date on which the Extraordinary Shareholders’ Meeting is held. All the information regarding the Offer to the Market will be timely communicated also by way of notices published on at least one primary newspaper.
F.3 Purchase by the issuer company
The shares which still remain unplaced following the Offer in Option and the Offer to the Market within 180 days from the date on which the withdrawal has been communicated shall be purchased, pursuant to article 2437-quater, paragraph 5, of the Italian Civil Code, by UniCredit (as incorporating company once the Merger is completed) using the distributable reserves and retained profits, notwithstanding
- 53 - the limits provided for by article 2357, paragraph 3, of Italian Civil Code. In the absence of distributable reserves and retained profits the share capital shall be reduced.
G Procedure and terms for the payment of the withdrawal price and for the transfer of the shares As outlined above, once the liquidation procedure described is completed and subject to the satisfaction of all conditions for the effectiveness of the withdrawal right: (i) Capitalia’s shareholders who exercised the withdrawal right will receive the payment of the withdrawal price in accordance with the applicable law; (ii) UniCredit shares issued, on the basis of the Exchange Ratio, in place of Capitalia’s shares for which the withdrawal right has been exercised will be assigned to the shareholders that adhered to the Offer in Option or to the Offer to the Market or to UniCredit in case of purchase of the shares as described in paragraph F.3 above, once the relevant price is paid. In case one of the conditions precedent described under paragraph B is not satisfied, (i) Capitalia’s shares for which the withdrawal right has been exercised (or Unicredit’s shares assigned in exchange for Capitalia’s shares) will become again transferable and available to the withdrawing shareholder; and (ii) the liquidation procedure will be interrupted, whatever is the current stage. As explained above, Capitalia and UniCredit will timely provide all information necessary for the exercise of the withdrawal right, and, more in general, pertaining to the liquidation procedure pursuant to the above paragraphs.
2.1.4. The effects of the Merger on the shareholders agreements concerning the shares of the companies involved in the Merger The Company is not aware of the existence of any shareholders agreement relating to shares of UniCredit, except for the Voting Pool Agreement promoted by the Labour Associations of Managers of Credit Institutions “Uniosind” and “Sinfub”, participated by – according to the information available to UniCredit – 394 independent shareholders of the UniCredito Italiano Group, holding in aggregate n. 903,134 ordinary shares of the Company, which represent 0.014% of the ordinary share capital, in relation to which the parties to the agreement have not communicated any impact of the share capital increase. With reference to Capitalia, as at the date of preparation of the Information Document, a voting pool agreement is in force among 17 major industrial and financial both national and international players (the “Voting Pool Agreement”). The parties to the Voting Pool Agreement holding a participation in Capitalia higher than 2% of Capitalia’s share capital are the following: Gruppo ABN Ambro (8.6%), Fondazione Manodori (4.1%), Gruppo Fondiaria-SAI (3.5%), Regione Siciliana (2.8%) and Tosinvest (2.1%). The Voting Pool Agreement terminates on 3 July 2008. On 16 July 2007 the shareholders adhering to the Voting Pool Agrement concerning Capitalia have communicated to the Incorporated Company that the Voting Pool Agrement will terminate at the date indicated in the Deed of Merger for the effectiveness of the Merger and the exchange of Capitalia’s shares into UniCredit’s shares. In the meantime said shareholders have also communicated to the Incorporated Company that at the date of such communication none of the parties to the Voting Pool Agreement has expressed its intention to negotiate with other parties, after the date of the Merger of Capitalia into UniCredit, a new voting pool agreement. It has to be pointed out that the agreement entered into by and between Capitalia (formerly Banca di Roma S.p.A.) and Regione Siciliana on 21 January 2002, and following amended with the addendum dated 16 January 2006 (the “Agreement”), will be in force up to 1th July 2008. The relevant abstract has been published on the newspaper “Il Sole 24 Ore” of 24 December 2003 and other notices have
- 54 - been published on the newspaper “Il Sole 24 Ore” on 10 January 2005, 10 e 26 January 2006, 8 July 2006 and 10 July 2007.
2.1.4.1 SUPPLEMENTARY AGREEMENT IN THE CONTEXT OF THE MERGER BY WAY OF INCORPORATION OF CAPITALIA INTO UNICREDIT In the context of the proposed Merger, on 20 May 2007 UniCredit and Capitalia have entered into a supplementary agreement – which content is reproduced below – integrally published on 31 May 2007 on the newspaper “La Repubblica” and in the same date filed with the Companies’ Registers of Genoa and Rome:
“SUPPLEMENTARY AGREEMENT In the frame of the merger by way for incorporation of Capitalia S.p.A. into UniCredit S.p.A. This agreement is entered into between Capitalia S.p.A. (“Capitalia”), represented by its Chairman, Mr. Cesare Geronzi, and UniCredit S.p.A. (“UniCredit” and together with Capitalia the “Banks”), represented by its Managing Director, Mr. Alessandro Profumo, in respect to the merger, by way of incorporation, of Capitalia in UniCredit (the “Merger”), as reflected in the merger plan attached to this agreement as Annex A (the “Merger Plan”) and in the reports of the directors (the “Reports of the Directors”) approved by the Boards of Directors of Capitalia and UniCredit. As integral part of such understandings and with the aim at facilitating the integration between the two groups and taking advantage of the opportunities arising from combination of the cultural and traditional values of the Banks, Capitalia and UniCredit have agreed the following.
1. REPRESENTATIONS IN THE RESPECTIVE BOARDS OF DIRECTORS 1.1 As soon as possible after the approval of the Merger Plan by the meetings of UniCredit and Capitalia: (i) the Board of Directors of UniCredit, once received resignation from four of the current members of the Board of Directors itself, will replace them with Mr. Cesare Geronzi, Mr. Donato Fontanesi, Mr. Salvatore Ligresti and Mr. Salvatore Mancuso; and (ii) the Board of Directors of Capitalia, once received resignation of four of the current members of the Board of Directors itself, will replace them with four Directors designated by UniCredit. 1.2 The replacement of the resigning members of the Boards of Directors will be subject to the absence of reasons which might prevent the acceptance by the directors of their position in accordance with article 2390 of the Italian Civil Code or in accordance with the applicable supervision’s provisions for the co-opted members. The Banks acknowledge that being in charge with other offices in banking institutions not belonging to the Capitalia Group or, respectively, UniCredit shall result in a reason which shall prevent the appointment as director of the Board and the keeping of such position. 1.3 The mandate of the new directors of UniCredit, subject to confirmation of the appointment by the shareholders meeting of UniCredit pursuant to article 2386 of the Italian Civil Code, will expire together with the Board of Directors of UniCredit in force as at the date of the appointment. 1.4 The mandate of the new directors of Capitalia, subject to confirmation of the appointment by the shareholders meeting of Capitalia pursuant to article 2386 of the Italian Civil Code, will expire at the effective date of the Merger.
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1.5 Mr. Cesare Geronzi, as result of the appointment in the Board of Directors of UniCredit, will be granted the office of Vice Chairman of the Board of Directors and, as result of the amendment of the By-Laws envisaged in the Merger Plan, the office of Chairman of the Executive Committee; moreover, Mr. Cesare Geronzi shall be elected as Stand-in Chairman of the Board of Directors of UniCredit and shall be granted the powers relating to the management of the shareholdings held by the company resulting from the Merger in Mediobanca S.p.A., Pirelli S.p.A., RCS S.p.A. and Generali S.p.A.. 1.6 Should one of the directors to be co-opted in the Board of Directors of UniCredit pursuant to article 1.1 (i) above refuse or be unable to accept the position, such director shall be replaced by Prof. Berardino Libonati who shall be co-opted in the Board of Directors of UniCredit; should Mr. Geronzi refuse or be unable to accept to act as director of UniCredit, or ceased from the position before the expiring of the mandate of the Board, Prof. Libonati shall also be elected as Vice Chairman of the Board of Directors of UniCredit. 1.7 Should the Directors co-opted by UniCredit pursuant to article 1.1 (i) cease from the position before the expiry of the mandate of the Board, by way of derogation of corporate governance rules adopted by UniCredit, the name of the candidate for the replacement of the ceased director shall be communicated to UniCredit Appointments Committee by the director, amongst the co-opted directors, who shall act as Vice Chairman. The Appointments Committee of UniCredit, once ascertained the absence of causes of incompatibility which might prevent the acceptance by the directors of their position, shall indicate the name of the candidate so appointed for the replacement of the ceased director. 1.8 The understandings envisaged by this article 1 shall cease their legal effects as at the expiry of the mandate of the Board of Directors in charge as at the date of the Merger deed. 2. REPRESENTATION IN THE BOARD OF DIRECTORS OF BANCA DI ROMA, BANCO DI SICILIA, MCC E FINECO 2.1 For the renewal of the Board of Directors of Banca di Roma, Banco di Sicilia, MCC and Fineco which shall occur following completion of the Merger, UniCredit shall cause that at least 40% of the directors of Banca di Roma, Banco di Sicilia, Fineco and MCC shall be selected, alternatively, among the directors of such companies in charge as at the date of the Merger deed and/or among primary representatives of the economical and entrepreneurial community of the regions where such banks carry out their activity. 2.2 By way of derogation of corporate governance rules adopted by UniCredit, the name of the directors mentioned in article 2.1 above shall be communicated to UniCredit Appointments Committee by the director, amongst the co-opted directors pursuant to article 1.1, who shall act as Stand-in Chairman. The Appointments Committee of UniCredit, once ascertained the absence of causes which might prevent the acceptance by the directors of their position, shall indicate the name of the candidate so appointed for the election in the respective Boards of Directors. 2.3 The understandings envisaged by this article 2 shall cease their legal effects as at the expiry of the mandate of the Board of Directors in charge as at the date of the Merger deed.
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3. SHAREHOLDING HELD IN MEDIOBANCA S.P.A. 3.1 Capitalia and UniCredit agree to reduce, within the end of 2007, the shareholding held in Mediobanca S.p.A. ("Mediobanca") to 9,39% and confer an irrevocable mandate to Mediobanca to allot the exceeding part resulting from the Merger, in the context of Mediobanca pool voting agreement, also to new investors which do not carry out activities in conflict with the interest of Mediobanca. 4. EXECUTION OF THE MERGER DEED 4.1 Capitalia and UniCredit, in good faith and having regard to the common interest in the best outcome of the Merger, mutually undertake to execute the Merger deed in the shortest timeframe reasonably possible following the obtainment of the legal approvals to which the execution of the Merger deed is conditional. 4.2 The banks acknowledge that the completion of the Merger is subject to the approval from the respective management bodies and authorization from competent supervisory authorities and undertake to cooperate to seek such authorizations and approvals.”
2.2 RATIONALE AND MAIN ELEMENTS OF THE MERGER
2.2.1 Rationale of the Merger
Background Thanks to its integration capability, the UniCredit Group has attained an important position in the European banking sector, due to restructuring benefits and sustainable organic growth in the Italian domestic banking market, in less than two years UniCredit's market capitalisation has grown from about euro 26.3 billion (as at 30 May 2005, the date prior to the first announcement of the business combination with HVB) to more than euro 78 billion (as at 8 May 2007). This result positions UniCredit among the top ten European banking groups and among the top five in the eurozone in terms of size, placing it in a strong position to take advantage of further merger opportunities. Furthermore, it is important to emphasize that this high ranking in terms of size is directly linked to the significant creation of value generated over the last two years, as the rise in the share price of more than 81% (calculated as at the dates indicated above) proves, and is based on a truly European operation, with branch networks in 20 different countries and leading positions in most of these markets. Together with other transactions, as for instance the acquisition of Abbey National by Santander, the acquisition of Banca Nazionale del Lavoro by BNP Paribas and the acquisition of Banca Antonveneta by ABN Amro, the combination of UniCredit and HVB contributed significantly to accelerating change in the domestic as well as international banking landscape, which after these transactions was undoubtedly altered. From a domestic point of view, Banca Intesa and San Paolo IMI have created a new leader in the Italian banking market of the first magnitude. Certain mutual banks have merged and thus increased their size in order to compete in the European banking market, for example Banco Popolare Verona Novara with Banca Popolare Italiana and Banche Popolari Unite with Banca Lombarda. On an international scale, even bigger changes have taken place, primarily linked to offers for the Dutch bank ABN Amro (still in progress on the date of this report). For various reasons these
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offers are of great importance. First, they are proof of the fact that, following the merger of UniCredit and HVB, European banks' competitive market is the whole continent. Secondly, it involves at least five of the major European banks, including, apart from ABN Amro itself, Barclays, Royal Bank of Scotland and Santander. Finally, whatever the final outcome of these offers, the entities emerging from the ongoing consolidation process will operate on a significantly larger scale compared to the current one and this will lead to a higher threshold for Europe-wide competition. Furthermore, it should be noted that with the ongoing acquisition of ABN Amro, American banking players are gaining importance in the European banking market. There is potential not only for indirect involvement, like that of Bank of America in the acquisition of the non- European business of the European Bank ABN Amro, but also, market rumours suggests, for direct acquisitions of European banking players by American banks. Thanks to its leading position in the European banking sector acquired through the combination with HVB, UniCredit is in an ideal position to take advantage of the current dynamism in the European banking market by playing the role of active consolidator in the Group's core markets – Italy, Germany, Austria and Central-Eastern Europe – as well as in other European markets.
Rationale As noted in the preceding section, UniCredit can grow further by means of 'non-organic' transactions along two complementary lines: consolidation in its core markets – Italy, Germany, Austria, and Central-Eastern Europe – in order to strengthen the positioning of UniCredit in markets where it already operates and benefit from economies of scale in both production and distribution; expansion into new markets with a view to achieving further economies of scale in production and creating significant new strategic options for overall growth. Merging with Capitalia is undoubtedly consistent with the first line of development, domestic growth, but it will also make it possible to activate further growth options both in the Italian market and in other European markets thanks to the greater scale of the product factories and to its larger size. In the Italian market the merger with Capitalia will first of all make it possible for UniCredit to strengthen its distribution network and increase its market share in regions that are attractive in terms of profitability but where UniCredit is currently under-represented (Lombardy, Latium, Sicily and Apulia), enabling it to establish more balanced coverage of the Italian market. Specifically UniCredit's market share in terms of the number of branches would increase from 5% to 9% in Lombardy, from 8% to 27% in Latium, from 4% to 30% in Sicily and from 8% to 13% in Apulia. Following the merger, the Group's branches would be almost equally distributed between the North West, the North East, the Centre, the South and the Islands, and the pre- merger predominance of the North East would be reduced. The merger with Capitalia will also bring about a strengthening of UniCredit's position in certain specialised businesses. In leasing, its Italian market share (measured in terms of the current lease portfolio) will rise from 13% to 21%; in factoring from 6% to 12% (measured in terms of the volume of turnover); in bankassurance from 12% to 18% (measured in terms of premiums written). UniCredit will also increase its financial advisor network significantly, from about 1,900 to more than 3,000, and will assume a position of leadership in online banking, thanks to the integration of FinecoBank, which is market leader. Finally, integration will generate economies of scale in the production businesses. Assets under management will grow by more than euro 30 billion to a total of euro 156 billion, i.e. by 28% of
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the pre-merger Group assets under management, giving a 17% share of assets under management in Italy. Revenue from large corporate and investment banking will grow – on the basis of UniCredit's and Capitalia's segmentation – by around 25%, increasing from euro 3.2 billion to euro 4.0 billion. The specialist skills developed by Capitalia in certain business segments, such as structured finance and subsidised loans, will enrich the Group's know-how and may be put to wider use on a European scale. The adoption of regional distribution post-merger, as described below, will also make combinations with local banks easier. Internationally, the increased scale of production businesses will augment the possibility of generating economies of scale in these businesses and assuming the position of a centre of aggregation in the global market. UniCredit will in fact maintain its markedly European character, since more than 50% of post-merger revenue will continue to originate outside Italy. UniCredit will become the third largest European bank in terms of market capitalisation and the largest in the eurozone. This size will make it possible to negotiate possible further combinations with international and other players from a position of greater strength and at the same time ensure greater financial solidity. The combination with Capitalia will also enable the UniCredit Group to increase the proportion of its revenue arising from the retail business, and this will bring even greater stability to its profitability. The benefits we have described as accruing from the merger of UniCredit and Capitalia will materialise in gross synergies of euro 1,162 million in 2010, which will make it possible to increase earnings per UniCredit share as early as fiscal 2009.
2.2.2 Programs made by UniCredit with reference to business prospects and potential resctructuring and/or reorganizations
Organisational Model of the Group resulting from the Merger The new Group's organisational model will continue to be based on business lines focused on customer segments and common product factories. Given the current organisational models of the two Groups and the great similarities between them, although there are differences between that adopted by UniCredit and Capitalia’s structure due to the smaller scale of certain business lines and to the almost exclusive concentration of the latter in the Italian market, Capitalia’s structure can easily be integrated into UniCredit's. As stated above, Capitalia has managed its commercial business and adopted reporting lines in the following business areas:
• Retail
• Corporate
• Wholesale and Investment Banking
• Financial Services
• Corporate Center. Given the validity of the business model, which separates distribution, through the Group's banks and legal entities, from the product factories, UniCredit’s current structure would be maintained and Capitalia would be integrated according to the following business lines:
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• Retail
• Private Banking and Asset Management
• Corporate/SMEs
• Markets & Investment Banking
• Central-Eastern Europe
• Poland Markets
• Global Banking Services This solution will not only enable significant acceleration of the integration process, reducing both complexity and execution risk, but also maximising the economic benefits of the transaction and the achievement of substantial cost and revenue synergies. The integration of Capitalia into UniCredit’s model will present limited execution risks thanks to the possibility of leveraging the same model of centralised operational systems. This integration will be managed within the Italian perimeter without affecting the other domestic markets. However, integration will be carried out paying particular attention to the best use of the distinctive skills and values of the people and structures of the two Groups, in order to maximize the new Group's potential for growth and development. Specifically in the retail business line and with reference to the Italian market, we foresee the adoption of a regional distribution structure and the creation of three retail banks in Italy, exploiting the positioning of UniCredit Banca – the Italian retail bank of the current UniCredit Group – in Northern Italy (Val d’Aosta, Piedmont, Liguria, Lombardy, Veneto, Trentino Alto Adige, Friuli Venezia Giulia and Emilia Romagna), of Banca di Roma in Central-Southern Italy (Tuscany, Umbria, Marches, Latium, Abruzzo, Molise, Sardinia, Campania, Apulia, Basilicata and Calabria) and of Banco di Sicilia in Sicily while maintaining its 3 historic branches in Milan, Rome and Turin. This will make it possible to further strengthen the positioning of the new Group in the retail business throughout Italy, leveraging three retail distribution networks with strong regional competitive advantages. From an operational point of view, the reorganisation envisages the transfer of businesses related to private banking and corporate client segments currently carried on by Capitalia's commercial banks to UniCredit Private Banking (which has its head office in Turin) and UniCredit Bank d’Impresa (which has its head office in Verona), the absorption of Bipop-Carire by UniCredit Banca (which has its registered office in Bologna) and the transfer of the group of branches located in Central-Southern Italy and Sicily to Banca di Roma (which has its head office in Rome) and Banco di Sicilia (which has its head office in Palermo) respectively. With reference to the Markets and Investment Banking business line, with the aim of taking advantage of its special skills, MCC (which has its legal seat in Rome) will become the Group's house bank for public sector entities in Italy. Product development will be carried out by global product factories, with the complete integration of Capitalia’s and UniCredit’s current product factories:
• Consumer credit, credit cards and mortgage business, currently managed by Fineco Bank, will be transferred to UniCredit’s specialised factories, UniCredit Clarima Bank and UniCredit Banca per la Casa respectively;
• Activities related to trading on-line will continue to be managed by FinecoBank, currently undisputed leader in the Italian market for the segment;
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• Leasing, factoring and investment banking activities which are currently managed by MCC and Capitalia will be transferred to UniCredit’s specialised companies (Locat, UniCredit Factoring and HVB respectively). With reference to the Private Banking and Asset Management business line, FinecoBank will become the Group's reference company – and one of the main players in the industry – for asset gathering. With regard to asset management, however, in order to benefit from Pioneer’s scale and brand recognition at a global level, and achieving cost savings in overlapping areas, shareholdings in Capitalia Asset Management and Capitalia Investimenti Alternativi will be transferred to Pioneer Global Asset Management (with head office in Milan), as UniCredit’s sub-holding active in the sector. In order to maximize economies of scale and grant a full integration of the two groups, information technology and operations activities, including activities currently managed by Capitalia Informatica, will be integrated into UniCredit’s responsible entities, UniCredit Global Information Services (“UGIS”) and UniCredit Produzioni Accentrate (“UPA”). In order to facilitate the integration of domestic business, the headquarters of the latter will be transferred to Rome, while employees located in the current Milan location will be dedicated to the further expansion of the Group in Lombardy. The Global Banking Services business line would maintain responsibility for improving the cost structure and the internal processes of the combined Group, furnishing services to the other business lines in the area of IT services, organisation, operations, traditional services, procurement and real estate management. Target Group Structure With the absorption of Capitalia, UniCredit as Group Parent Company would maintain responsibility for managing and coordinating the new Group. From a corporate point of view, thanks to Capitalia’s current structure – a controlling parent, which directly owns shareholdings in the main Group companies – the transaction would not lead to a meaningful change of UniCredit’s current corporate structure.
Governance of the Group In compliance with its Articles of Association, UniCredit will maintain a traditional governance system, and, thus, a Board of Directors with management functions and a Board of Statutory Auditors with internal control functions. In the frame of the Merger, simultaneously with the approval of the Merger Plan, the Board of Directors of UniCredit and Capitalia have approved the “Supplementary Agreement” as described in the Section 2.1.4.1. relating, inter alia, to the governance of the Incorporating Company. Pursuant to such agreement, in a date immediately subsequent to the shareholders meetings which shall approve the Merger Plan, Mr. Berardino Libonati, Mr. Donato Fontanesi, Mr. Salvatore Ligresti and Mr. Salvatore Mancuso shall be co-opted in the Board of Directors of UniCredit consequently the recent appointment of Mr. Geronzi as Chairman of the Supervisory Board of Mediobanca It has also to be pointed out that the above mentioned Sirs have presented their respective curricula as well as a statutory declaration stating their integrity, experience and independence requirements. It is also provided that 40% of the directors of Banca di Roma, Banco di Sicilia, Fineco and MCC shall be selected, alternatively, among the directors of such companies or among primary representatives of the local economical community for the first mandate after the merger.
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UniCredit’s registered office will be transferred from Genoa to Rome, while the Head Office will remain in Milan. Capialia Group’s position in the central-southern regions of Italy will be given full value within the new Group, including by way of using the Banca di Roma and Banco di Sicilia brands.
2.3 DOCUMENTS AT THE DISPOSAL OF THE PUBLIC The Information Document, as well as the documents indicated in article 2501-septies, paragraph 1, no. 1 and no. 3, of the Italian Civil Code, is made available to the public at the registered offices of the companies involved in the Merger and at the registered offices of Borsa Italiana S.p.A., Milan – Piazza Affari no. 6. In addition, the financial statements and the consolidated financial statements of the mentioned companies related to the fiscal years 2003, 2004, 2005 and 2006, together with the Board of Directors, the Statutory Auditors and the Auditing Company Reports, are made available at the registered offices of UniCredit and Capitalia. All the above mentioned documents are also available, in Italian and English language, on the websites of UniCredit (www.unicreditgroup.eu) and Capitalia (www.capitalia.it).
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3. SIGNIFICANT EFFECTS OF THE MERGER
3.1 EXPECTED SYNERGIES 3.1.1 Overall Synergies It is expected that the combination of UniCredit Group and Capitalia Group will generate significant synergies, equal to euro 1,162 million gross of tax by 2010, made up of euro 370 million in revenue synergies (32%) and about euro 792 million in cost synergies (68%). Revenue increases would mainly be attributable to alignment of the pricing policies and commercial productivity of the two banks, while cost reduction would mainly arise from the rationalisation of combined central functions and information technology activities, closing overlapping branches and economies of scale related to procurement. Specifically, synergies will be generated by the following areas (including cost synergies due to economies of scale related to procurement): RETAIL. The combined Group would benefit from centralised management of two of Italy's largest banking networks, making efficiency gains possible on a combined level, and from the centralisation of the consumer credit and residential mortgage businesses. The alignment of the commercial productivity of UniCredit and Capitalia, especially in consumer credit distribution and asset gathering, would generate additional revenues. CORPORATE. Efficiency gains of central functions and distribution networks, as well as the elimination of overlapping international branches and representative offices, would allow a cost reduction. MARKETS & INVESTMENT BANKING. The centralisation of specialised personnel to a unique business line and the removal of existent redundancies would generate cost savings. PRIVATE & ASSET MANAGEMENT. Eliminating duplication of roles in wealth management operations would generate gross cost synergies. These synergies would be created by integrating the two companies which manage Financial Advisor networks and removing overlapping in the asset management business. In the same area it is expected to achieve additional revenues due, from one and, to the transfer of managed funds to Dublin’s operations and, on the other, to a wider product range distributed by Capitalia with Pioneer’s products and to a stronger positioning of the combined Group in the institutional segment. IT & BACK OFFICE E CORPORATE CENTER. Cost synergies would arise from the centralisation of combined services through migration to a single IT platform, which would permit the rationalisation of the activities currently carried out by companies of the two banking groups. Integration would also be an opportunity to rationalise central functions, generating cost savings. The merger of the two banks would allow the rationalisation of the banks’ current HQ structures as well as business management in support of the Parent, eliminating functional overlapping and increasing the proportion of human resources dedicated to higher value added activities. Net synergies in 2010 would be euro 758 million, subject to an average tax rate of 36%. The synergic time-frame would see 24% of gross synergies realised in 2008, 67% in 2009, while full materialisation would occur in 2010.
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3.1.2 One-off Integration Costs The organisation and corporate restructuring process would imply one-off costs provisioned in 2007 of euro 1,058 million. Such costs are mainly related to redunndancies and to the IT investments’ depreciation booked in the Capitalia’s financial statements. The impact of restructuring costs will be partly off-set by the capital gain realised through the disposal of part of the stake held in Mediobanca S.p.A., which will lead to a reduction of this shareholding from ca. 18.1% pro-forma post-merger to 9.39% of Mediobanca’s share capital in compliance with the shareholders’ agreement related to this company. The approach followed to estimate synergies and related costs has been conservative in comparison to recent domestic transactions already completed or announced. In fact, expected synergies represent 21% of Capitalia’s revenues and 36% of Capitalia’s costs (as the smaller partner in the merger), while in the other domestic transactions these percentages are in a range of 13% to 34% and 21% to 46% of the smaller company's revenues and costs respectively. Restructuring costs are equal to about 134% of cost synergies, slightly lower with other domestic transactions (with an average of around 148%).
3.2 THE EFFECTS OF THE MERGER ON CAPITAL STRUCTURE AND PROFITABILITY Earnings per share would increase from 2009 onwards, in comparison to stand-alone plan. Given Capitalia Group’s current capital structure, the Combined Group would have a Core Tier I higher than the current one of the UniCredit Group. Capitalia Group has in fact a Core Tier I ratio of 6.2% as at 31 December 2006, higher than the UniCredit Group’s Core Tier I ratio at the same date, which was 5.8%. The Total Capital Ratio of Capitalia Group was 9.2% as at 31 December 2006 (UniCredit Group 10.5%). In the year 2007, UniCredit Group will carry on with reinforcing its capital structure in order to meet the regulatory constraints. On the basis of preliminary estimations available at the moment of this document, Total capital ratio would be higher than 10% (thanks to self financing, reduction of UCI stake in Mediobanca and other capital generation actions that partially offset the negative impact of squeeze out in HVB and Baca’s minorities and new acquisitions in New Europe).
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4. STATEMENT OF INCOME, BALANCE SHEET AND FINANCIAL HIGHLIGHTS OF CAPITALIA
4.1 COMPARATIVE TABLE OF THE RECLASSIFIED BALANCE SHEET AND INCOME STATMENT FOR THE LAST TWO YEARS
CONSOLIDATED FINANCIAL STATEMENTS
CAPITALIA GROUP CONSOLIDATED BALANCE SHEET Changes Assets 31 December 2006 31 December 2005 total % (thousands of euros) 10. Cash and cash equivalents 991,211 962,433 28,778 3,0 20. Financial assets held for trading 9,370,374 12,197,553 (2,827,179) (23,2) 30. Financial assets designated at fair value 56,458 176,999 (120,541) (68,1) 40. Financial assets available-for-sale 4,722,212 5,470,243 (748,031) (13,7) 50. Financial assets held-to-maturity 940,373 1,103,585 (163,212) (14,8) 60. Loans to banks 12,515,539 18,578,005 (6,062,466) (32,6) 70. Loans to customers 96,012,214 82,381,327 13,630,887 16,5 80. Hedging derivates 322,347 544,521 (222,174) (40,8) 90. Value adjustments of financial assets hedged generically(19,694) 3,830 (23,524) - 100. Equity investments 481,533 776,874 (295,341) (38,0) 110. Reinsurer's share of technical reserves - 2,255 (2,255) (100,0) 120. Tangible assets 2,907,267 2,741,399 165,868 6,1 130. Intangible assets 1,739,201 1,538,674 200,527 13,0 of which: - goodwill 1,507,951 1,294,318 213,633 16,5 140. Tax assets 4,060,876 4,224,063 (163,187) (3,9) a) current 2,019,305 2,017,318 1,987 0,1 b) deferred 2,041,571 2,206,745 (165,174) (7,5) 150. Non-current assets and groups of assets being divested 22,232 14,896 7,336 49,2 160. Other assets 3,009,530 3,352,972 (343,442) (10,2) Total assets 137,131,673 134,069,629 3,062,044 2,3
Changes 31 December 2006 31 December 2005 total % Liabilities and ahareholders' equity 10. Due to banks 17,369,602 21,896,278 (4,526,676) (20,7) 20. Due to customers 65,550,274 62,139,921 3,410,353 5,5 30. Debt securities issued 31,202,746 28,066,387 3,136,359 11,2 40. Financial liabilities held for trading 4,852,153 5,063,434 (211,281) (4,2) 60. Hedging derivates 176,319 123,605 52,174 42,6 80. Tax liabilities 862,023 673,910 188,113 27,9 a) current 325,321 321,446 3,875 1,2 b) deferred 536,702 352,464 184,238 52,3 100. Other liabilities 5,198,966 4,860,776 338,190 7,0 110. Staff severance pay 843,122 834,484 8,638 1,0 120. Provisions for liabilities and contingencies 1,304,508 1,430,641 (126,133) (8,8) a) retirement and similar liabilities 597,708 781,392 (183,684) (23,5) b) other provisions 706,800 649,249 57,551 8,9 130. Technical reserves - 19,969 (19,969) (100,0) 140. Revaluation reserve (*) 727,157 729,129 (1,972) (0,3) 170. Reserves 1,849,970 688,445 1,161,525 168,7 180. Share premium account 3,382,774 3,828,187 (445,413) (11,6) 190. Share capital 2,595,439 2,511,134 84,305 3,4 200. Treasury stock (-) - (3,307) 3,307 (100,0) 210. Minority interests (+/-) 54,647 178,676 (124,029) (69,4) 220. Profit for the year 1,161,973 1,027,960 134,013 13,0 Total liabilities and shareholders' equity 137,131,673 134,069,629 3,062,044 2,3
(*) Includes minority interests.
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Total funding amounted to €114,123 million; at the end of 2005 it came to €112,102 million. Funding from customers totaled €96,753 million (€90,206 million at the end of 2005), while bank funding amounted to €17,370 million (€21,896 million a year earlier). Net of intragroup transactions, funding was distributed as follows among the Group banks: Banca di Roma 36.8%; Capitalia S.p.A. 32.4%; Banco di Sicilia 13.4%; FinecoBank 6.8%; Bipop Carire 4.6%. Direct funding from customers accounts for around 84.8% of total funding and amounted to €96,753 million, and increase of 7.3% with respect to the total of €90,206 million at the end of December 2005. At the end of 2006, the Group’s share of the domestic funding market amounted to 6.7% (6.4% in December 2005); its share of the bond market was 6.6% (6.1% in December 2005). At 31 December 2006, total lending came to €108,528 million, compared with €100,959 million at 31 December 2005. Net of intragroup transactions, most lending referred to Banca di Roma (42.6%), followed by Banco di Sicilia (14.2 %), Capitalia (11.8%), MCC (10.8%), Bipop Carire (8.4%) and FinecoBank (5.9%). Loans with banks amounted to €12,516 million, compared with €18,578 million at end-June 2005. Lending to customers amounted to €96,012 million, an increase of 16.5% with respect to the total of €82,381 million at 31 December 2005. Net of bad debts, the Group’s share of the lending market at 31 December 2006 was 5.8% (5.4% at the end of 2005). Classified loans (bad debts and substandard loans) net of writedowns amounted to €4,304 million at the end of the year, broadly unchanged with respect to the figure of €4,298 million recorded at the end of 2005. The portfolio of classified loans amounts to 4.5% of total lending compared with 5.2% at the end of 2005. Net bad debts amounted to €3,332 million, an increase of 3.7% from 31 December 2005 when they totaled €3,214 million. Of the total, 26.2% (€874 million) relates to real estate lending backed by collateral. Net bad debts make up 3.5% of total lending (3.9% in December 2005). On the operational front, Banco di Sicilia carried out a number of non-recourse assignments of bad debts and a substantial writeback of a non-performing exposure following the ruling of the appeals court. Substandard loans came to €971 million, a fall compared with €1,084 million at the end of 2005. Substandard loans relating to real estate lending backed by collateral make up €290 million of the total. Restructured exposures amounted to €468 million and past due exposures to €811 million. Loans to countries in difficulty, written down on a general basis applying percentages at least equal to those agreed under the aegis of the Italian Banking Association, amounted to € 9 million. At 31 December 2006, total financial assets amounted to €15,090 million, compared with €18,948 million at the end of 2005. The net interbank borrowing of the Group totaled €4,854 million at the end of the year, up from €3,318 million the previous year. At 31 December 2006, the item “equity investments” (which in the consolidated financial statements covers Group investments in associated companies and subsidiaries not fully consolidated) showed a balance of €482 million, compared with €777 million at 31December 2005. The consolidated shareholders’ equity of the Capitalia Group at 31 December 2006 was €9,717 million. The following table shows the Capitalia Group’s consolidated reclassified income statement for 2006 (reconciliation provided in annex).
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CAPITALIA GROUP CONSOLIDATED RECLASSIFIED INCOME STATEMENT
Changes 2006 2005 (*) (thousands of euros) total % Net interest income 2,836,887 2,534,371 302,516 11,9 Net income (loss) on assets and liabilities at fair value496,068 487,421 8,647 1,8 Dividends and income (loss) on equity investments carried at equity204,142 151,328 52,814 34,9 Net commissions 1,723,438 1,665,193 58,245 3,5 Other operating income (expenses) 270,034 320,401 (50,367) (15.7) Income from insurance operations –––– Gross income 5,530,569 5,158,714 371,855 7,2 Staff costs (1,988,184) (1,921,158) (67,026) 3,5 Other administrative expenses (1,045,957) (1,059,842) 13,885 (1.3) Net value adjustments of tangible and intangible assets(198,749) (171,593) (27,156) 15,8 Total operating expenses (3,232,890) (3,152,593) (80,297) 2,5 Gross operating profit 2,297,679 2,006,121 291,558 14,5 Net provisions for liabilities and contingencies (120,338) (134,630) 14,292 (10.6) Net impairment adjustments of loans and other financial transactions(483,527) (407,855) (75,672) 18,6 Net impairment adjustments of financial assets (13,254) (48,446) 35,192 (72.6) Value adjustments of goodwill (115) – (115) – Total provisions and adjustments (617,234) (590,931) (26,303) 4,5 Net operating profit 1,680,445 1,415,190 265,255 18,7 Gains (losses) on disposal of assets and from equity investments142,531 82,565 59,966 72,6 Profit before tax 1,822,976 1,497,755 325,221 21,7 Income tax for the year on continuing operations(657,499) (461,284) (196,215) 42,5 Profit (loss) pertaining to minority interests (3,330) (6,405) 3,075 (48) Profit (loss) after tax from groups of assets being divested(174) 5,486 (5,660) – Net profit for the year pertaining to parent 1,161,973 1,035,552 126,421 12,2
(*) Figures reconstructed consistently with the Group’s scope of consolidation at 31 December 2006.
Consolidated net interest income in 2006 amounted to €2,837 million, significantly higher (+11.9%) with respect to 2005. The rise is mainly attributable to the positive developments in assets, as well as the fruits of careful management of interest rate spreads. The figure reflects the portion of interest (about €249 million, reported at item 130 under “Writebacks for impairment”) associated with the time value effect produced by the use of amortized cost at first-time adoption, mainly on impaired loans. The other components of gross income generally showed gains in the year. Net gains on assets and liabilities carried at fair value amounted to €496 million, an increase of 1.8% on an annual basis. The figure includes the gain of around no. 17 million from the sale of Assicurazioni Generali shares (€100.7 million), no.31million from the sale of Fiat shares (€151.6 million) and no.131.7 million from the sale of Immobiliare Lombarda S.p.A. shares (€3.7 million). Dividends and income from equity investments carried at equity totaled €204 million, a considerable increase with respect to the total of €151 million for 2005, thanks also to the sale of Mediobanca shares on the market by Consortium Srl (€33 million) in the first quarter of the year. Net commissions rose by 3.5% to reach €1,723 million. They include about €12 million – following the classification of Capitalia Assicurazioni under companies accounted for using the equity method – in respect of the release to income of previously suspended commissions. Other net operating income declined to €270 million (–15.7%) owing to non-recurrent items recognized in 2005. Gross income came to €5,531 million, an increase of 7.2% compared with 2005. Total operating expenses amounted to €3,233 million (+2.5%). Staff costs (€1,988 million) rose by 3.5%, partly owing to the increase in the number of employees. Other administrative costs, which came to €1,046 million, showed a fall of 1.3%. Net writedowns of tangible and intangible assets amounted to €199 million, an increase of 15.8%. The gross operating profit was €2,298 million (+14.5%). Total writedowns and provisions amounted to €617 million, compared with €591 million a year earlier. Net impairment adjustments of loans and other financial transactions amounted to €484 million
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(+18.6%); net provisions for liabilities and contingencies came to €120 million (compared with €135 million a year earlier), of which €45 million regarding residual commitments associated with the Ipse investment. Net impairment adjustments of financial assets totaled €13 million (compared with €48 million at 31 December 2005). Net operating profit came to €1,680 million (+18.7% compared with the end of 2005). Including net gains from sales of €143 million (of which €50 million from the sale of Capitalia Assicurazioni, €23 million for Farmafacotring, €12 million for S.I. Holding, €11 million for Development Capital I SCA, €10 million for Banca Italo Albanese and €17 million from the repayment of a securities issue), compared with €83 million in 2005, profit before tax amounted to €1,823 million. The result at 31 December 2005 was €1,498 million (+21.7%). After income taxes of €657 million (compared with €461 million in 2005), income pertaining to minority interests of €3 million (€6 million a year earlier), the consolidated net profit at 31 December 2006 amounted to €1,162 million, an increase of 12.2% compared to the reconstructed net income of €1,036 million at 31 December 2005.
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CAPITALIA GROUP CONSOLIDATED INCOME STATEMENT
Changes 2006 2005 (thousands of euros) total % 10. Interest income and similar revenues 5,572,878 5,017,780 555,098 11,1 20. Interest expense and similar charges(2,984,997) (2,771,114) (213,883) 7,7 30. Net interest income 2,587,881 2,246,666 341,215 15,2 40. Commission income 1,989,942 1,924,562 65,380 3,4 50. Commission expense (266,504) (242,378) (24,126) 10,0 60. Net commissions 1,723,438 1,682,184 41,254 2,5 70. Dividends and similar income 125,325 104,552 20,773 19,9 80. Net gain (loss) on trading activities 231,669 551,543 (319,874) (58,0) 90. Net gain (loss) on hedging activities (15,723) (17,471) 1,748 (10,0) 100. Gains (losses) on the disposal or repurchase of:367,840 18,511 349,329 - a) loans 6,828 167 6,661 - b) available-for-sale financial assets 338,900 64,492 274,408 425,5 c) held-to-maturity financial assets 84 73 11 15,1 d) financial liabilities 22,028 (46,221) 68,249 - 110. Net adjustments of financial assets and liabilities at fair value 2,075 (330) 2,405 - 120. Total revenues 5,022,505 4,585,655 436,850 9,5 130. Net impairment adjustments of: (247,775) (182,180) (65,595) 36,0 a) loans (187,667) (89,348) (98,319) 110,0 b) available-for-sale financial assets (15,585) (50,811) 35,226 (69,3) c) held-to-maturity financial assets 2,331 2,365 (34) (1,4) d) other financial transactions (46,854) (44,386) (2,468) 5,6 140. Income from financial operations 4,774,730 4,403,475 371,255 8,4 150. Net premiums - 14,538 (14,538) (100,0) 160. Other income/charges from insurance operations (net)- (11,918) 11,918 (100,0) 170. Income from financial and insurance operations 4,774,730 4,406,095 368,635 8,4 180. General and administrative expenses: (3,077,392) (2,999,801) 77,591 2,6 a) staff expenses (1,988,184) (1,932,244) (55,940) 2,9 b) other administrative expenses (1,089,208) (1,067,557) (21,651) 2,0 190. Provisions for liabilities and contingencies (net) (120,338) (132,040) 11,702 (8,9) 200. Net adjustments of tangible assets (140,226) (85,192) (19,034) 22,3 210. Net adjustments of intangible assets (94,523) (86,725) (7,798) 9,0 220. Other operating income (expenses) 313,285 319,422 (6,137) (1,9) 230. Operating expenses (3,083,194) 2,984,336 (98,858) 3,3 240. Income (loss) on equity investments 77,928 53,089 24,839 46,8 260. Writedowns of goodwill (115) - (115) - 270. Gains (losses) on disposal of investments 53,627 17,833 35,794 200,7 280. Profit (loss) before tax on continuing operations 1,822,976 1,492,681 330,295 22,1 290. Income tax for the year on continuing operations (657,499) (460,311) (197,188) 42,8 300. Profit (loss) after tax on continuing operations 1,165,477 1,032,370 133,107 12,9 310. Profit (loss) after tax from groups of assets being divested (174) 1,512 (1,686) - 320. Profit (loss) for the period after tax 1,165,303 1,033,882 131,421 12,7 330. Profit (loss) pertaining to minority interests (3,330) (5,922) 2,592 (43,8) 340. Net profit for the year pertaining to parent 1,161,973 1,027,960 134,013 13,0
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4.2 AUDIT OF FINANCIAL ACCOUNTS A) Consolidated financial statements at December 31, 2006 The consolidated financial statements at December 31, 2006, were audited by Reconta Ernst & Young S.p.A.; the Audit Company’s Report, released without any comment on April 2, 2007, certifies the conformity of the Capitalia Group’s financial statements to the European International Financial Reporting Standards as well as to the provisions as per Art. 9 of the Legislative Decree 38/2005; it certifies, in addition, the clarity of the disclosures in the financial statements and that it represents in a truthful and correct manner the Group’s balance sheet and income statement, the net income, the changes in consolidated shareholder’s equity and the consolidated cash flows. B) Consolidated financial statements at December 31, 2005 The consolidated financial statements at December 31, 2005, were audited by Reconta Ernst & Young S.p.A.; the Audit Company’s Report, released without any comment on April 3, 2006, certifies the conformity of the Capitalia Group’s financial statements to the European International Financial Reporting Standards; it certifies, in addition, the clarity of the disclosures in the financial statements and that it represents in a truthful and correct manner the Group’s balance sheet and income statement, the net income, the changes in consolidated shareholder’s equity and the consolidated cash flows.
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4.3 NET FINANCIAL POSITION
CAPITALIA GROUP
CAPITALIA GROUP CONSOLIDATED STATEMENT OF CASH FLOWS
Indirect method
(thousands of euros)
A. OPERATING ACTIVITY 31 December 2006 31 December 2005
1. Operations 2,367,991 908,690 – Profit for the year (+/-) (1) 1,165,303 1,033,882 – Capital gains/losses on financial assets held for trading and assets/liabilities carried at fair (871,840) (611,173) – Capital gains/losses on hedging assets (+/-) 15,721 17,471 – Writedowns/writebacks for impairment (+/-) 391,338 453,554 – Net value adjustments to property, plant and equipment and intangible assets (+/-) 198,749 171,917 – Net provisions for liabilities and contingencies and other costs/revenues (+) 628,288 199,450 – Net uncollected premiums (-) - - – Other uncollected insurance income/charges (+/-) - - – Unsettled taxes and duties (+) 657,499 460,311 – Net value adjustments of groups of assets being divested net of tax effects (+/-) - (1,512) – Other adjustments (+/-) 182,933 (815,210) 2. Liquidity generated/absorbed by financing activity 1,310,712 537,036 – Financial assets held for trading 7,545,949 4,257,195 – Financial assets designated at fair value 122,397 191,558 – Financial assets available for sale 480,016 (355,282) – Claims on central banks: demand (70,445) (2,934,823) – Loans to banks: other loans 6,194,943 2,190,504 – Loans to customers (13,682,511) (3,196,774) – Other assets 720,363 384,657 3. Liquidity generated/absorbed by financial liabilities (3,022,340) (1,576,621) – Due to banks: demand (564,145) 1,681,980 – Due to banks: other payables (4,060,570) (7,852,557) – Due to customers 3,379,933 7,045,933 – Securities outstanding 3,000,974 712,037 – Financial liabilities held for trading (4,108,341) (3,216,887) – Financial liabilities carried at fair value - (1,083) – Other liabilities (670,191) 53,956 Net liquidity generated/absorbed by operating activity 656,363 (130,895)
B. INVESTING ACTIVITY 31 December 2006 31 December 2005
1. Liquidity generated by: (2) 514,888 1,245,856 – Sales of equity investments 14,026 46,742 – Dividends received on equity investments 3,000 1,033 – Sale of financial assets held to maturity (3) 290,553 996,566 – Sales of property, plant and equipment 145,025 66,449 – Sales of intangible assets 6,284 38,745 – Sales of subsidiaries and business units (4) 56,000 96,321 2. Liquidity absorbed by: (2) (643,540) (874,344) – Purchases of equity investments (7,436) (106,660) – Purchases of financial assets held to maturity (110,069) (369,155) – Purchases of property, plant and equipment (431,028) (153,270) – Purchases of intangible assets (89,656) (245,259) – Purchases of subsidiaries and business units (5) (5,351) - Net liquidity generated/absorbed by investing activities (128,652) 371,512
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C. FUNDING 31 December 2006 31 December 2005
– Issue/purchases of own shares 865 11.703 – Issue/purchases of capital instruments 25,092 13,259 – Distribution of dividends and other (524,890) (182,388) Net liquidity generated by funding (498,933) (157,426)
D = A+/-B+/- C Net liquidity generated/absorbed during the year 28,778 83,191
RECONCILIATION
E) Cash and cash equivalents at start of period 962,433 879,242 D) Total net liquidity generated/absorbed during the year 28,778 83,191 F) Cash and cash equivalents: effect of exchange rate variations - - G= E+/-D+/-F Cash and cash equivalents at end of period 991,211 962,433
(1) Includes minority interest. (2) The liquidity generated and absorbed by sales and purchases, respectively, also includes other decreases and increases. (3) Also includes redemption of debt securities. (4) Represents payment received for the sale of the subsidiary Capitalia Assicurazioni S.p.A.. (5) See Part G of the notes to the financial statements.
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5. UNICREDIT CONSOLIDATED PRO-FORMA FINANCIAL FIGURES
The following sections describe the effects resulting from the proposed merger of Capitalia in UniCredit. The next table shows key figures of UniCredit Group, Capitalia Group and consolidated pro-forma figures as at December 31, 2006.
KEY FIGURES (€ million) AMOUNTS AS AT 31.12.2006 UNICREDIT CAPITALIA ADJUSTMENTS PROFORMA TOTAL
Net interest margin 12,860 2,756 0 15,616 Operating income 23,464 4,766 -5 28,225 Operating profit 10,206 1,792 -22 11,976 Profit before tax 8,210 1,822 -22 10,010 Profit (Loss) for the year 5,448 1,162 -15 6,595 Financial asset held for trading 191,593 9,370 -756 200,207 Loans and receivable with banks 83,715 12,516 -1,259 94,972 Loans and receivable with customers 441,320 96,012 0 537,332 Total assets 823,284 137,132 7,596 968,012 Deposits from customers and debt securities in issue 495,255 96,753 -289 591,719 Minorities 4,274 55 0 4,329 Shareholders' equity 38,468 9,717 9,478 57,663 Consolidated Net Earnings Per Share (euro) 0.53 0.45 0.50 Consolidated Net Equity Per Share (euro) 3.72 3.74 4.35
5.1 CONSOLIDATED PRO-FORMA BALANCE SHEET AND INCOME STATEMENT – BASES FOR PREPARATION This section shows pro-forma balance sheet and income statement as at December 31, 2006 which represent the effects resulting from the possible merge between Capitalia into UniCredit. For the purposes of the pro-forma information, the capital increase by UniCredit was based on an exchange ratio of 1.12 new ordinary shares of UniCredit for each Capitalia ordinary share existing as at June 29, 2007. On the basis of the exchange ratio approved at the meeting of board of directors of last May 20, following completion of the merger, a maximum of 2,947,094,176 new UniCredit ordinary shares, for a maximum nominal amount of Euro 1,473,547,088 – with the same rights as existing UniCredit shares – will be issued. The Extraordinary General Shareholders’ Meeting of UniCredit will also be called to approve four capital increases for an overall maximum nominal amount of Euro 17,731,028 through the issuance of an overall maximum of 35,462,056 ordinary shares to serve the subscription rights to be assigned in exchange of those issued by Capitalia, pursuant to the incentive plans already approved. Furthermore, the pro-forma consolidated figures, were prepared and exposed in accordance with the provisions of the CONSOB Instruction n. DEM/1052803 of July 5, 2001 and Bank of Italy Circular n. 262 of December 22, 2005 and were compiled in accordance with IAS/IFRS adopted by the European Union.
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Pro-forma figures have been obtained by applying to historical figures pro-forma adjustments in order to reflect retroactively the significant effects of the transactions described above. To aggregate figures, obtained by combining the consolidated figures published by the two entities in the respective Annual reports 2006, appropriate pro-forma adjustments have been applied to show the effects of the merger, measuring the value of the new shares to be issued to support the exchange on the basis of the price of UniCredit ordinary shares as at June 29, 2007 (equal to € 6.629), and preliminarily recording in the item “Goodwill” the difference between such value of the shares and consolidated shareholders’ equity of Capitalia as at December 31, 2006. No purchase price allocation to assets, liabilities or contingent liabilities have been made. This activity will be performed during the preparation of the consolidated annual report 2007. The relative tax impact of the pro-forma adjustments was included, where appropriate, on the basis of the theoretical tax rate applicable as of December 31, 2006. In consideration of the above mentioned transaction, the consolidated pro-forma data includes: i) historical figures of consolidated annual report of UniCredit Group as at December 31, 2006; ii) historical figures of consolidated annual report of Capitalia Group as at December 31, 2006; iii) the effects of UniCredito Italiano S.p.A. capital increase, for the effect of the merger; iv) the effects of the consolidation of Capitalia Group; v) merger adjustments and intercompany elimintaions.
5.1.1 Consolidated Pro-Forma Balance Sheet and Income Statement as at December 31, 2006
CONSOLIDATED PROFORMA BALANCE SHEET (€ Million) AMOUNTS AS AT 31.12.2006 UNICREDIT CAPITALIA INTERCOMPANY MERGER PROFORMA ELIMINATIONS ADJUSMENTS TOTAL Assets Cash and cash balances 5,681 991 0 0 6,672 Financial assets held for trading 191,593 9,370 -756 0 200,207 Loans and receivables with banks 83,715 12,516 -1,259 0 94,972 Loans and receivables with customers 441,320 96,012 0 0 537,332 Financial investments 59,130 6,201 0 0 65,331 Hedging instruments 3,238 303 0 0 3,541 Property, plant and equipment 8,615 2,907 0 0 11,522 Goodwill 9,908 1,508 0 9,611 21,027 Other intangible assets 3,428 231 0 0 3,659 Tax assets 7,746 4,061 0 0 11,807 Non-current assets and disposal groups classified as held for sale 573 22 0 0 595 Other assets 8,337 3,010 0 0 11,347 Total assets 823,284 137,132 -2,015 9,611 968,012
Liabilities and shareholders' equity Deposits from banks 145,683 17,370 -619 0 162,434
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Deposits from customers and debt securities in issue 495,255 96,753 -289 0 591,719 Financial liabilities held for trading 103,980 4,852 -974 0 107,858 Financial liabilities at fair value through profit or loss 1,731 0 0 0 1,731 Hedging instruments 3,708 176 0 0 3,884 Provisions for risks and charges 6,871 1,305 0 0 8,176 Tax liabilities 6,094 862 0 0 6,956 Liabilities included in disposal groups classified as held for sale 97 0 0 0 97 Other liabilities 17,123 6,042 0 0 23,165 Minorities 4,274 55 0 0 4,329 Shareholders' equity 38,468 9,717 -133 9,611 57,663 Total liabilities and shareholders' equity 823,284 137,132 -2,015 9,611 968,012
CONSOLIDATED PROFORMA INCOME STATEMENT (€ Million) FINANCIAL YEAR 2006 UNICREDIT CAPITALIA PROFORMA PROFORMA ADJUSTMENTS Net interest 12,155 2,588 0 14,743 Dividend and other income from equity investments 705 168 0 873 Net interest margin 12,860 2,756 0 15,616 Net fees and commissions 8,348 1,723 0 10,071 Net trading, hedging and fair value income 1,922 276 -5 2,193 Net other expenses/income 334 11 0 345 Net non-interest income 10,604 2,010 -5 12,609 OPERATING INCOME 23,464 4,766 -5 28,225 Payroll costs -7,845 -1,988 0 -9,833 Other administrative expenses -4,431 -1,089 0 -5,520 Recovery of expenses 285 302 0 587 Amortisation, depreciation and impairment losses on intangible and tangible assets -1,267 -199 -17 -1,483 Operating costs -13,258 -2,974 -17 -16,249 OPERATING PROFIT 10,206 1,792 -22 11,976 Impairment of goodwill -9 0 0 -9 Provisions for risks and charges -473 -120 0 -593 Integration costs -465 0 0 -465 Net impairment losses on loans and provisions for guarantees and commitments -2,233 -228 0 -2,461 Net income from investments 1,184 378 0 1,562 PROFIT BEFORE TAX 8,210 1,822 -22 10,010
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Income tax for the period -2,138 -657 7 -2,788 NET PROFIT 6,072 1,165 -15 7,222 Profits (losses) on assets classified as held for sale, after tax 56 0 0 56 PROFIT (LOSS) FOR THE YEAR 6,128 1,165 -15 7,278 Minorities -680 -3 0 -683 NET PROFIT ATTRIBUTABLE TO THE GROUP 5,448 1,162 -15 6,595
Note: dividends from equity investments held for trading are classified in Net trading, hedging and fair value income.
5.1.2 Explanatory notes
Objective of the presentation of pro-forma figures The objective of the presentation of pro-forma consolidated data, which has to be considered for illustrative purpose only, is to provide knowledge of the continuative effects of the functional operations concerning the execution and completion of the merger of Capitalia S.p.A. into UniCredito Italiano S.p.A.. and the subsequent effects of the consolidation of the Capitalia Group into the UniCredit Group as if the transaction had occurred in 2006. The data contained in the pro-forma information is based on the assumptions described below. The data included in the pro-forma scheme is not to be considered representative of the results that would have been obtained if the operations considered in such pro-forma had taken place within the reference period. Furthermore, the pro-forma figures address a hypothetical situation and does not represent in any case the actual or foreseen financial position and the results of the UniCredit Group. In consideration of the different aims of the pro-forma data with respect to those of a non-pro-forma financial statements, and since effects are calculated in a different way with reference to the balance sheet and the income statement , the pro-forma balance sheet and income statement have to be examined and interpreted without searching for links between the two documents separately. The pro-forma adjustments have been calculated according to the general rule that balance sheet items are compiled assuming that the transactions have taken place as of the balance sheet date, while profit and loss items are compiled assuming that the transactions have taken place at the beginning of the period to which the profit and loss account refers to. The impact of actual and predicted transactions after December 31, 2006 has not been considered, apart from the UniCredit capital increase submitted to the Shareholders Meeting of July 28 2006. Similarly,, the expenses related to the capital increase have not been considered as they are not reliably measurable and are, in any case, insignificant in connection with the afore mentioned capital increase. Pro-forma data, published in this document, and the accompanying explanatory notes have been examined by the audit firm engaged for the audit of the consolidated financial statements of the UniCredit Group, who has issued the attached report.
Form and content of pro-forma information The pro-forma consolidated financial and economic data included in this document has been prepared in accordance with CONSOB communication no. DEM/1052803 of July 5, 2001 and the reporting guidance included in the technical attachment thereto. As a result, the pro-forma information has been obtained by adding to the financial and economic figures of the UniCredit Group as of and for the year ended 31 December 2006 all adjustments necessary to reflect retrospectively the impact of the
- 76 - merger of Capitalia into UniCredit and the relevant UniCredit S.p.A. capital increase to support the transaction. The pro-forma consolidated balance sheet is presented showing: • in the column “merger adjustments”, mainly the consolidated effects of the issue of new ordinary shares of UniCredit; • in the column “intercompany eliminations”, the effects of the consolidation of Capitalia Group through the merger. The pro-forma consolidated statement of income information, for which no significant intercompany eliminations had to be made, are presented in a single column “proforma adjustments”. The consolidated pro-forma information is composed of the pro-forma consolidated balance sheet and profit and loss account as of and for the year ended December 31, 2006 included above.
Scope of consolidation The scope of consolidation used for the pro-forma information comprises the companies included in the consolidation of the UniCredit Group and the Capitalia Group as of December 31, 2006. The consolidation area has not been changed to consider any equity stakes held by groups in the same entities, if combined percentage holdings may create the preconditions for full consolidation or equity method of accounting. The shareholding in Mediobanca S.p.A., which stake is 18.072% in the aggregate financial statement, has not been accounted using the equity method considering the specific aim of UniCredit and Capitalia to decrease the stake to 9.39% by the end of 2007, mandating Mediobanca to sell the shares in excess of such target resulting from the Transaction.
Accounting policies, valuation criteria and method of consolidation The accounting policies, valuation criteria and method of consolidation applied to the pro-forma financial information are in accordance with IFRS applicable as of December 31, 2006. Both UniCredit and Capitalia Groups have adopted IAS/IFRS since January 1, 2005. Although the accounting policies applied by the merging entities are basically the same, there are some differences attributable to alternative accounting treatments allowed by the IAS/IFRS. Nevertheless it is believed these differences are not sufficient to invalidate the significance of the pro-forma information and owing to this they have not been considered. For a detailed analysis of the accounting policies applied by UniCredit Group and Capitalia Group please refer to the respective notes to the consolidated financial statements as at December 31, 2006.
Consolidation The consolidation of Capitalia Group has been carried out as follows: • aggregation of consolidated accounts of Capitalia Group to the consolidated accounts of UniCredit Group; • elimination of consolidated net equity of Capitalia as at December 31, 2006 against the booking of the capital increase of UniCredit; • allocation of the difference arising from the merger to “Goodwill”.
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Elimination of Intercompany The main transaction between UniCredit Group and Capitalia Group have been eliminated as follows : • interbank transactions have been cancelled from loans and receivables with banks and deposits from banks, respectively for €1,259 and €619 million, as well as from financial assets held for trading for €95 million and financial liabilities held for trading for €735 million.; • the bonds issued by UniCredit Group present in the securities portfolios of Capitalia Group (€5 million) and bonds issued by the latter and present in the securities portfolio of UniCredit Group (€284 million) companies were deducted from assets in the item “Financial assets held for trading” and from liabilities in the item “Debt securities in issue”; • derivative contracts, equal to €240 million, have been eliminated from financial assets and liabilities held for trading, assuming for hedging derivatives that, under operational continuity of the group, the risk outsourcing exists; • Capitalia shares in the portfolio of UniCredit Group and included in “Financial assets held for trading” have been eliminated and offset by shareholders’ equity, in the specific item “Treasury shares”, for €129 million; • Unicredit shares in the portfolio of Capitalia Group and included in “Financial assets held for trading” have been eliminated and offset by shareholders’ equity, in the specific item “Treasury shares”, for €4 million. The elimination of reciprocal profit and loss items has no impact on reclassified pro-forma consolidated statement of income account nor at single item level for significant figures or, clearly, at net profit level. Besides, reciprocal income and expense related to transactions between the Groups offset each other in the item “Net interest”, and those related to servicing transactions offset each other in the item “Net fees and commissions”.
Pro-forma adjustments Balance sheet adjustments relate to the merger of Capitalia. The difference between the cost of the transaction, represented by the fair value of new ordinary shares of UniCredito Italiano S.p.A., valued at the reference stock price on the market as at June 29, 2007 (€6.629) and the Capitalia’s consolidated shareholders’ equity as at December 31, 2006 (€9,717 million) is €9,611 million and, as described above, it has been recorded in the item “Goodwill”. It must be noted that for every 10 cents of potential difference between the price used in this pro- forma and the effective price on the day on which the merger comes effective (that is the reference date for the final booking of the transaction), the cost of the transaction and consequently the “Difference arising from the merger” will vary by €291 million. Moreover, It must be noted that the merger will be accounted for using the “purchase method”, which entails on the date on which the merger becomes legally effective, the identification of the fair value of net assets and the allocation of the cost of transaction to the same assets and liabilities, attributing any excess with respect to such value to goodwill. Consequently, if in the allocation process property, equipment and intangible assets with finite useful life are identified, the future statements of income will include adjustments to such allocations. Relating to profit and loss accounts, an adjustment has been made to align the residual life applied by Capitalia Group for the calculation of amortization of buildings (annual depreciation of 2%), to the residual life applied by UniCredit Group in Italy (annual depreciation of 3%). The profit and loss adjustment is €17 million (gross), with tax effect of €5 million. The net trading income has been adjusted for €5 million (gross), with tax effect of €2 million, in order to eliminate the trading effects of Capitalia shares held by UniCredit Group. The trading income of
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UniCredit shares held by Capitalia Group is not material so no adjustments have been made to the pro- forma. It must be also pointed out that no financial effect in the profit and loss accounts has been considered in the merger, assuming that it will be entirely performed by the issue of UniCredit shares. At last in compliance to as required by the Consob Criteria for the preparation of pro-forma consolidated figures to give evidence of extraordinary, unusual or nonrecurring events, it must be noted that during the 2006 extraordinary or unusual operations have not been realized,. while the not recurring transactions essentially refer to operations on the participations. Most significant transactions are the disposals of 2S Banca and Splitska Banka by UniCredit (with gains of €401 and €367 million respectively) and the disposal of Capitalia Assicurazioni by Capitalia (gains of €49.6 million), which effects have been booked in “net gains on investments” of the condensed income statement.
5.2 CONSOLIDATED PRO-FORMA SHARE INDICATORS Pro-forma share indicators were computed on the basis of the pro-forma financial statements included in this document and of the number of shares in UniCredit following the capital increase. DECEMBER 31, 2006 DECEMBER 31, 2006 EFFECTIVE PROFORMA
Shares outstanding 10,329,544,981 13,245,190,391 Consolidated gross profit per share (€) 0.79 0.76 Consolidated earning per share (€) 0.53 0.50 Consolidated cash flow per share (€) 0.21 0.16 Consolidated net equity per share (€) 3.72 4.35
The increase of net equity per share (€3.72 the effective and €4.35 the pro-forma) is due to the valuation of UniCredit shares issued for the transaction at the reference stock price on the market as at June 29, 2007 and it is reflected in the new goodwill per share (€ 0.72)
5.3 INDEPENDENT AUDITORS’ REPORTS ON PRO-FORMA STATEMENT OF INCOME AND BALANCE SHEET FIGURES The report of the Independent Auditors KPMG S.p.A concerning the examination of the preparation of pro-forma consolidated statements with the attestation of the reasonability of basic assumptions used for their preparation are attached to this Informational Document.
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6. PROSPECTS OF UNICREDIT AND ITS GROUP
6.1 CAPITAL STRUCTURE AND RECENT RESULTS At 31 December 2006, UniCredit had Core Tier 1 Capital of euro 25 billion, Tier 1 Capital of euro 29 billion and total regulatory capital of euro 44 billion, which – on the basis of total risk-weighted assets of euro 422 billion – a Core Tier 1 ratio of 5.8%, a Tier 1 ratio of 7.0% and a Total Capital Ratio of 10.5%. In fiscal 2006, UniCredit achieved consolidated net profits of euro 5,448 million, an increase of 61% over 2005, and ROE of 16.7% (vs. 10.7% in fiscal 2005). Net interest income grew by 6.8% and was euro 12,860 million at end-2006 while total revenue was euro 23,464 million, up by 12.5% over 2005. Gross operating profit grew by 27.8% and reached euro 10,206 million. Operating profit was up by 47.5% over 2005 at euro 8,210 million. The cost/income ratio improved from 61.7% in 2005 to 56.5% at end-2006. In business line terms these results were mainly due to revenue growth in CEE (up by 28.9%) and Retail business (up by 5.3%). At end-2006 total assets stood at euro 823 billion, up by 4.6% over 2005. Customer loans and customer deposits were respectively euro 441 billion (up by 3.8% over 2005) and euro 288 billion (up by 7.3%). With regard to asset quality, UniCredit's non-performing loans were stable as compared with end-2005, net non-performing loans were euro 6,812 million or 1.5% of net loans (as against euro 6,861 million at end-2005, or 1.6% of net loans). In the first quarter 2007, the UniCredit Group achieved rapidly improving results thanks to integration with the HVB Group. Total revenue reached euro 6.6 billion, up by 10% year on year (or 11.6% year on year at constant exchange rates and consolidated businesses) while operating costs were euro 3.4 billion, up by only 1.9% year on year, the combined result of reorganisation and efficiency gains on the one hand, and business development projects on the other. Operating profit therefore recorded a strong 20% increase year on year rising to euro 3.2 billion. Net profit – which inter alia benefited from a 27.7% year-on-year increase in income from investments – showed 29% year-on-year growth at euro 1,780 million. On the basis of these results the cost/income ratio markedly improved from 55.5% in March 2006 to 51.5%, perfectly in line with the improvement forecast in the strategic plan. At 31 March 2007 Group customer deposits (not including securities in issue) were euro 294 billion, up by 2% over 31 December 2006, while net customer loans were euro 449 billion (up by 1.7% over end- 2006). The improvement in credit quality seen at end-2006 continued with a 5.6% reduction of Group net impaired loans from 31 December 2006, thanks to a reduction in non-performing loans and restructured loans. The ratio of impaired loans to net customer loans fell from 3.23% at end-2006 to 3% at 31 March 2007, with an improved coverage ratio of 50.6% (48.9% at 31 December 2006). The Core Tier 1 ratio was 5.99%, a 17 basis point improvement over the end-2006 ratio of 5.82%.
6.2 FORECASTS As previously mentioned, in order to determine the expected financial impacts of the Merger, Reuters Consensus estimates have been used, i.e. average of estimates provided by third parties / external companies for which UniCredit is not aware of the underlying assumptions used, as UniCredit and Capitalia currently available business plans do not reflect an updated representation of the perimeter of activities of the two Groups and are based on limited time horizons non consistent among each other.
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Consensus estimates used for our analysis are stand alone forecasts, i.e. not including the effect of synergies and costs generated by the integration between the structure of UniCredit and Capitalia. Revenue and cost synergies as well as restructuring costs, as per UniCredit and Capitalia’s estimates, have been therefore added to these observed values. Synergies were estimated on the basis of historical accounting and management data of UniCredit and Capitalia. These estimates are based on the assumption of cost reductions deriving from the centralisation of certain activities, the elimination of overlapping structures and recovery of efficiency and on the assumption of higher revenues generated by aligning commercial effectiveness and by widening the range of distributed products. Such synergies are therefore related to the realisation of economies of scale and scope which could note be achived on a stand-aloone basis and are therefore expected to have an incremental effect on the future results of the Combined Group. Similarly, the transaction is expected to generate one-off costs due to the organization and corporate integration of Capitalia. These costs have been estimated on the basis of historical accounting and management data of UniCredit and Capitalia, tanking into account the organisational processes required to complete the integration. On the basis of Consensus estimates, assuming total gross synergies of approx. €1.2bn (approx. €0.8 bn of net synergies) in 2010 and full provision of integration costs equal to approx. €1.1bn in 2007, pre- allocation of the goodwill arising from the Merger, the compounded annual growth rate of UniCredit net profits in the period 2007-09 is expected to increase from 14.5% on individual basis to 17.3% post Merger. Capitalia’s growth rate in the same period is equal to 13.8%. The transaction is therefore accretive for UniCredit’s shareholders from 2009 onwards and accretive for Capitalia’s shareholders immediately from 2007. As forecasts above described have been determined on the basis of Consensus data elaborated by external parties and the Management did not formulate any assumptions on these Reuters Consensus data, Independent Auditors, as indicated in the examination report attached to this Information Document, were not able to verify if those forecasts were produced consistently in accordance with the adopted assumptions and if the accounting principles used for the elaboration of the forecasts were consistent with the ones normally adopted by the issuer.
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A Joint Stock Company - Registered Office in Genoa - Via Dante, 1 - Head Office in Milan – Piazza Cordusio; CAPITALIA - Registered Office in Via Marco Registered with the Genoa Courts in the Minghetti, 17, Rome – Share Capital € Companies Register, fiscal code and 3,123,792,732 – Rome Register of Companies, Tax VAT number 00348170101; Registered in Registration Number 00644990582 – Member of the Register of Banking Groups and the Interbank Guarantee Fund – The Company is a Parent Company of the UniCredito Registered Bank and is the Parent Company of Italiano Banking Group registered with the CAPITALIA Group, a Registered Banking Group code 3135.1 - Member of the Interbank Fund for Deposit Protection Capital: € 5,222,465,096.50 fully paid up.
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MERGER
INTO UNICREDIT S.P.A.
OF CAPITALIA S.P.A.
Annexes (1/2)
DRAWN UP PURSUANT TO SECTION 70, PARAGRAPH 4, OF THE REGULATIONS CONCERNING ISSUERS - CONSOB REGULATION NO. 11971/99, AS AMENDED
Index of Annexes
Explanatory Report pursuant to art. 2501-quinquies of the Italian Civil Code of the Board of Directors of UniCredit S.p.A. Explanatory Report pursuant to art. 2501-quinquies of the Italian Civil Code of the Board of Directors of Capitalia S.p.A. Merger Plan in accordance with art. 2501-ter of the Italian Civil Code Articles of Association of UniCredit S.p.A. Financial statements pursuant to art. 2501-quater of the Italian Civil Code relative to Capitalia S.p.A. Financial statements pursuant to art. 2501-quater of the Italian Civil Code relative to UnCredit S.p.A. Report on the adequacy of the exchange ratio pursuant to art. 2501-sexies of the Italian Civil Code prepared for UniCredit S.p.A. Report on the adequacy of the exchange ratio pursuant to art. 2501-sexies of the Italian Civil Code prepared for Capitalia S.p.A. Fairness opinion on the estimate of the exchange ratio prepared by Citigroup Global Markets Limited for the Board of Directors of Capitalia S.p.A. Fairness opinion on the estimate of the exchange ratio prepared by Citigroup Credit Suisse Securities Limited for the Board of Directors of Capitalia S.p.A. Fairness opinion on the estimate of the exchange ratio prepared by Rothschild for the Board of Directors of Capitalia S.p.A. Fairness opinion on the estimate of the exchange ratio prepared by Merrill Lynch International for the Board of Directors of UniCredit S.p.A. Examination report of KPMG S.p.A. on the pro-forma consolidated balance sheet and pro- forma consolidated income statements as at and for the year ended at 31 December 2006 Examination report of KPMG S.p.A. on prospective financial information Statement of Income, Balance Sheet and Financial Highlights Pro-Forma of UniCredit: breakdown and reconciliation of reclassified Accounts to Mandatory Reporting Schedule
Explanatory Report pursuant to art. 2501-quinquies of the Italian Civil Code of the Board of Directors of UniCredit S.p.A.
Explanatory Report of the Board of Directors
Approval of the merger plan by way of incorporation of Capitalia S.p.A. into UniCredit S.p.A., in accordance with articles 2501 and following of the Italian Civil Code, and consequent amendments to the Articles of Association
Dear Shareholders, the Board of Directors has convened you for an extraordinary meeting in order to submit to your approval the merger plan into UniCredit S.p.A. (hereinafter “UniCredit” or the “Incorporating Company”) of Capitalia S.P.A. (hereinafter “Capitalia” or the “Incorporated Company”), and the consequent amendments to the Articles of Association. Such merger represents a natural step towards the further development of the UniCredit Group following the integration with Bayerische Hypo- und Vereinsbank A.G. (“HVB”). The merger with Capitalia will, indeed, allow the consolidation of UniCredit in one of its core markets, the Italian one, and the activation of further growth opportunities - in the same market and in other European markets – due to the increased scale of the product factories and to the improved financial strength. The Bank of Italy has granted, on 26th June 2007, to your Company, as holding company of the Group, the authorization to the aforementioned merger plan and the document of assessment of the connected amendments to the Articles of Association, in accordance, respectively, with articles 57 and 56 of Legislative Decree n. 385 of 1 September 1993 (the “Consolidated Banking Act”). This report - prepared pursuant to article 2501-quinquies of the Italian Civil Code and article 70 of the Regulation adopted with CONSOB Resolution of 14 may 1999 n. 11971 (as subsequently amended and modified), in accordance with general criteria indicated in Annex 3A of the aforesaid Regulation – is aimed at explaining the above plan (the “Report”).
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1 1. RATIONALE AND MAIN ELEMENTS OF THE TRANSACTION
1.1 Background Thanks to its integration capability, the UniCredit Group has attained an important position in the European banking sector, due to restructuring benefits and sustainable organic growth in the Italian domestic banking market, in less than two years UniCredit's market capitalisation has grown from about euro 26.3 billion (as at 30 May 2005, the date prior to the first announcement of the business combination with HVB) to more than euro 78 billion (as at 8 May 2007). This result positions UniCredit among the top ten European banking groups and among the top five in the eurozone in terms of size, placing it in a strong position to take advantage of further merger opportunities. Furthermore, it is important to emphasize that this high ranking in terms of size is directly linked to the significant creation of value generated over the last two years, as the rise in the share price of more than 81% (calculated as at the dates indicated above) proves, and is based on a truly European operation, with branch networks in 20 different countries and leading positions in most of these markets. Together with other transactions, as for instance the acquisition of Abbey National by Santander, the acquisition of Banca Nazionale del Lavoro by BNP Paribas and the acquisition of Banca Antonveneta by ABN Amro, the combination of UniCredit and HVB contributed significantly to accelerating change in the domestic as well as international banking landscape, which after these transactions was undoubtedly altered. From a domestic point of view, Banca Intesa and San Paolo IMI have created a new leader in the Italian banking market of the first magnitude. Certain mutual banks have merged and thus increased their size in order to compete in the European banking market, for example Banco Popolare Verona Novara with Banca Popolare Italiana and Banche Popolari Unite with Banca Lombarda, while other transactions such as the merger between Banca Popolare di Milano and Banca Popolare Emilia Romagna are being planned. On an international scale, even bigger changes have taken place, primarily linked to offers for the Dutch bank ABN Amro (still in progress on the date of this report). For various reasons these offers are of great importance. First, they are proof of the fact that, following the merger of UniCredit and HVB, European banks' competitive market is the whole continent. Secondly, it involves at least five of the major European banks, including, apart from ABN Amro itself, Barclays, Royal Bank of Scotland and Santander. Finally, whatever the final outcome of these offers, the entities emerging from the ongoing consolidation process will operate on a significantly larger scale compared to the current one and this will lead to a higher threshold for Europe-wide competition.
2 Furthermore, it should be noted that with the ongoing acquisition of ABN Amro, American banking players are gaining importance in the European banking market. There is potential not only for indirect involvement, like that of Bank of America in the acquisition of the non-European business of the European Bank ABN Amro, but also, market rumours suggests, for direct acquisitions of European banking players by American banks. Thanks to its leading position in the European banking sector acquired through the combination with HVB, UniCredit is in an ideal position to take advantage of the current dynamism in the European banking market by playing the role of active consolidator in the Group's core markets – Italy, Germany, Austria and Central-Eastern Europe – as well as in other European markets. 1.2 Rationale As noted in the preceding section, UniCredit can grow further by means of 'non- organic' transactions along two complementary lines: consolidation in its core markets – Italy, Germany, Austria, and Central- Eastern Europe – in order to strengthen the positioning of UniCredit in markets where it already operates and benefit from economies of scale in both production and distribution; expansion into new markets with a view to achieving further economies of scale in production and creating significant new strategic options for overall growth. Merging with Capitalia is undoubtedly consistent with the first line of development, domestic growth, but it will also make it possible to activate further growth options both in the Italian market and in other European markets thanks to the greater scale of the product factories and to its larger size. In the Italian market the merger with Capitalia will first of all make it possible for UniCredit to strengthen its distribution network and increase its market share in regions that are attractive in terms of profitability but where UniCredit is currently under- represented (Lombardy, Latium, Sicily and Apulia), enabling it to establish more balanced coverage of the Italian market. Specifically UniCredit's market share in terms of the number of branches would increase from 5% to 9% in Lombardy, from 8% to 27% in Latium, from 4% to 30% in Sicily and from 8% to 13% in Apulia. Following the merger, the Group's branches would be almost equally distributed between the North West, the North East, the Centre, the South and the Islands, and the pre-merger predominance of the North East would be reduced. The merger with Capitalia will also bring about a strengthening of UniCredit's position in certain specialised businesses. In leasing, its Italian market share (measured in
3 terms of the current lease portfolio) will rise from 13% to 21%; in factoring from 6% to 12% (measured in terms of the volume of turnover); in bankassurance from 12% to 18% (measured in terms of premiums written). UniCredit will also increase its financial advisor network significantly, from about 1,900 to more than 3,000, and will assume a position of leadership in online banking, thanks to the integration of FinecoBank, which is market leader. Finally, integration will generate economies of scale in the production businesses. Assets under management will grow by more than euro 30 billion to a total of euro 156 billion, i.e. by 28% of the pre-merger Group assets under management, giving a 17% share of assets under management in Italy. Revenue from large corporate and investment banking will grow – on the basis of UniCredit's and Capitalia's segmentation – by around 25%, increasing from euro 3.2 billion to euro 4.0 billion. The specialist skills developed by Capitalia in certain business segments, such as structured finance and subsidised loans, will enrich the Group's know-how and may be put to wider use on a European scale. The adoption of regional distribution post-merger, as described below, will also make combinations with local banks easier. Internationally, the increased scale of production businesses will augment the possibility of generating economies of scale in these businesses and assuming the position of a centre of aggregation in the global market. UniCredit will in fact maintain its markedly European character, since more than 50% of post-merger revenue will continue to originate outside Italy. UniCredit will become the third largest European bank in terms of market capitalisation and the largest in the eurozone. This size will make it possible to negotiate possible further combinations with international and other players from a position of greater strength and at the same time ensure greater financial solidity. The combination with Capitalia will also enable the UniCredit Group to increase the proportion of its revenue arising from the retail business, and this will bring even greater stability to its profitability. The benefits we have described as accruing from the merger of UniCredit and Capitalia will materialise in gross synergies of euro 1,162 million in 2010, which will make it possible to increase earnings per UniCredit share as early as fiscal 2009.
2. THE MERGER ENTITIES
2.1 UniCredit S.p.A. (Incorporating Entity)
4 2.1.1 Recent History UniCredit was born in 1998 out of the aggregation of Credito Italiano S.p.A. and Unicredito S.p.A. Starting in 1999, UniCredit steadily expanded into the high-growth markets of Eastern Europe by acquiring a series of significant equity investments including Bank Pekao in Poland, Bulbank in Bulgaria, Zagrebacka Banka in Croatia and Koç Financial Services in Turkey. In 2000 UniCredit began to create a global asset management platform with the acquisition of Pioneer Investments in the US, which in turn bought Momentum, a world leader in hedge funds, in 2002, and thus established Pioneer Global Asset Management. In 2005 UniCredit brought about one of the largest cross border business combinations seen in Europe by acquiring the control of HVB and Bank Austria (“BA- CA”) and thus becoming the first truly pan-European bank. Today UniCredit is one of Europe's leading financial groups with over 7,200 branches, strong local roots in 20 countries, more than 142,000 employees and about 35 million customers.
2.1.2 Key Information UniCredit has its legal seat in Genoa and its head office in Milan. It is the second largest Italian banking group by total assets. At 31 December 2006, UniCredit had consolidated total assets of euro 823 billion, customer loans of euro 441 billion, customer deposits and securities of euro 495 billion, about 35 million customers and over 7,200 branches, of which 3,019 are in Italy. Total revenue in 2006 was euro 23.5 billion and operating profit was euro 10.2 billion. The Group has adopted a divisional organisational model, based on an offering of personalised services by centralised skill centres and product factories and local banks, with a strong presence in their area. The divisions are the following: Retail: based in Milan, provides commercial banking services to private individuals (mass market and affluent) and to small businesses operating in Italy, Germany and Austria; Corporate: based in Munich, markets products and services to corporate with annual turnover of over euro 3 million in Italy, Germany and Austria; Private Banking & Asset Management (“PB&AM”): based in Milan, PB&AM provides investor services to private individuals and institutional clients world-wide;
5 Markets & Investment Banking (“MIB”): based in Munich, the division operates as a global product factory and skill centre for the UniCredit Group in financial markets and investment banking; Central-Eastern Europe (“CEE”): based in Vienna, the division manages retail and corporate banking business in CEE countries except Poland, through the sub-holding BA-CA; Poland Markets: based in Warsaw, the division manages retail and corporate banking business in Poland and Ukraine; Global Banking Services: based in Milan, its function is to provide strategic support for the sustainable growth of the Group's businesses and optimise cost structures and internal processes, ensuring maximum synergy and cost savings together with operational excellence.
The division that contributed most to revenue in 2006 was Retail (34% of the total), followed by Corporate and CEE (both with 21%), MIB (14%) and PB&AM (10%).
2.1.3. Market Positioning At end-2006, UniCredit was the second-largest bank in Italy in terms of customer loans (with a market share of ca. 10%), the third-largest bank in Germany (with a market share of ca. 5%), the leading bank in Austria (with a market share of ca. 19%) and in CEE (with total assets that are twice those of the closest competitor). Specifically the Group possesses strong roots and a unique strategic position in one of the richest regions of Western Europe which includes Bavaria, Austria and Northern Italy, as well as undoubted leadership in Central-Eastern Europe – an area with high rates of economic growth and rapid expansion of banking markets – with a strong presence in 17 countries.
2.1.4. Capital Structure and Recent Operating Results At 31 December 2006, UniCredit had Core Tier 1 Capital of euro 25 billion, Tier 1 Capital of euro 29 billion and total regulatory capital of euro 44 billion, which – on the basis of total risk-weighted assets of euro 422 billion – a Core Tier 1 ratio of 5.8%, a Tier 1 ratio of 7.0% and a Total Capital Ratio of 10.5%. In fiscal 2006, UniCredit achieved consolidated net profits of euro 5,448 million, an increase of 61% over 2005, and ROE of 16.7% (vs. 10.7% in fiscal 2005). Net interest income grew by 6.8% and was euro 12,860 million at end-2006 while total revenue was euro 23,464 million, up by 12.5% over 2005. Gross operating profit grew by 27.8% and reached euro 10,206 million. Operating profit was up by 47.5% over 2005 at euro 8,210 million. The cost/income ratio improved from 61.7% in 2005 to 56.5% at end-2006. In
6 divisional terms these results were mainly due to revenue growth in CEE (up by 28.9%) and Retail business (up by 5.3%). At end-2006 total assets stood at euro 823 billion, up by 4.6% over 2005. Customer loans and customer deposits were respectively euro 441 billion (up by 3.8% over 2005) and euro 288 billion (up by 7.3%). With regard to asset quality, UniCredit's non-performing loans were stable as compared with end-2005, net non-performing loans were euro 6,812 million or 1.5% of net loans (as against euro 6,861 million at end-2005, or 1.6% of net loans). In the first quarter 2007, the UniCredit Group achieved rapidly improving results thanks to integration with the HVB Group. Total revenue reached euro 6.6 billion, up by 10% year on year (or 11.6% year on year at constant exchange rates and consolidated businesses) while operating costs were euro 3.4 billion, up by only 1.9% year on year, the combined result of reorganisation and efficiency gains on the one hand, and business development projects on the other. Operating profit therefore recorded a strong 20% increase year on year rising to euro 3.2 billion. Net profit – which inter alia benefited from a 27.7% year-on-year increase in income from investments – showed 29% year-on- year growth at euro 1,780 million. On the basis of these results the cost/income ratio markedly improved from 55.5% in March 2006 to 51.5%, perfectly in line with the improvement forecast in the strategic plan. At 31 March 2007 Group customer deposits (not including securities in issue) were euro 294 billion, up by 2% over 31 December 2006, while net customer loans were euro 449 billion (up by 1.7% over end-2006). The improvement in credit quality seen at end-2006 continued with a 5.6% reduction of Group net impaired loans from 31 December 2006, thanks to a reduction in non-performing loans and restructured loans. The ratio of impaired loans to net customer loans fell from 3.23% at end-2006 to 3% at 31 March 2007, with an improved coverage ratio of 50.6% (48.9% at 31 December 2006). The Core Tier 1 ratio was 5.99%, a 17 basis point improvement over the end-2006 ratio of 5.82%.
2.1.5 Shareholders UniCredit's share capital is euro 5,222,465,096.50, comprising 10,444,930,193 shares with a par value of euro 0.50, of which 10,423,223,641 registered ordinary shares and 21,706,552 bearer savings shares. The savings shares – which are preferred for profit distribution and under Article 5, paragraph 10 of the Articles of Association, in the event of redemption of company capital following losses or on liquidation of the company – do not entitle the holder to vote.
7 UniCredit's company capital is held by many different institutional and retail shareholders. The company is not aware of any shareholders' agreement. The main shareholders with stakes of over 2% are the Fondazione Cassa di Risparmio Verona, Vicenza, Belluno e Ancona (4.987%), the Munich Re Group (4.737%), the Fondazione Cassa di Risparmio di Torino (4.720%), Carimonte Holding S.p.A. (4.274%) and the Allianz Group (3.092%). At 16 May 2007 UniCredit held 87,000,000 treasury shares, purchased on the basis of a resolution of the shareholders' meeting held on 4 May 2004. 2.2 Capitalia S.p.A. (Company to be Incorporated)
2.2.1 Recent History Capitalia was born in 2002 out of the integration of two pre-existing entities: the Banca di Roma Group and the Bipop-Carire Group. Under its first 2002-2005 industrial plan the Group was substantially reorganised and thereafter grew rapidly due not least to organisational and corporate rationalisation under the 2005-2007 industrial plan approved in 2005. Specifically the reorganisation, completed on 1 January 2006 and designed to strengthen corporate governance, simplify decision-making processes and achieve cost and revenue synergies, entailed: a merger of Fineco S.p.A. into Capitalia in order to put its specialist skills to better use and spread best practice throughout the Group, together with a reduction of staff overlaps and cost savings; focusing MCC on specialised finance (export, project and acquisition finance, industrial loans, subsidised loans, leasing and factoring), by means of absorption of Capitalia Leasing and Factoring and operational integration of Fineco Leasing on the one hand, and on the other the partial split-off to Capitalia of a series of businesses that were no longer relevant to its mission including capital markets and investment banking; transfer of ownership of the real estate of Banca di Roma, Banco di Sicilia and Bipop Carire to Capitalia, as well as certain properties owned by Capitalia Leasing and Factoring and used by the mentioned banks, and assignment to an ancillary company, Capitalia Solutions, of procurement and property and facility management. Currently the Group is headed by the Group Parent Capitalia and the main subsidiaries are: o the commercial banks (Banca di Roma, Banco di Sicilia and Bipop Carire, all wholly owned) whose focus is on traditional customers and banking business carried on in their respective areas under their own brand;
8
o the specialised banks and product companies who carry on more specialist banking business. These are:
9 MCC, wholly owned by Capitalia, whose main businesses are industrial loans, leasing and factoring, structured and acquisition finance, real estate finance, project finance and export finance, as well as all types of marine finance and a complete range of services, incentives and finance in support of economic development in Italy's less developed areas;
9 directly held banks and finance companies previously owned by Fineco, such as FinecoBank, Fineco Leasing, Capitalia Asset Management SGR S.p.A, Capitalia Investimenti Alternativi SGR S.p.A., or by MCC such as Capitalia Sofipa SGR S.p.A.
o shared service companies such as Capitalia Informatica specialising in IT and back-office services for the three network banks of the Capitalia Group: Banca di Roma, Banco di Sicilia, Bipop Carire; Capitalia Service JV which recovers bad debts on behalf of Group entities; Capitalia Solutions, which specialises in property and facility management on behalf of Group and non-Group entities;
o the two sub-holdings Capitalia Partecipazioni and Capitalia Merchant, both wholly owned and charged respectively with the management of strategic and non-strategic equity investments.
2.2.2 Key Information Capitalia, based in Rome, is Italy's third-largest banking group by total assets. At 31 December 2006, Capitalia had consolidated total assets of euro 137 billion, customer loans of euro 96 billion, customer direct deposits of euro 97 billion, about 4.5 million customers and a network of 2,000 branches in Italy and 14 outside Italy. Total revenue for fiscal 2006 exceeded euro 5.5 billion, while operating profit was over euro 2.3 billion. The Group is organised according to the following business lines with the main focus on retail and corporate customers. The main lines of business, together with Credit Policy and Finance (i.e., capital markets) are: • Commercial Banks: runs the commercial banks (Banca di Roma, Banco di Sicilia and Bipop Carire) and their branches outside Italy;
9 • Specialised Banks and Product Companies: covers activity relating to governance of MCC, FinecoBank and Wealth Management (asset management and Life);
• Corporate: performs origination, advisory and business development for corporates (Large Corporates and Private Equity funds) and institutional clients, in relation to products and services offered by the Group. In terms of segment reporting, Capitalia is structured in the following business areas: Retail: includes the business of the Commercial Banks in the mass market, affluent, private banking and small business segments; Corporate: focuses on the mid-corporate segment in the Commercial Banks and the business of the foreign branches; Wholesale & Investment Banking: includes the large corporate and institutional segments, investment banking and custodian business, as well as the Parent Company's financial transactions and those of individual subsidiaries; Financial Services: comprises the business of FinecoBank, MCC, Fineco Leasing and all wealth management (managed savings companies and insurance companies); Corporate Center: includes Treasury, the business of the Holding and Capitalia Service JV. Retail was the business that contributed most to the Group's total revenue in 2006 (49% of the total), followed by Financial Services (15%), and Corporate and Wholesale and Investment banking (14%). The Corporate Center contributed 8%. On 8 May 2007, Capitalia had market capitalisation of ca. euro 18 billion, which ranked it 30th in Europe and 21st in the eurozone among banking groups.
2.2.3. Market Positioning Capitalia is the third largest bank in Italy by total assets, with a domestic market share of loans of 5,8% and 6,7% of deposits at end-2006. The Group is most strongly rooted in the regions of Sicily and Latium, where its respective market shares are 26% and 19% in terms of the number of branches, while its national market share is ca. 6,2%. Outside Italy Capitalia operates mainly through the branches of Banca di Roma, focusing on the corporate segment. The Group has operational branches in 12 markets:
10 Beirut, Bucharest, Frankfurt, Hong Kong, Istanbul, London, Madrid, New York, Paris, Shanghai, Singapore and Tokyo.
2.2.4. Capital Structure and Recent Results At 31 December 2006, Capitalia had Core Tier 1 Capital of euro 6.2 billion, Tier 1 Capital of euro 6.2 billion and regulatory capital of euro 8.7 billion, corresponding, on the basis of risk-weighted assets of euro 102 billion, to a Core Tier 1 ratio / Tier 1 ratio of 6.2% and a Total Capital Ratio of 9.2%. In 2006 Capitalia recorded consolidated net profits of euro 1,162 million, up by 12.2% over 2005, with ROE of 15.4% vs. 15.0% at the end of 2005. After reclassification (according to the reclassification adopted by Capitalia), net interest income grew by 11.9% to euro 2,837 million while total revenue was euro 5,531 million, an increase of 7.2% over the previous year. Gross operating profit improved by 14.5% to euro 2,298 million, in line with the objective fixed for the following year. Operating profit rose by 18.7% over 2005 to euro 1,680 million. The cost/income ratio went from 61.1% in 2005 to 58.5%, an improvement of 2.6%. In terms of business lines these results were mainly due to 9.5% revenue growth in Retail followed by Wholesale and Investment Banking (up by 8.6%), Corporate banking (up by 3.4%) and Financial Services (up by 2.3%). At end-2006 total assets stood at euro 137 billion, up by 2.3% over 2005. Customer loans and direct customer deposits were respectively euro 96 billion (up by 16.5% over 2005) and euro 97 billion (up by 7.3%). With regard to asset quality, Capitalia's level of non-performing loans was stable as compared to end-2005, with net non-performing loans of euro 3.3 billion or 3.5% of the net credit exposure (as against euro 3.2 billion at end-2005, or 3.9% of net loans). In the first quarter 2007 Capitalia recorded consolidated net profit of euro 277 million, up by 1.8% over 2006, with ROE of 14.6% as against 15.0% in the first quarter 2005. On a reclassified basis, net interest income grew by 12.6% to euro 766 million while total revenue reached euro 1,399 million, up by 4.3% over the previous year. Gross operating profit rose by 9% to euro 597 million. Operating profit increased to euro 453 million, up by 12.3% over 2006. The cost/income ratio fell from 59.2% in the previous year to 57.3%, an improvement of 1.9 percentage points. In terms of business lines, these results were mainly due to a growth of revenue in Corporate (up by 13.6%) and Retail (up by 11.0%); Financial Services grew more slowly (up by 2.3%), while the result of Wholesale and Investment Banking was down by 15.6%. At 31 March 2007 total assets stood at euro 143,590 million, up by 9.3% over 2006. Customer loans and customer direct deposits were respectively euro 101 billion (up by 18.8% as against the 2006 figure) and euro 101 billion (up by 12.3%). With regard to asset quality, Capitalia's non-performing loans, was stable compared with end-2006, with
11 net non-performing loans of euro 3.4 billion or 3.3% of net loans (as against euro 3.3 billion in 2005, or 3.8% of net lending).
3. CAPITALIA SHAREHOLDING STRUCTURE As at the date of approval of this Report (i.e. 20 May 2007), the share capital of Capitalia amounts to euro 3,119,605,842.00 represented by 2,599,671,535 ordinary registered shares with a par value of euro 1.2 each. The Extraordinary Shareholders’ Meetings held on 16 May 2002, 4 April 2005 and 28 November 2005 respectively approved capital increases to service certain stock option plans. Afterwards the Extraordinary Shareholders’ Meeting of 19 April 2007, on the basis of the shares effectively subscribed as of that date and the increase of the par value of the Capitalia’s shares from euro 1 to euro 1.20, changed the residual maximum nominal amount of the resolved capital increases. In particular the above mentioned Extraordinary Shareholders’ Meetings approved: on 16 May 2002 a capital increase, in divisible tranches, of up to a maximum nominal amount of euro 20,000,000, to be effected through the issue of up to a maximum 20,000,000 ordinary shares to service 20,000,000 non-transferable warrants, assigned free of charged to Capitalia Group’s employees. The Extraordinary Shareholders’ Meeting of 19 April 2007 changed the residual maximum nominal amount of the capital increase to euro 5,468,460 to service the possible subscription of 4,557,050 shares. The resolved capital increase shall be completed by 10 October 2008. Upon expiration of such term, the share capital will be deemed increased by an amount equal to the subscription rights exercised as at that date. The price at which the above mentioned warrants may be exercised is equal, as far as a first tranche of 118,950 warrants is concerned, to euro 1.214 and, as far as a second tranche of 3,820,000 warrants is concerned, to euro 2.4743 (“Employees Warrants A”); on 4 April 2005 a capital increase, in divisible tranches, of up to a maximum nominal amount of euro 22,000,000 to be effected through the issue of up to a maximum 22,000,000 ordinary shares to service 22,000,000 non-transferable warrants, assigned free of charged to Capitalia Group’s employees. The Extraordinary Shareholders’ Meeting of 19 April 2007 changed the residual maximum nominal amount of the capital increase to euro 25,518,000 to service the possible subscription of 21,265,000 shares. The resolved capital increase shall be completed by 31 December 2011. Upon expiration of such term, the share capital will be deemed increased by an amount equal to the subscription rights exercised as at that date. The price at which the above
12 mentioned warrants may be exercised is equal to euro 4.1599 (“Employees Warrants B”); on 28 November 2005, in the frame of the merger of Fineco into Capitalia, a share capital increase, in divisible tranches, structured as follows: o an increase of a maximum nominal amount of euro 3,466,650, through the issue of up to a maximum 3,466,650 ordinary shares of Capitalia to be effected within 31 December 2009 to service an equal number of warrants assigned in exchange for the 2,070,990 warrants issued in favour of FinecoGroup’s employees and FinecoBank’s network of private bankers pursuant to the stock incentive plan approved by the Extraordinary Shareholders’ Meetings of Fineco held on 13 November 2003 and 1 April 2005 respectively. The new shares will be offered for subscription to holders of the above mentioned warrants pursuant to the exchange ratio established for Fineco’s shareholders under the merger into Capitalia, at a price of euro 4.24 for each newly issued share. The Extraordinary Shareholders’ Meeting of 19 April 2007 changed the residual maximum nominal amount of the capital increase to euro 1,823,970 to service the possible subscription of 1,519,975 shares. Upon expiration of the term provided for the completion of the capital increase, the share capital will be deemed increased by an amount equal to the subscription rights exercised as at that date (“Fineco Warrants A)”; o an increase of a maximum nominal amount of euro 10,543,334, through the issue of up to a maximum 10,543,334 ordinary shares of Capitalia to be effected within 31 December 2011 to service an equal number of warrants assigned in exchange for the 6,326,000 warrants issued in favour of FinecoGroup’s employees and FinecoBank’s network of private bankers pursuant to the stock incentive plan approved by the Fineco’s Extraordinary Shareholders’ Meeting of 1 April 2005. The new shares will be offered for subscription to holders of the above mentioned warrants pursuant to the exchange ratio established for Fineco’s shareholders under the merger into Capitalia, at a price of euro 3.9348 for each newly issued share. The Extraordinary Shareholders’ Meeting of 19 April 2007 changed the residual maximum nominal amount of the capital increase to euro 12,652,000.80 to service the possible subscription of 10,543,334 shares. Upon expiration of the term provided for the completion of the capital increase, the share capital will be deemed increased by an
13 amount equal to the subscription rights exercised at that date (“Fineco Warrants B”). On 23 February 2005 the Board of Directors of Capitalia approved a Stock Incentive Plan 2005 pursuant to which 850,000 warrants have been allocated in favour of the managing directors of the Capitalia Group’s companies who have not an employment relationship with such companies (“MD Warrants”); each warrant assigns the right to purchase 1 Capitalia’s ordinary share, to be attributed by means of transfer of the own shares held by Capitalia. The relevant purchase price has been fixed in euro 4.1599. Furthermore Capitalia’s Extraordinary Shareholders’ Meeting of 28 November 2005 authorized the Board of Directors of Capitalia to increase the share capital in one or more tranches, with the exclusion of any shareholders’ options rights under art. 2441, paragraph 4, second sentence of the Italian Civil Code, by a maximum amount of euro 264,000,000 (as amended by the Extraordinary Shareholders’ Meeting of 19 April 2007) corresponding to a maximum number of shares equal to 220,000,000 to be effected within 31 October 2010 and reserved for subscription by Italian and foreign professional investors. In the context of the resolutions concerning the approval of the merger plan and the relevant Report, the Board of Directors of the Incorporated Company has undertaken not to exercise such power for the period of the implementation of the merger herein illustrated to the shareholders. As at the date of this Report Capitalia holds 200,000 own shares; before the effective date of the merger all such shares will be allocated in exchange for MD Warrants. Capitalia’s share capital is distributed among a variety of retail and professional shareholders. Approximately 31% of the share capital is syndicated pursuant to a Voting Pool Agreement entered into by and among, inter alia, the following major shareholders: ABN Amro, with a 8.6% participation, Fondazione Manodori, with a 4.1% participation, Fondiaria-SAI, with a 3.5% participation, Regione Siciliana, with a 2.8% participation, Fondazione Banco di Sicilia, with a 2.7% participation (1.7% only syndicated pursuant to the Voting Pool Agreement), Tosinvest, with a 2,1% participation and Generali, with a 2.3% participation (1.0% only syndicated pursuant to the Voting Pool Agreement). Pursuant to the Voting Pool Agreement, the Pool Meeting, inter alia, shall resolve on the merger between Capitalia and other banks, such resolution to be taken with the favourable vote of at least 65% of the shares syndicated under the Voting Pool Agreement. Save in case the resolution is adopted by the Pool Meeting with the favourable vote of at least 75% of the votes, during the meeting of the Board of Directors the directors appointed by the syndicated shareholders have the right to adopt managerial resolutions different from the resolutions adopted by the Pool Meeting.
14 Fondazione Cassa di Risparmio di Roma, with a 5% participation in Capitalia, is the major shareholder not being part to the Voting Pool Agreement. The participants to the Voting Pool Agreement and the other major shareholders hold in aggregate about 41% of the Capitalia’ share capital. The residual 59% of the Capitalia’s share capital is distributed among professional and retail investors.
4. DETERMINATION OF THE VALUE OF UNICREDIT AND CAPITALIA AND THE EXCHANGE RATIO
4.1 Introduction In order to determine the exchange ratio between UniCredit and Capitalia, the Board of Directors of UniCredit used its internal structures to value the economic capital of UniCredit and Capitalia on the basis of the data detailed below. For the purposes of the transaction under discussion, the economic value of UniCredit and Capitalia has been calculated both on a stand-alone basis, i.e. not taking into account the effects that may come from the wider industrial plan, and on the basis of consideration of the strategic significance of the transaction and the potential creation of value for UniCredit shareholders. Additionally, these economic values have been estimated on the basis of the long-standing valuation principle that the valuation criteria used should be uniform. The economic values resulting from the application of different valuation methods are therefore meaningful only in relation one to another and should be taken solely as the means by which a fair exchange ratio could be reached for the purposes of the merger. The value of the UniCredit share used for the purposes of determining the exchange ratio refers solely to UniCredit's ordinary shares: given that the total value of UniCredit includes both the value of the ordinary shares and that of the savings shares and bearing in mind that UniCredit savings shares have different market prices from those of the ordinary shares – although recently they have been almost the same (average price in the last six months just 0.3% over that of the ordinary shares), it was decided that the number of the savings shares should be weighted and that the number of "equivalent ordinary shares” to the savings shares should be calculated on the basis of the price difference between the two share categories. For the purposes of this valuation, moreover, a fully diluted number of shares was considered, i.e. including all potential shares arising from exercise of options that are currently in the money (net of treasury shares). Finally, the range of exchange ratios determined by each valuation method was determined by identifying:
15 as the minimum exchange ratio, the ratio of the lowest value of the Capitalia share to the highest value of the UniCredit share; and as the maximum exchange ratio, the ratio of the highest value of the Capitalia share to the lowest value of the UniCredit share. Market figures used in all valuation methods are as at 8 May 2007 for UniCredit and Capitalia (the last date before the start of significant market rumours) and 16 May 2007 for the purposes of comparison.
4.2 Reference Date of the Valuation and Documentation Used 4.2.1 Reference Date The reference date of the valuation is that of this report and has been taken on the basis of the following assumptions. For the purposes of this valuation, it is assumed that both UniCredit and Capitalia – in the period between the latest available balance sheets detailed in the next paragraph and the date of this Report – have not undergone events such that their capital position or economic and financial condition would have been materially affected. 4.2.2 Documentation Used For the following analyses the following documentation was used (the “Documentation”): in respect of Capitalia: annual accounts as at 31 December 2006 approved by the shareholders' meeting held on 19 April 2007; consolidated annual accounts as at 31 December 2006; recent financial research and analyses on Capitalia published by brokers and research analysts of investment banks (including the Consensus provided by Reuters); the multiyear Plan of the Capitalia Group approved by the Board of Directors of Capitalia on 5 July 2005 and presented to the market in macro-aggregate figures on the same date. in respect of UniCredit: annual accounts as at 31 December 2006 approved by the shareholders' meeting held on 10 May 2007; consolidated annual accounts as at 31 December 2006;
16 recent financial research and analyses on UniCredit published by brokers and research analysts of investment banks (including the Consensus provided by Reuters); the Business Plan of the UniCredit Group approved by the Board of Directors of UniCredit on 5 July 2006 and presented to the market in macro-aggregate figures on the same date. Other information available on 16 May 2007 was also used, including: research and analysis on companies operating in the banking sector with similar operational characteristics to those of UniCredit and Capitalia; market price trends over an appropriate period of time obtained from specialist databases.
4.3 Limits of the Analysis and Difficulty of Valuation The valuations reached by your Board of Directors, with the assistance and advise of Merrill Lynch International acting as financial advisor, should be considered in the light of certain limitations and valuation difficulties which in this case can be summarised as follows: The analysis was limited to a check of the Documentation and no due diligence was carried out on Capitalia, nor of the criteria used by UniCredit when preparing the Documentation; We relied on the fact that the Documentation provides a true, accurate, up-to- date and complete picture of all risk factors, and that there are no facts or events, prior to or subsequent to the latest reference date of the Documentation, that could give rise to third parties' rights, legal disputes or other consequences that would have a material adverse effect on the capital position or economic or financial condition or the valuation of UniCredit and Capitalia (including impairment losses on tangible or intangible assets, securities, derivatives, loans and receivables, or equity investments owned by Capitalia). The forecast data used for the purposes of valuation, whether in relation to the two banks or to integration synergies, are in many respects uncertain of their very nature.
4.4 Valuation Methods Adopted The methods chosen for the valuation of the adequacy of the exchange ratio, while being based on recognised international standards, should not be considered separately, but rather as an inseparable part of a single valuation process. The analysis of
17 the results of each single valuation method on their own and not in light of their complementary relationship with the other criteria would render the whole valuation process meaningless. In light of these observations and bearing in mind the “qualitative” characteristics of the banks and the valuation practice used for similar transactions occurred in Italy and elsewhere, the valuation methods are indicated below and described in greater detail in later sections: Analysis of Stock Market Prices Market Multiples Regression Analysis Dividend Discount Model (“DDM”) Analysis of brokers' target prices as control method only. In determining the range of exchange ratios we also took into account the significant strategic value of the merger for UniCredit shareholders and the synergies created by the transaction, in the competitive context of a rapidly consolidating financial industry. The valuation methods used to account for these matters were: Analysis of comparable transactions Analysis of value creation. When selecting and using these methods we took into account the advantages and limitations of each one on the basis of valuation practice in the banking industry, as well as developments in professional practice. The implementation of the methodologies described above for the purpose of the valuations reported in the present chapter is described in the document “Valuation summary” attached to this Explanatory Report.
4.4.1 Market Price Method The market price method determines the value of the company to be valued on the basis of the capitalisation indicated by prices of shares traded in regulated stock markets. The market price method is considered specifically relevant for the valuation of listed companies where the average volumes traded – as in the case of UniCredit and Capitalia – are meaningful. For the purposes of this method we analysed the performance of the share price of the companies to be valued over 6 months, i.e. a sufficiently long period of time such that short-term fluctuations would be smoothed out. The share prices of UniCredit and Capitalia were considered up to 8 May 2007, i.e. the last date before the beginning of
18 significant market speculation with a marked influence on the performance of the two companies' shares. The range of values for the exchange ratio between the two shares using this method is 0.81 – 1.12 new UniCredit ordinary shares for each Capitalia ordinary share.
4.4.2 Market Multiples Method The market multiples method is based on the analysis of share prices of a sample of comparable banks to those under valuation. The method entails the calculation of a series of ratios or multiples – relating to the chosen sample of comparable companies – of market capitalisation to certain significant parameters (usually expected earnings and expected shareholders’ equity). The average multiples resulting from the calculation are then applied to the results of the companies under valuation in order to obtain the theoretical value attributed to them by the market. For the purposes of this valuation we referred only to the Price to Earnings or P/E multiple for the fiscal years 2007, 2008 and 2009, since the Price to Book Value or P/BV multiple is already considered by regression analysis as described below. The sample of banks considered comparable is made up of companies of similar size and characteristics to those being valued. Each P/E multiple was calculated on the basis of the estimated earnings published by Reuters. For each year of forecast we applied the median value of the sample to the results of UniCredit and Capitalia. The range of exchange ratios produced by this valuation method is 1.04 – 1.17 new UniCredit ordinary shares for each Capitalia ordinary share.
4.4.3 Regression Analysis Method The regression analysis method estimates the value of the economic capital of a bank on the basis of the correlation existing between expected return on equity, i.e. Return on Average Equity or RoAE, and the related premium or discount indicated by market prices over net shareholders’ equity for a sample of comparable banks as indicated by P/BV. From the analysis of these values it is possible to infer a prospective P/BV multiple justified by the expected earnings of the bank under valuation. The sample used for the purposes of this method is the same used for the market multiples method. To calculate the prospective earnings of the comparable banks we used the estimates of earnings and dividend published by Reuters.
19 The regression used on the sample is of linear type as in the following equation: Price / BV = a + (b * expected RoAE) where: “a” is the intercept and “b” is the slope of the regression line The relationship obtained is considered to be highly significant statistically (R2>50% in all cases considered). The range of exchange ratios produced by this valuation method is 1.01 – 1.14 new UniCredit shares for each Capitalia ordinary share.
4.4.4 Dividend Discount Model Method The Dividend Discount Model in its excess capital version assumes that the economic value of a bank is the sum of:
the present value of future cash flows (i.e. dividends) generated in the chosen time horizon and distributable to the shareholders while maintaining a level of regulatory capital that is considered sufficient to make future growth possible, and
the terminal value, calculated on the cash flow (i.e. dividends) of the last year of explicit forecasts, the cost of capital and the perpetual growth rate. We preferred to use the excess capital version of the DDM as opposed to pure DDM (which discounts dividend considered distributable on the basis of the dividend policy of the company), since we believe this version is more suited to a uniform and consistent valuation of banks. This version is also unaffected by the announced or historic dividend policy of the banks under valuation, which could distort the analysis. The excess capital version of the DDM method therefore estimates the value of a bank's economic capital using the following: W = DIVa + Vta whereas: “W” economic value of the bank under valuation; “DIVa” is the present value of future dividend cash flow in an identified time horizon, maintaining a satisfactory level of capitalisation; “Vta” is the present value of the terminal value of the bank. The excess capital version of the DDM method is applied in the following stages:
20 1. Identification of future cash flows and the reference time frame: for the purposes of valuation we assumed the period 2007-2016 as the explicit time horizon for the determination of cash flows, beyond which the value of the banks was determined by discounting the terminal value. 2. Determination of the perpetual growth rate and the discount rate: the discount rate corresponds to the rate of return on equity required by investors or shareholders on investments with similar risk characteristics and was calculated on the basis of the Capital Asset Pricing Model, using the following formula: Ke = Rf + (Beta * (Rm – Rf)) whereas: “Rf” (risk-free rate) = the rate of return on risk-free investments (in the case under examination, in consideration of the time horizon of the valuation we chose to use the ten-year Euroswap yield of 4.6%); “Rm – Rf” (market premium), i.e. the premium for investor risk in shares as opposed to a risk-free investment. The rate used was 5.5%. “Beta” = correlation factor between the actual yield on shares in comparable companies and the overall yield of the reference market (i.e., the measure of the volatility of the share compared to the market portfolio). For this valuation we used Betas provided by Bloomberg for the set of comparable banks, in a time- frame of two years and paying particular attention to the statistical significance of the parameters chosen. For both UniCredit and Capitalia we took a range between 1.1 and 1.2. 3. Calculation of the Terminal Value: the terminal value is the present value of cash flows theoretically distributable to shareholders in the long term, beyond the explicit forecast period. Terminal value is calculated using the following formula: Terminal Value = Expected 2016 Dividend * (1 + g) / (Ke – g) whereas: “g” = the nominal rate of sustainable long-term growth; “Ke” = the discount rate, i.e. the cost of risk capital, calculated as in the preceding paragraph. The range of exchange ratios produced by this valuation method is 0.80 – 1.06 new UniCredit ordinary shares for each Capitalia ordinary share.
4.4.5 Control Method: Analysis of Brokers' Target Prices
21 The main feature of this method lays in the possibility to identify the attributable value of the banks which the market considers reasonable and expressed in research reports published by brokers and research analysts of investment banks. We considered only research reports published after the announcement of the banks' respective fiscal year 2006 consolidated results. This method – on the basis of which it was identified a range of exchange ratios between 0.82 and 1.00 new UniCredit ordinary shares for each Capitalia ordinary share – was not taken into consideration for the purposes of the determination of the adequacy of the exchange ratio, but solely as a comparative analysis to set against the valuations obtained using the other methods described above.
4.4.6 Analysis of the Maximum Exchange Ratio: Comparable Transactions Method The application of the principle of comparable transactions identifies the value of a company's economic capital in the context of a specific transaction on the basis of the prices paid in similar transactions. These transactions may incorporate recognition of a premium relating to benefits obtainable in terms of realisable synergies arising from the transaction, acquisition of control or dominant influence or significant shareholdings, and the strategic value of the transaction for the parties involved. To estimate this premium – according to the most highly regarded scholarship – it is indispensable to refer to empirical methods. In this case we analysed the premium paid in mergers and acquisitions involving comparable listed companies, estimated by taking the difference between the recorded transaction price and the average share price over a significant period before the announcement of the transaction. It is therefore assumed that the market valuation of the companies prior to the announcement of the transaction indicates their stand-alone value. When applying the comparable transaction method the difficulty of identifying comparable companies in all respects directs attention to those companies that have particularly significant features in common with the companies under valuation, such as their business, their size, the technical and economic characteristics of the transaction under analysis and their geographical location. For the application of this method we considered recent domestic market transactions occurred in the Italian and European banking industry, where the strategic importance for the parties involved, the degree of potential competition in the process and the synergies to be gained justified the payment of a premium. The complexity of these factors is reflected in the wide range of premiums paid. Our analysis indicated premiums in a range of 15% to 30%, estimated by comparing the prices seen in the transactions we examined and the average share prices of the target companies prior to the announcement of the transaction.
22 In the context of the merger between UniCredit and Capitalia, the application of a premium of 15% to 30% to the values determined on the basis of the stand-alone valuation methods produces an exchange ratio of 1.04 – 1.46 new UniCredit ordinary shares for each Capitalia ordinary share.
4.4.7 Analysis of the Maximum Exchange Ratio: Value Creation Method The value creation method is used to identify the maximum premium payable over the economic value of a company involved in a transaction in relation to its strategic value (which is reflected in terms of the creation of value for UniCredit shareholders). In this view the maximum premium payable to the shareholders of Capitalia is correlated with the whole value created for UniCredit shareholders as a consequence of the transaction, which can be estimated by adding the entire net present value of the synergies (net of restructuring costs) to the economic capital of Capitalia, such net present value being the discounted prudentially estimated cash flows arising from the synergies. The range of exchange ratios produced by this method is 1.27 – 1.53 new UniCredit ordinary shares for each Capitalia ordinary share, which should be considered as the maximum exchange ratio payable.
4.5 Summary of Results and Determination of the Exchange Ratio On the basis of the remarks and assumptions indicated in the preceding paragraphs, the following table summarises the results of applying the valuation methods indicated above.
Share Exchange Ratio
Valuation Method Minimum Maximum
Stand-Alone Methods (Simple Average) 0.91 1.12
Market Price Analysis 0.81x 1.12x
Market Multiples (P/E) 1.04x 1.17x
Regression Analysis 1.01x 1.14x
Dividend Discount Model 0.80x 1.06x
Stand-Alone Control Methods
Analysis of Analysts' Target Prices 0.82x 1.00x
23 Analysis of Highest Exchange Ratio
Comparable Transactions Method 1.04x 1.46
Value Creation Method 1.27x 1.53x
The Board of Directors of UniCredit, in light of the observations given in the preceding paragraphs, the results of the valuation process and bearing in mind also the work done by Merrill Lynch International, has determined the exchange ratio as 1.12 UniCredit new ordinary shares for each Capitalia ordinary share. No additional cash payment shall be made. Pursuant to Article 2501-sexies of the Italian Civil Code, governing the adequacy of the share exchange ratio the auditing firms Pricewaterhouse Coopers S.p.A. designated by the Courts of Genoa by its instruction dated 29 May 2007, and Pricewaterhouse Coopers S.p.A. designated by the Courts of Rome by its instruction dated 23 May 2007 have provided an expert opinion. The reports of these experts were deposited no less than thirty days prior to the extraordinary shareholders' meetings called to resolve on the merger described in this Report in the manner and in the places specified by Article 2501-septies of the Italian Civil Code.
5. REFERENCE FINANCIAL STATEMENTS Pursuant to article 2501-quater of the Italian Civil Code, the reference financial statements - used to determinate the exchange ratio - are respectively represented by: - the annual accounts of UniCredit as at 31 December 2006, approved with resolution of the Ordinary Shareholders’ Meeting on 10 May 2007; - the annual accounts of Capitalia as on 31 December 2006, approved with resolution of the Ordinary Shareholders’ Meeting on 19 April 2007.
6. THE EFFECTS OF THE TRANSACTION ON THE STOCK INCENTIVE PLANS ADOPTED BY CAPITALIA Pursuant to the Stock Incentive Plans adopted by the Incorporated Company, for the implementation of which the operations on the share capital of Capitalia described in paragraph 3 above have been resolved, as at the date hereof the following rights result existing and exercisable: n° 3,938,950 Employees Warrants A;
24 n° 17,751,750 Employees Warrants B; n° 466,850 Fineco Warrants A; n° 9,505,000 Fineco Warrants B; n° 425,000 MD Warrants. Without prejudice to the possible exercise of the above mentioned Warrants by the relevant holders between the date of approval of this Report and the effective date of the merger, subject to the completion of the merger transaction herein described, the Employees Warrants A, the Employees Warrants B, the Fineco Warrants A and the Fineco Warrants B that, at the effective date of the merger, result not to have been exercised, will be cancelled and replaced with an equal number of subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2008 – Ex Capitalia Warrants 2002”, “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia Warrants 2005”, “Subscription Rights UniCredit S.p.A. 2007 - 2009 – Ex FinecoGroup Warrants 2003” and “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex FinecoGroup Warrants 2005” each of which, on the basis of the exchange ratio determined pursuant to paragraph 4 “Determination of UniCredit’s and Capitalia’s value and of the exchange ratio” above, will entitle to the subscription of newly issued ordinary shares of UniCredit, pursuant to the respective Terms and Conditions. The MD Warrants that, at the effective date of the merger, result not to have been exercised, will be cancelled and replaced with an equal number of option rights “Option Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia MD Warrants 2005” which will entitle to purchase ordinary shares of UniCredit, on the basis of the exchange ratio determined pursuant to paragraph 4 “Determination of UniCredit’s and Capitalia’s value and of the exchange ratio” above.
7. AMENDMENTS TO THE ARTICLES OF ASSOCIATION OF UNICREDIT AS INCORPORATING COMPANY
7.1 Capital increases in connection with the merger In connection with the merger described hereunder, the Extraordinary Shareholders’ Meeting of UniCredit called to approve the merger shall also resolve on the following capital increases: a) a capital increase, divisible in tranches, of up to a maximum nominal amount of euro 1,473,547,088 to be effected through the issue of up to a maximum 2,947,094,176 ordinary shares with a par value of euro 0.50 each, to be allocated
25 in exchange for the ordinary shares of Capitalia, Incorporated Company, issued as of the effective date of the merger; b) a capital increase, divisible in tranches, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of euro 2,205,812, to be effected through the issue of up to a maximum 4,411,624 ordinary shares with a par value of euro 0.50 each to service the subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2008 – Ex Capitalia Warrants 2002” allocated in exchange for an equal number of Employees Warrants A attributed for free to Capitalia’s employees and not yet exercised at the effective date of the merger. The price at which each of the above mentioned rights may be exercised is equal, as far as a first tranche of 118,950 rights is concerned, to euro 1.214 and, as far as a second tranche of 3,820,000 rights is concerned, to euro 2.4743. The capital increase shall be completed by 10 October 2008. Upon expiration of such term, the share capital will be deemed increased by an amount equal to the subscription rights exercised as of that date; c) a capital increase, divisible in tranches, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of euro 9,940,980, to be effected through the issue of up to a maximum 19,881,960 ordinary shares with a par value of euro 0.50 each to service the subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia Warrants 2005” allocated in exchange for an equal number of Employees Warrants B attributed for free to Capitalia Group’s employees and not yet exercised at the effective date of the merger. The price at which each of the above mentioned rights may be exercised is equal to euro 4.1599. The capital increase shall be completed by 31 December 2011. Upon expiration of such term, the share capital will be deemed increased by an amount equal to the subscription rights exercised as of that date; d) a capital increase, divisible in tranches, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of euro 261,436, to be effected through the issue of up to a maximum 522,872 ordinary shares with a par value of euro 0.50 each to service the subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2009 – Ex FinecoGroup Warrants 2003” allocated in exchange for an equal number of Fineco Warrants A attributed for free to FinecoGroup’s employees and FinecoBank’s network of private bankers and not yet exercised at the effective date of the merger. The price at which each of the above mentioned rights may be exercised is equal to euro 4.24. The capital increase shall be completed by 31 December 2009. Upon expiration of such term, the share capital will be deemed increased by an amount equal to the subscription rights exercised as of that date;
26 e) a capital increase, divisible in tranches, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of euro 5,322,800, to be effected through the issue of up to a maximum 10,645,600 ordinary shares with a par value of euro 0.50 each, to service the subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex FinecoGroup Warrants 2005” allocated in exchange for an equal number of Fineco Warrants B attributed for free to FinecoGroup’s employees and FinecoBank’s network of private bankers and not yet exercised at the effective date of the merger. The price at which each of the above mentioned rights may be exercised is equal to euro 3.9348. The capital increase shall be completed by 31 December 2011. Upon expiration of such term, the share capital will be deemed increased by an amount equal to the subscription rights exercised as of that date. The Extraordinary Shareholders’ Meeting of UniCredit, called to approve the merger described hereunder and the above mentioned share capital increases, shall also resolve upon the relevant amendments to articles 5 and 6 of UniCredit’s Articles of Association.
7.2 Other amendments to UniCredit’s Articles of Association In the frame of the merger, the Shareholders’ Meeting of UniCredit shall resolve also upon the amendment to article 2 of the Articles of Association in order to transfer the registered office from Genoa to Rome, Via Minghetti 17. Finally, in the light of the agreements reached in relation to UniCredit’s governance, the Extraordinary Shareholders’ Meeting will be called to resolve upon the amendment to articles 27, 28 and 32 of the Articles of Association, aimed at expressly providing that the person elected as Chairman of the Executive Committee may be different from the person in charge as Chairman of the Board of Directors. The new text of articles 2, 5 and 6 of the Articles of Association shall be effective as of the effective date of the merger pursuant to paragraph 9 below; the new text of articles 27, 28 and 32 of the Articles of Association shall be effective as of the date in which the relevant resolution results registered with the competent Companies’ Register.
8. CRITERIA OF ALLOCATION OF THE SHARES OF UNICREDIT AND ENJOYMENT Subject to the completion of the merger transaction, UniCredit, Incorporating Company, will: • cancel, without consideration, all own ordinary shares held by Capitalia, pursuant to art. 2504-ter of the Italian Civil Code;
27 • cancel all the residual Capitalia’s ordinary shares by issuing and allocating to the holders of Capitalia’s ordinary shares (different from Capitalia) issued before the effective date of the merger, such number of ordinary shares of UniCredit calculated in accordance with the exchange ratio determined pursuant to paragraph 4 above, in execution of the capital increase indicated under paragraph 7.1(a); • allocate, in exchange for the Employees Warrants A, the Employees Warrants B, the Fineco Warrants A and the Fineco Warrants B that, at the effective date of the merger, result not to have been exercised, and that will be cancelled, an equal number of subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2008 – Ex Capitalia Warrants 2002”, “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia Warrants 2005”, “Subscription Rights UniCredit S.p.A. 2007 - 2009 – Ex FinecoGroup Warrants 2003” and “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex FinecoGroup Warrants 2005” each of which, on the basis of the exchange ratio determined pursuant to paragraph 4 “Determination of UniCredit’s and Capitalia’s value and of the exchange ratio” above, will entitle to the subscription of newly issued ordinary shares of UniCredit; • allocate, in exchange for the MD Warrants that, at the effective date of the merger, result not to have been exercised, and that will be cancelled, an equal number of option rights “Option Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia MD Warrants 2005” which will entitle to purchase ordinary shares of UniCredit held by UniCredit itself as own shares, on the basis of the exchange ratio determined pursuant to paragraph 4 “Determination of UniCredit’s and Capitalia’s value and of the exchange ratio” above. UniCredit does not hold ordinary shares of Capitalia; for the shares that may be held by subsidiary companies of the Incorporating Company, the provisions of article 2357-bis of the Italian Civil Code will apply. At the time of the allocation, the UniCredit’s ordinary shares offered in exchanged for Capitalia’s shares will be listed on the Milan Stock Exchange at the same price of the existing shares. The new shares of UniCredit will have regular enjoyment. The ordinary shares of UniCredit, Incorporating Company, issued to service the exchange for the shares of Capitalia, Incorporated Company, will be provided to shareholders of the latter as de-materialized securities deposited with Monte Titoli S.p.A. starting from the first working day following the effective date of the merger, in compliance with the procedure which will be made public by UniCredit by way of publication of an ad-hoc notice on at least one newspaper distributed nationwide, as set forth by legislation in force.
28 An equal number of own ordinary shares held by UniCredit will be allocated to service the “Option Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia MD Warrants 2005”; for this purpose the Extraordinary Shareholders’ Meeting will also be called to modify the allocation of the aforesaid shares resolved by the Shareholders’ Meeting of 16 December 2005. No expenses will be charged to the shareholders in relation to the exchange operations. For the purpose of ensuring entire exchange ratios, if necessary, an authorized company will be instructed to negotiate, at market prices, the residuals, without expenses, charges or commissions, for the purpose of reaching the minimum exchange ratio.
9. EFFECTIVE DATE OF THE MERGER The merger deed will set the date from which the merger will take legal effect vis- à-vis third parties, which may also be later than the date of the last registration effected pursuant to article 2504-bis of the Italian Civil Code.
10. ACCOUNTING AND TAX ASPECTS OF THE OPERATION ON THE MERGER PARTICIPANTS The transactions carried out by Capitalia will be booked to the financial statements of UniCredit from the date that the merger takes effect for legal purposes. The merger will also take effect for tax purposes from the same date, in accordance with art. 123, paragraph 7, of the Income Tax Consolidation Act (“TUIR”).
10.1 Accounting aspects Capitalia and UniCredit have both prepared IFRS-compliant consolidated financial statements from 2005. The consolidated and separate financial statements of the listed parent companies have been prepared according to IFRS from the year ended 31 December 2006. The merger will therefore be accounted for in both the separate and the consolidated financial statements of UniCredit, the merging company, with reference not only to the rules of Italian law, but also to IFRS 3 on business combinations. Even though the combination of Capitalia and UniCredit has been conceived as a merger, IFRS require that an acquirer be identified for all combinations. Under IFRS 3, a merger is considered an acquisition to the extent that it involves a transfer of control of the merged entity. The acquirer is identified by IFRS as the entity that obtains control, which is understood as being the power to determine the financial and operational policies of an
29 entity in order to obtain benefits from its activities. To this end, the main indicators of this power, in the specific case of a merger, are (i) the number of new ordinary voting shares issued compared with the total number of ordinary voting shares that make up the share capital of the merging company after the merger, (ii) the fair value of the entities taking part in the merger, (iii) the composition of the new corporate bodies of the merging company, and (iv) the entity that issues the new shares. As regards the merger between Capitalia and UniCredit, based on the accounting standards mentioned above, UniCredit is considered the acquirer from an accounting/financial reporting point of view. The method of accounting to be used for acquisitions according to IFRS 3 is the purchase method, under which the operation has to be accounted for on the basis of the fair values of the acquired entity's identifiable assets, liabilities and contingent liabilities. IFRS 3 requires the cost of a business combination to be determined as the sum of the fair values at the date of the exchange: (i) of the assets transferred, (ii) of the liabilities taken on, and (iii) of the equity instruments issued by the acquirer in exchange for control of the acquired entity. To this value then have to be added (iv) the costs directly attributable to the combination. Therefore, in the case of the combination between Capitalia and UniCredit, the cost of the acquisition will be represented by the fair value at the date of the acquisition of the shares that the merging company, UniCredit, will issue in exchange for the shares of the merged company, Capitalia. Given that these are listed shares, the fair value of the UniCredit stock will be represented by the stock market price on the date of the acquisition. To this value have to be added the costs of the operation (professional fees paid to auditors, legal and financial consultants, expert appraisers and other consultants involved in the combination). The cost of the combination has to be allocated to the assets, liabilities and contingent liabilities of the merged company. A balance sheet therefore has to be prepared at the date of the acquisition, measuring the assets, liabilities and contingent liabilities of the merged company at fair value. The residual difference between the fair value of the shares issued, plus the costs of the operation and the values allocated to the assets and liabilities that already appear on the consolidated balance sheet of the merged company, can be allocated to any intangible assets and contingent liabilities that did not appear in the balance sheet of the merged company. Any balance left after this allocation has to be booked as goodwill. It should also be noted that IFRS 3 permits provisional determination of the fair values of the assets, liabilities and contingent liabilities of the acquired entity and
30 therefore provisional allocation of the merger difference. However, the acquirer has to book any adjustments to the provisional figures and complete the initial accounting within twelve months of the date of acquisition and with effect from that same date. To facilitate the steps that have to be taken by the companies taking part in a merger, the statutory rules (art. 2504-bis, paragraph 3 of the Italian Civil Code) allow the merger to run for accounting purposes from a date prior to the one on which the merger effectively takes effect for legal purposes. Under this rule, and until IFRS were adopted, it was normal to have mergers take effect for accounting purposes from 1 January of the year in which the operation was completed, to avoid having to prepare a separate set of financial statements for the merged company. The same approach was taken for tax purposes. Under the new international accounting standards, this approach is no longer applicable as the figures of the merged company have to be acquired by the merging company on the date on which control is transferred. The date that control is acquired is the date on which the acquirer effectively obtains control over the acquired company and is the date on which its balance sheet figures get written into the books of the acquirer for the first time. When the acquisition gets carried out with a single exchange of shares, the date of the exchange coincides with the acquisition date. Under IAS 27, control over a company is presumed when one has a majority of the voting rights or a majority of the directors, or the power to decide the financial and operating policies, or the power to appoint a majority of the directors. Therefore, as regards the provisions of art. 2501-ter, paragraph 1, n° 6 of the Italian Civil Code, the transactions carried out by the company being merged will be booked to the accounts of the merging company, UniCredit, from the date of the acquisition.
10.2 Tax aspects Since the merger’s accounting effects cannot be retroacted to January 1, 2007, the companies taking part to the merger shall not even exercise such retroaction for tax purposes as provided forth by art. 172, ninth paragraph, of the Italian Income Tax Code (“TUIR”). Therefore, the merger shall have tax effects starting from the same day on which it gains the connected juridical effects. Consequently, UniCredit (Incorporating Company) shall determine its own tax income separately from the tax income of Capitalia (the Incorporated Company) with reference to the period starting on January 1, 2007 till the date of the merger juridical and tax effectiveness. Consequently, with regard to tax year 2007, UniCredit shall submit two different income tax returns: (i) in the first, UniCredit shall determine the income realized by Capitalia in the fraction of the tax year
31 prior to the date of the merger effectiveness; (ii) in the second, which shall regard the whole tax year 2007, UniCredit shall declare its overall income, comprehensive of the income realized by UniCredit itself prior to the date on which the merger gains its juridical and tax effects. The merger is a “neutral” transaction for direct tax purposes. Merger’s neutrality disregards the accounting principles applied for the balance sheets. Therefore, the merger of Capitalia into UniCredit shall remain a tax neutral transaction even though it has to be accounted according to IAS/IFRS and, in particular, according to IFRS 3 with regard to “business combination”. According to article 172, TUIR, the merger shall not determine positive or negative items of income for tax purposes on UniCredit’s, Capitalia’s and the respective shareholders’ sides. Therefore: (i) the transfer of Capitalia’s net worth to UniCredit shall determine, in the hands of the former company, neither the realization of latent capital gains or capital losses connected to the transferred assets and liabilities, nor the realization of goodwill; (ii) in the hands of UniCredit assets and liabilities shall be given the same tax value they had in the hands of Capitalia. In other words, the accounting of the assets and liabilities received, included the goodwill, according to the fair value criteria provided for by IFRS 3, shall not constitute a taxable item of income in the hands of UniCredit, given that fair value is not relevant for tax purposes; (iii) the merger shall not even determine the realization of a taxable capital gain, if any, in the hands of Capitalia’s shareholders whose shares shall be object of the swap into UniCredit new shares. As a result of the merger, UniCredit shall succeed in Capitalia’s subjective tax positions. In more detail, UniCredit shall become the holder of Capitalia’s tax credits not yet reimbursed by the Tax Authorities at the time of the merger. The described accounting method regarding the costs which are directly attributable to the business combination (i.e. professional fees paid to auditors, legal and financial advisors, experts and other consultants in connection to the merger) shall prevent the recording of these costs in UniCredit’s profit and loss account. Nevertheless, these costs shall maintain their nature of tax deductible items of income in the hands of UniCredit. The merger of Capitalia into UniCredit shall impact on the respective group taxation systems. More in detail, according to art. 124, fifth paragraph, TUIR and art. 11, third paragraph, Ministerial Decree 9 June 2006 about the Regulations for the application of the tax consolidation regime (the “Regulation”), the merger of Capitalia into UniCredit shall not cause the interruption of UniCredit’s tax group regime, given that UniCredit
32 holds the control, as defined by article 117, TUIR on its “consolidated” entities. In these terms, the continuation of UniCredit’s tax group regime shall operate as an effect of law. On the other side, the provisions set forth by article 124, fifth paragraph, TUIR, shall apply to Capitalia’s tax group regime. As a result, the continuation of Capitalia’s tax group regime with UniCredit being the “new” consolidating entity shall not take place by effect of law, but has to be expressly authorized by the Tax Authorities by means of the filing of an appropriate request according to the procedure set forth by article 11, Law 27 July 2000, No. 212. In this request, Capitalia shall give evidence that the merger is grounded on valid economic reasons and that no undue tax saving may be achieved by UniCredit by virtue of the continuation in its hands of Capitalia’s tax group regime. As far as indirect taxes are concerned, the merger shall not determine the realization of relevant operations for VAT purposes, and is subject to registration, mortgage and cadastral taxes at the fix amount, each equal to euro 168.
11. IMPACT OF THE MERGER ON THE SHAREHOLDING STRUCTURE OF UNICREDIT AND ON ANY SHAREHOLDERS’ AGREEMENTS RELEVANT PURSUANT TO ART. 122 OF LEGISLATIVE DECREE N. 58/98
On the basis of the above information, the issue of UniCredit’s ordinary shares for the purposes of the exchange resulting from the merger described in this Report would lead to a dilution of the participations of UniCredit’s current shareholders of approximately 22%. Upon completion of the merger, the shareholding structure of UniCredit would change as follows:
Fondazione Cassa di Risparmio Verona, Vicenza, Belluno e Ancona 3.9% Fondazione Cassa di Risparmio di Torino 3.7% Munich Re 3.7% Carimonte Holding 3.3% Gruppo Allianz 2.4% ABN Amro 1.9% Fondazione Cassa di Risparmio di Roma 1.1% Fondazione Manodori 0.9% Fondiaria - SAI 0.8%
33 Regione Siciliana 0.6% Fondazione Banco di Sicilia 0.6% Libyan Arab Foreign Bank 0.6% Assicurazioni Generali 0.5% Other shareholders 76.0% Note: Information in terms of percentage of total share capital. There are indicated only: (i) with reference to UniCredit the shareholders which hold as of date hereof a percentage in the company’s share capital exceeding the 2%; (ii) with reference to Capitalia the shareholders which hold as of date hereof a percentage in the company’s share capital exceeding the 2% or that are party to the voting pool agreement. The Company is not aware of the existence of any shareholders agreement relating to shares of UniCredit, except for the Voting Pool Agreement promoted by the Labour Associations of Managers of Credit Institutions “Uniosind” and “Sinfub”, participated by – according to the information available to UniCredit – 394 independent shareholders of the UniCredito Italiano Group, holding in aggregate n. 903,134 ordinary shares of the Company, which represent 0.014% of the ordinary share capital, in relation to which the parties to the agreement have not communicated any impact of the share capital increase. With reference to Capitalia, as at the date of approval of this Report, a voting pool agreement is in force among 17 major industrial and financial both national and international players. The parties to the voting pool agreement holding a participation in Capitalia higher than 2% of Capitalia’s share capital are the following: Gruppo ABN Ambro (8.6%), Fondazione Manodori (4.1%), Gruppo Fondiaria-SAI (3.5%), Regione Siciliana (2.8%) and Tosinvest (2.1%). The voting pool agreement terminates on 3 July 2008. At the date hereof the Incorporating Company is not aware of any communication by the syndicated shareholders concerning the stay in force or the early termination of the voting pool agreement with respect to all or part of the adherents thereto.
12. TARGET STRUCTURE OF THE GROUP
12.1 Organisational Model of the Group resulting from the Merger The new Group's organisational model will continue to be based on Divisions focused on customer segments and common product factories. Given the current organisational models of the two Groups and the great similarities between them, although there are differences between that adopted by UniCredit and Capitalia’s structure due to the smaller scale of certain business lines and
34 to the almost exclusive concentration of the latter in the Italian market, Capitalia’s structure can easily be integrated into UniCredit's. As stated above, Capitalia has managed its commercial business and adopted reporting lines in the following business areas: Retail Corporate Wholesale and Investment Banking Financial Services Corporate Center. Given the validity of the business model, which separates distribution, through the Group's banks and legal entities, from the product factories, UniCredit’s current structure would be maintained and Capitalia would be integrated according to the following divisions: Retail Private Banking and Asset Management Corporate/SMEs Markets & Investment Banking Central-Eastern Europe Poland Markets Global Banking Services This solution will not only enable significant acceleration of the integration process, reducing both complexity and execution risk, but also maximising the economic benefits of the transaction and the achievement of substantial cost and revenue synergies. The integration of Capitalia into UniCredit’s model will present limited execution risks thanks to the possibility of leveraging the same model of centralised operational systems. This integration will be managed within the Italian perimeter without affecting the other domestic markets. However, integration will be carried out paying particular attention to the best use of the distinctive skills and values of the people and structures of the two Groups, in order to maximize the new Group's potential for growth and development. Specifically in the retail division and with reference to the Italian market, we foresee the adoption of a regional distribution structure and the creation of three retail banks in Italy, exploiting the positioning of UniCredit Banca – the Italian retail bank of
35 the current UniCredit Group – in Northern Italy (Val d’Aosta, Piedmont, Liguria, Lombardy, Veneto, Trentino Alto Adige, Friuli Venezia Giulia and Emilia Romagna), of Banca di Roma in Central-Southern Italy (Tuscany, Umbria, Marches, Latium, Abruzzo, Molise, Sardinia, Campania, Apulia, Basilicata and Calabria) and of Banco di Sicilia in Sicily while maintaining its 3 historic branches in Milan, Rome and Turin. This will make it possible to further strengthen the positioning of the new Group in the retail business throughout Italy, leveraging three retail distribution networks with strong regional competitive advantages. From an operational point of view, the reorganisation envisages the transfer of businesses related to private banking and corporate client segments currently carried on by Capitalia's commercial banks to UniCredit Private Banking (which has its head office in Turin) and UniCredit Bank d’Impresa (which has its head office in Verona), the absorption of Bipop-Carire by UniCredit Banca (which has its registered office in Bologna) and the transfer of the group of branches located in Central-Southern Italy and Sicily to Banca di Roma (which has its head office in Rome) and Banco di Sicilia (which has its head office in Palermo) respectively. With reference to the Markets and Investment Banking division, with the aim of taking advantage of its special skills, MCC (which has its legal seat in Rome) will become the Group's house bank for public sector entities in Italy. Product development will be carried out by global product factories, with the complete integration of Capitalia’s and UniCredit’s current product factories: Consumer credit, credit cards and mortgage business, currently managed by Fineco Bank, will be transferred to UniCredit’s specialised factories, UniCredit Clarima Bank and UniCredit Banca per la Casa respectively; Activities related to trading on-line will continue to be managed by FinecoBank, currently undisputed leader in the Italian market for the segment; Leasing, factoring and investment banking activities which are currently managed by MCC and Capitalia will be transferred to UniCredit’s specialised companies (Locat, UniCredit Factoring and HVB respectively). With reference to the Private Banking and Asset Management division, FinecoBank will become the Group's reference company – and one of the main players in the industry – for asset gathering. With regard to asset management, however, in order to benefit from Pioneer’s scale and brand recognition at a global level, and achieving cost savings in overlapping areas, shareholdings in Capitalia Asset Management and Capitalia Investimenti Alternativi will be transferred to Pioneer Global Asset Management (with head office in Milan), as UniCredit’s sub-holding active in the sector.
36 In order to maximize economies of scale and grant a full integration of the two groups, information technology and operations activities, including activities currently managed by Capitalia Informatica, will be integrated into UniCredit’s responsible entities, UniCredit Global Information Services (“UGIS”) and UniCredit Produzioni Accentrate (“UPA”). In order to facilitate the integration of domestic business, the headquarters of the latter will be transferred to Rome, while employees located in the current Milan location will be dedicated to the further expansion of the Group in Lombardy. The Global Banking Services division would maintain responsibility for improving the cost structure and the internal processes of the combined Group, furnishing services to the other divisions in the area of IT services, organisation, operations, traditional services, procurement and real estate management.
12.2 Target Group Structure With the absorption of Capitalia, UniCredit as Group Parent Company would maintain responsibility for managing and coordinating the new Group. From a corporate point of view, thanks to Capitalia’s current structure – a controlling parent, which directly owns shareholdings in the main Group companies – the transaction would not lead to a meaningful change of UniCredit’s current corporate structure.
13. GOVERNANCE OF THE GROUP In compliance with its Articles of Association, UniCredit will maintain a traditional governance system, and, thus, a Board of Directors with management functions and a Board of Statutory Auditors with internal control functions. In the frame of the merger, simultaneously with the approval of the merger plan, the board of directors of UniCredit and Capitalia have approved an agreement relating to the governance of the Incorporating Company. Pursuant to such agreement, in a date immediately subsequent to the shareholders meetings which shall approve the merger plan, the following four members currently part of the board of directors of Capitalia shall be co-opted in the board of directors of UniCredit including Mr. Cesare Geronzi; simultaneously four members of UniCredit’s board of directors shall be appointed in the board of directors of Capitalia. Furthermore Mr. Cesare Geronzi shall be elected as Stand-in Chairman (Vice Presidente Vicario) of the board of directors of UniCredit and as Chairman of the Executive Committee, and shall be granted the powers relating to the management of the shareholdings in Mediobanca, Generali, RCS and Pirelli. Should Mr. Cesare Geronzi accept an office in an other bank, he shall be replaced by Prof. Berardino Libonati who shall act as Stand-in Chairman.
37 It is also provided that 40% of the directors of Banca di Roma, Banco di Sicilia, Fineco and MCC shall be selected, alternatively, among the directors of such companies or among primary representatives of the local economical community for the first mandate after the merger. UniCredit’s registered office will be transferred from Genoa to Rome, while the Central Management Unit will remain in Milan. Capialia Group’s position in the central- southern regions of Italy will be given full value within the new Group, including by way of using the Banca di Roma and Banco di Sicilia brands.
14. EXPECTED SYNERGIES
14.1 Overall Synergies It is expected that the combination of UniCredit Group and Capitalia Group will generate significant synergies, equal to euro 1,162 million gross of tax by 2010, made up of euro 370 million in revenue synergies (32%) and about euro 792 million in cost synergies (68%). Cost synergies represent about 7.8% of 2006 costs and 2.5% of 2006 revenues of the combined entity. Revenue increases would mainly be attributable to alignment of the pricing policies and commercial productivity of the two banks, while cost reduction would mainly arise from the rationalisation of combined central functions and information technology activities, closing overlapping branches and economies of scale related to procurement. Specifically, synergies will be generated by the following areas (including cost synergies due to economies of scale related to procurement): Retail. The combined Group would benefit from centralised management of two of Italy's largest banking networks, making efficiency gains possible on a combined level, and from the centralisation of the consumer credit and residential mortgage businesses. The alignment of the commercial productivity of UniCredit and Capitalia, especially in consumer credit distribution and asset gathering, would generate additional revenues. Corporate. Efficiency gains of central functions and distribution networks, as well as the elimination of overlapping international branches and representative offices, would allow a cost reduction. Markets and Investment Banking. The centralisation of specialised personnel to a unique business division and the removal of existent redundances would generate cost savings.
38 Private Banking and Asset Management. Eliminating duplication of roles in wealth management operations would generate gross cost synergies. These synergies would be created by integrating the two companies which manage Financial Advisor networks and removing overlapping in the asset management business. In the same area it is expected to achieve additional revenues due, from one and, to the transfer of managed funds to Dublin’s operations and, on the other, to a wider product range distributed by Capitalia with Pioneer’s products and to a stronger positioning of the combined Group in the institutional segment. IT & Back-Office and Corporate Center. Cost synergies would arise from the centralisation of combined services through migration to a single IT platform, which would permit the rationalisation of the activities currently carried out by companies of the two banking groups. Integration would also be an opportunity to rationalise central functions, generating cost savings. The merger of the two banks would allow the rationalisation of the banks’ current HQ structures as well as business management in support of the Parent, eliminating functional overlapping and increasing the proportion of human resources dedicated to higher value added activities. Net synergies in 2010 would be euro 758 million, subject to an average tax rate of 36%. The synergic time-frame would see 24% of gross synergies realised in 2008, 67% in 2009, while full materialisation would occur in 2010. 14.2 One-off Integration Costs The organisation and corporate restructuring process would imply one-off costs provisioned in 2007 of. euro 1,058 million, maily related to layoff costs and write-downs of IT investments recognised in Capitalia’s accounts. Total costs break down as follows: employees (32%), IT and Back-Office (21%), advertising (5%), rebranding (4%) and others (38%). The impact of restructuring costs will be partly off-set by the capital gain realised through the disposal of part of the stake held in Mediobanca S.p.A., which will lead to a reduction of this shareholding from ca. 18.1% pro-forma post-merger to 9.39% of Mediobanca’s share capital in compliance with the shareholders’ agreement related to this company. The approach followed to estimate synergies and related costs has been conservative in comparison to recent domestic transactions already completed or announced. In fact, expected synergies represent 21% of Capitalia’s revenues and 36% of Capitalia’s costs (as the smaller partner in the merger), while in the other domestic transactions these percentages are in a range of 13% to 34% and 21% to 46% of the smaller company's revenues and costs respectively. Restructuring costs are equal to about
39 134% of cost synergies, slightly lower with other domestic transactions (with an average of around 148%).
15. THE EFFECTS OF THE MERGER ON CAPITAL STRUCTURE AND PROFITABILITY
Earnings would increase from 2009 onwards, again in comparison to the stand- alone plan. Given Capitalia Group’s current capital structure, the combined Group would have higher capital ratios than the current ratios of the UniCredit Group. Capitalia Group has a core tier 1 ratio of 6.2% as at 31 December 2006, higher than UniCredit Group’s core tier 1 ratio at the same date, which was 5.8%. Capitalia Group’s tier 1 ratio is in line with core tier 1 ratio (UniCredit Group 7.0%). The total capital ratio of Capitalia Group was 9,2% as at 31 December 2006 (UniCredit Group 10.5%). In 2007 the capital will change mainly, besides the retained earnings generated during 2007, due to the impact of the squeeze-out of minority shareholders of HVB and BA-CA and the envisaged reduction of the shareholding held in Mediobanca.
16. BOARD OF DIRECTORS’ ASSESSMENT RELATING TO THE POSSIBLE EXISTENCE OF A RIGHT OF WITHDRAWAL Capitalia’s shareholders which have not approved the merger plan will be entitled to exercise a withdrawal right pursuant to art. 2437, paragraph 1, letter g) of the Italian Civil Code, as article 5, paragraph 9 of UniCredit’s current Articles of Association provides for a 5% limit on voting rights exercise. Such limit, which is not provided for by Capitalia’s Articles of Association, will be maintained in the Articles of Association of the Incorporating Company. The liquidation value of the shares in relation to which such withdrawal right is exercised will be determined, being Capitalia a listed company, pursuant to article 2437- ter, paragraph 3 of the Italian Civil Code, solely on the basis of the arithmetic average of Capitalia shares’ closing prices during the six months preceding the publication of the calling notice for the Shareholders’ Meeting called to resolve upon the merger. In accordance with article 2437-ter, paragraph 5, of the Italian Civil Code, the calculation of the liquidation value assigned to the shareholders who have exercised the withdrawal right will be available for consultation at the company’s registered office at least fifteen days before the date scheduled for the Shareholders’ Meeting.
40 The withdrawal right may be exercised within fifteen days from the registration with the Companies’ Register of the resolution of Capitalia’s Extraordinary Shareholders’ Meeting which approves the merger plan and will take effect on the effective date of the merger. A more detailed description of the terms and conditions for exercising the withdrawal right will be provided in the information documents which will be prepared by the Incorporating Company and the Incorporated Company.
17. LEGAL ASPECTS
The completion of the merger transaction contemplated herein will result in the Incorporated Company ceasing to exist with all the assets, rights and obligations of Capitalia being transferred to UniCredit as of the effective date of the merger. Pursuant to article 57, last paragraph, of the Legislative Decree dated 1 September 1993 no. 385 (“TUB”), all the liens, securities or guarantees of any kinds whatsoever granted or existing in favour of the Incorporated Company will continue to be effective in favour of the Incorporating Company, with the same status they had before the merger, as a consequence of the sole merger. The merger concerns banking institutions and therefore is conditional upon the obtainment of the authorization by Bank of Italy pursuant to article 57 of the TUB; the filing of the merger plan with the relevant Companies’ Register shall occur after the obtainment of such authorization. The amendment to the Articles of Association in connection with the merger are subject to the assessment provided for by the above mentioned article 57. UniCredit and Capitalia will also take all proper initiatives for the obtainment of any other consent or authorization requested for the compilation of the merger transaction by any competent supervisory authority including the competent antitrust authorities. ******** Dear Shareholders,
If you are in agreement with the content of this Report of the Board of Directors and the arguments herein illustrated, we invite you to resolve on the following:
“The Extraordinary Shareholders Meeting of UniCredit, in agreement with the content of the Report of the Board of Directors and the arguments illustrated in such report:
41 in light of the due fulfilment of filing and registration requirements of the merger plan and related documentation pursuant to art. 2501-septies of the Italian Civil Code; in light of the authorization of the merger granted by the Bank of Italy on 26th June 2007 pursuant to article 57 of legislative decree n. 385 of 1 September 1993 with letter n. 637424 and the positive outcome of the assessment pursuant to article 56 of legislative decree n. 385 of 1 September 1993 in relation to the amendments to the Articles of Association as a consequence of the merger, notified by Bank of Italy on 21 May 2007; in light of the report prepared by the company Pricewaterhouse Coopers S.p.A. in its quality as expert, pursuant to art. 2501-sexies of the Italian Civil Code; subject to the issue of the further authorizations required by law,
resolves 1. to approve, on the basis of the financial statements of the two companies as of 31 December 2006, the merger into UniCredit S.p.A. of Capitalia S.p.A., pursuant to the merger plan registered with the Companies’ Register of Genoa and Rome on 27th June 2007 and 26th June 2007 respectively and filed with UniCredit and Capitalia’s registered offices in Genoa and Rome on 28th June 2007 and 28th June 2007 respectively, and in particular to approve the above mentioned merger plan; 2. as a consequence of the above, to approve the following changes to the share capital of UniCredit, Incorporating Company: a. a capital increase, divisible in tranches, of up to a maximum nominal amount of euro 1,473,547,088 to be effected through the issue of up to a maximum 2,947,094,176 ordinary shares with a par value of euro 0.50 each, to be allocated in exchange for the ordinary shares of Capitalia, Incorporated Company, issued as of the effective date of the merger; upon expiration of such term, the share capital will be deemed increased by an amount equal to the pair value of the shares issued in exchange for the ordinary shares of Capitalia; b. a capital increase, divisible in tranches, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of euro 2,205,812, to be effected through the issue of up to a maximum 4,411,624 ordinary shares with a par value of euro 0.50 each to service the subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2008 – Ex
42 Capitalia Warrants 2002” allocated in exchange for an equal number of Employees Warrants A attributed for free to Capitalia’s employees and not yet exercised at the effective date of the merger. The price at which each of the above mentioned rights may be exercised is equal, as far as a first tranche of 118,950 rights is concerned, to euro 1.214 and, as far as a second tranche of 3,820,000 rights is concerned, to euro 2.4743. The capital increase shall be completed by 10 October 2008. Upon expiration of such term, the share capital will be deemed increased by an amount equal to the subscription rights exercised as of that date; c. a capital increase, divisible in tranches, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of euro 9,940,980, to be effected through the issue of up to a maximum 19,881,960 ordinary shares with a par value of euro 0.50 each to service the subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia Warrants 2005” allocated in exchange for an equal number of Employees Warrants B attributed for free to Capitalia Group’s employees and not yet exercised at the effective date of the merger. The price at which each of the above mentioned rights may be exercised is equal to euro 4.1599. The capital increase shall be completed by 31 December 2011. Upon expiration of such term, the share capital will be deemed increased by an amount equal to the subscription rights exercised as of that date; d. a capital increase, divisible in tranches, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of euro 261,436, to be effected through the issue of up to a maximum 522,872 ordinary shares with a par value of euro 0.50 each to service the subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2009 – Ex FinecoGroup Warrants 2003” allocated in exchange for an equal number of Fineco Warrants A attributed for free to FinecoGroup’s employees and FinecoBank’s network of private bankers and not yet exercised at the effective date of the merger. The price at which each of the above mentioned rights may be exercised is equal to euro 4.24. The capital increase shall be completed by 31 December 2009. Upon expiration of such term, the share capital will be deemed increased by an amount equal to the subscription rights exercised as of that date;
43 e. a capital increase, divisible in tranches, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of euro 5,322,800, to be effected through the issue of up to a maximum 10,645,600 ordinary shares with a par value of euro 0.50 each to service the subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex FinecoGroup Warrants 2005” allocated in exchange for an equal number of Fineco Warrants B attributed for free to FinecoGroup’s employees and FinecoBank’s network of private bankers and not yet exercised at the effective date of the merger. The price at which each of the above mentioned rights may be exercised is equal to euro 3.9348. The capital increase shall be completed by 31 December 2011. Upon expiration of such term, the share capital will be deemed increased by an amount equal to the subscription rights exercised as of that date; f. the Terms and Conditions of the “Subscription Rights UniCredit S.p.A. 2007 - 2008 – Ex Capitalia Warrants 2002”, “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia Warrants 2005”, “Subscription Rights UniCredit S.p.A. 2007 - 2009 – Ex FinecoGroup Warrants 2003”, “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex FinecoGroup Warrants 2005” and “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia MD Warrants 2005”, in accordance with the terms attached to this resolution; g. the following amendments to articles 2, 5 and 6 of the Articles of Association of UniCredit: article 2 shall be replaced by the following provision: “1. The registered office of the Bank is located in Rome, via Minghetti 17, while its Central Management Unit is located in Milan, Piazza Cordusio. It may establish, both in Italy and abroad, branches, agencies, outlets and representative offices.”; article 5, paragraph 1, shall be replaced by the following provision: “1. The share capital, fully subscribed and paid-up, amounts to Euro 6,678,281,157 and is divided into 13,356,562,313 shares of Euro 0.50 each, in turn made up of 13,334,855,761 ordinary shares and 21,706,552 savings shares”,
44 granting the powers to the Chairman and the Managing Director, either jointly or severally among them, to fix the following data: (i) the amount of the subscribed and paid-up share capital; (ii) the total amount of shares in which the share capital is divided; and (iii) the amount of the ordinary shares, to be indicated in the above mentioned article 5, paragraph 1, of the Articles of Association on the basis of the actual number of Capitalia’s existing and exchanged shares as at the effective date of the merger; article 5 shall be integrated with the following four paragraphs, to be numbered as paragraph no. 7, 8, 9 and 10 respectively: “7. The Extraordinary Shareholders’ Meeting of [● 2007] approved a capital increase, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of Euro 2,205,812, to be effected through the issue of up to a maximum 4,411,624 ordinary shares with a par value of Euro 0.50 each, to service the 20,000,000 “Subscriptions Rights UniCredit S.p.A. 2007- 2008 – Ex Capitalia Warrants 2002” assigned in exchange for an equal number of Warrants issued pursuant to the “Stock Incentive Plan 2002 in favour of Banca di Roma Group’s employees” formerly allocated, free of charged, to Capitalia Group’s employees pursuant to the resolution adopted by the Capitalia S.p.A.’s Extraordinary Shareholders meeting of 16 May 2002. The subscription rights may be exercised, as far as a first tranche of 118,950 rights is concerned, at a price equal to Euro 1.214 each and, as far as a second tranche of 3,820,000 rights is concerned, at a price equal to Euro 2.4743 each and each of them assigns the right to purchase 1.12 ordinary shares of the company within and no later than 10 October 2008 in accordance with the Terms and Conditions approved by the above mentioned Extraordinary Shareholders’ Meeting; 8. The Extraordinary Shareholders’ Meeting of [● 2007] approved a capital increase, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of Euro 9,940,980, to be effected through the issue of up to a maximum 19,881,960 ordinary shares with a par value of Euro 0.50
45 each, to service the 22,000,000 “Subscription Rights UniCredit S.p.A. 2007- 2011 – Ex Capitalia Warrants 2005” assigned in exchange for an equal number of Warrants issued pursuant to the “Stock Incentive Plan 2005 in favour of Capitalia Group’s employees” formerly allocated, free of charged, to Capitalia Group’s employees pursuant to the resolution adopted by the Capitalia S.p.A.’s Extraordinary Shareholders meeting of 4 April 2005. Each option may be exercised at a price equal to Euro 4.1599 and assigns the right to purchase 1.12 ordinary shares of the company, within and no later than 31 December 2011 pursuant to the relevant Terms and Conditions approved by the above mentioned Extraordinary Shareholders’ Meeting; 9. The Extraordinary Shareholders’ Meeting of [● 2007] approved a capital increase, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of Euro 261,436, to be effected through the issue of up to a maximum 522,872 ordinary shares with a par value of Euro 0.50 each, to service the 3,466,650 “Subscription Rights UniCredit S.p.A. 2007- 2009 – Ex FinecoGroup Warrants 2003” assigned in exchange for an equal number of Warrants formerly allocated, free of charged, to Fineco Group’s employees and Fineco Bank’s private bankers pursuant to the resolution adopted by the Capitalia S.p.A.’s Extraordinary Shareholders meeting of 28 November 2005. Each subscription right may be exercised at a price equal to Euro 4.24 and assigns the right to purchase 1.12 ordinary shares of the company, within and no later than 31 December 2009 pursuant to the relevant Terms and Conditions approved by the above mentioned Extraordinary Shareholders’ Meeting; 10. The Extraordinary Shareholders’ Meeting of [● 2007] approved a capital increase, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of Euro 5,322,800, to be effected through the issue of up to a maximum 10,645,600 ordinary shares with a par value of Euro 0.50 each, to service the 10,543,334 “Subscription Rights UniCredit S.p.A. 2007- 2011 – Ex FinecoGroup Warrants 2005” assigned in exchange for an equal number of Warrants formerly
46 allocated, free of charged, to Fineco Group’s employees and Fineco Bank’s private bankers pursuant to the resolution adopted by the Capitalia S.p.A.’s Extraordinary Shareholders Meeting of 28 November 2005. Each subscription right may be exercised at a price equal to Euro 3.9348 and assigns the right to purchase 1.12 ordinary shares of the company, within and no later than 31 December 2011 pursuant to the relevant Terms and Conditions approved by the above mentioned Extraordinary Shareholders’ Meeting; as consequence, the actual paragraphs no. 7, 8, 9 10, 11 and 12 will be numbered as paragraphs no. 11, 12, 13, 14, 15 and 16; article 6 shall be integrated with a new paragraph, to be numbered as paragraph 9: “The 20,000,000 “Subscription Rights UniCredit S.p.A. 2007 - 2008 – Ex Capitalia Warrants 2002”, the 22,000,000 “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia Warrants 2005”, the 3,466,650 “Subscription Rights UniCredit S.p.A. 2007 - 2009 – Ex FinecoGroup Warrants 2003” and the 10,543,334 “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex FinecoGroup Warrants 2005” issued pursuant to the resolution adopted by the Extraordinary Shareholders’ Meeting of [●], assigned and exercisable in accordance with paragraph 5 above and the relevant Terms and Conditions, are registered and non-transferable inter vivos (between living persons); in the event of beneficiary’s death, such options shall be transferred to beneficiary’s heirs. In the event of interruption of the relationship between the beneficiary and the UniCredit Group before the normal term, the options shall automatically lapse.”; as consequence, the actual paragraphs 9, 10, 11, 12, 13, 14, 15 and 16 will be numbered as, respectively, paragraphs 10, 11, 12, 13, 14, 15, 16 and 17; 3. to approve, with effect as of the date of registration of the shareholders’ meeting resolution: article 27, paragraph 2, shall be replaced by the following provision:
47 “2. The number of Committee members includes, as members by right, the Chairman of the Board of Directors, the Deputy Chairman of the same and the Managing Directors. The Executive Committee elects, among its members, the Chairman. The Committee Secretary is the same person as the Board Secretary, unless the Committee resolves otherwise. article 27, paragraph 3, shall be replaced by the following provision: “3. The Chairman of the Executive Committee and the Managing Directors may invite the Deputy General Managers, Executive Managers, Assistant Executive Managers and other managers within the Central Management Unit, or a number of them, to attend Committee meetings, without being granted voting rights.” article 28, paragraph 1, shall be replaced by the following provision: “1. The Executive Committee is convened by its Chairman or by whoever substitutes him in his absence. A Committee meeting may also be convened on the initiative of at least two members of the Statutory Board of Auditors.” article 28, paragraph 2, shall be replaced by the following provision: “2. The Committee usually meets once a month and whenever its Chairman feels it necessary or a meeting is requested by two Committee members.” article 28, paragraph 3, shall be replaced by the following provision: “3. Whenever the Chairman of the Executive Committee deems it appropriate, the meetings of the Committee may be held by using means of telecommunication, provided that each of the attendees may be identified by all the others and that each of the attendees is in a position to intervene real time during the discussion of the topics being examined, as well as to receive, send and view documents. Once the fulfilment of such requirements has been verified, the Executive Committee is considered held in the place where the Chairman is located and where the secretary of the meeting is also located.”
48 article 32, paragraph 1, shall be replaced by the following provision: “1. The minutes of Executive Committee meetings are signed by its Chairman of the meeting and by the Secretary: copies, signed by the Chairman of the Committee or by whoever substitutes him in his absence, constitute full evidence.” 4. to allocate 476,000 own shares held by the Incorporating Company to service the 425,000 “Option Rights UniCredit S.p.A. 2007-2011 – Ex Capitalia MD Warrants 2005”, granted on the basis of the exchange ratio determined for the merger by way of incorporation of Capitalia S.p.A. into UniCredit S.p.A. and to be exercised at a price of euro 4.1599, for this purpose changing the allocation of the aforesaid shares resolved by the Extraordinary Shareholders Meeting of UniCredit held on 16 December 2005; 5. to grant to the Chairman and to the Managing Director, either jointly or severally among them, any appropriate power to give effect, in accordance with the law, to the foregoing resolutions, to accept or introduce any amendment or addition thereto (provided that they do not alter the substance of the amendments resolved upon) which might be requested by the Supervisory Authority or upon registration with the Register of Companies, and to carry out any activity necessary for the filing and the registration, pursuant to law, being any such activity since now approved and ratified, and to take all necessary measures for the implementation of the present resolutions; 6. to authorize the Chairman of the Board of Directors to file the text of the Articles of Association, updated with the above amendments, with the Register of Companies.
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Valuation Summary
20 May 2007 VALUATION METHODOLOGIES AND MAIN ASSUMPTIONS (FULLY DILUTED, EX DIVIDEND BASIS, MARKET DATA PRE-LEAKAGE FOR UNICREDIT AND CAPITALIA)
UniCredit Capitalia
Analysis of UniCredit share price over a trading period of 6 months, on an Analysis of Capitalia share price over a trading period of 6 months, on an Market Prices ex-dividend basis, considering ’06 DPS of €0.24 and 21/05/07 as ex- ex-dividend basis considering ’06 DPS of €0.22 and 23/04/07 as ex-divided dividend date date
Selected samples of comparable banks: RBoS, SAN, BNPP, ISP, Barclays, Selected samples of comparable banks: ISP, Danske, Commerzbank, SG, BBVA, HBoS, CA, KBC and Nordea Popular, PostBank, BCP, SAN, BBVA, MPS, UBI Banca, SEB Trading Multiples Trading multiples applied: Price/Earnings 2007E, 2008E and 2009E Trading multiples applied: Price/Earnings 2007E, 2008E and 2009E (P/E) (median) (median) Company and comparables metrics from Reuters Consensus Company and comparables metrics from Reuters Consensus
Regression Same sample of comparable banks as used for trading multiples Same sample of comparable banks as used for trading multiples Analysis RoAE – Regression based on RoAE - P/BV 2007E, 2008E and 2009E Regression based on RoAE - P/BV 2007E, 2008E and 2009E P/BV Company and comparables metrics from Reuters Consensus Company and comparables metrics from Reuters Consensus
Projections based on Consensus 2007E/2009E; extended up to 2016E in Projections based on Consensus 2007E/2009E; extended up to 2016E in order to achieve normalised dividend level order to achieve normalised dividend level Discounted dividend payments under excess capital scenario based on a Discounted dividend payments under excess capital scenario based on a Core Tier I ratio of 7% Core Tier I ratio of 7% Stand-Alone Valuation Methodologies Methodologies Valuation Stand-Alone DDM Terminal value based on last year of projection and a long term growth rate Terminal value based on last year of projection and a long term growth rate in the range of 1.5 % – 2.5% of 1.5% – 2.5% Cost of equity of 10.5% - 11.1% (ERP 5.5%, risk free rate: 4.6%, Beta: Cost of equity of 10.5% - 11.1% (ERP 5.5%, risk free rate: 4.6%, Beta: 1.10 - 1.20 based on comparables) 1.10 - 1.20 based on comparables)
Analysis of most recent target prices published by research brokers post Analysis of most recent target prices published by research brokers post Brokers’ Target release of ‘06 financial results. Median target price discounted one year release of ‘06 financial results. Median target price discounted one year Prices backwards at mid-point cost of capital (10.8%) backwards at mid-point cost of capital (10.8%) Control Stand-Alone Stand-Alone Methodology Methodology
Precedent Analysis of premium paid in precedent domestic transactions in European banking market Transactions Comparison of premium paid in precedent transactions with implied premium based on proposed exchange ratio vs. standalone fair exchange ratio
NPV of estimated synergies is calculated assuming 10.8% cost of equity (equal to UniCredit’s and Capitalia’s costs of equity) and 2.0% long-term growth rate Max Value after the explicit period Strategic Strategic Valuaiton Creation Analysis of max premium payable assuming full allocation of estimated synergies NPV to Capitalia’s shareholders Methodolgies Methodolgies Comparison of max premium payable with implied premium based on proposed exchange ratio vs standalone fair exchange ratio
1
Note: Valuations (except for market prices and brokers’ target prices) are on a fully diluted basis. Market data as at 8 May 2007 for UniCredit and Capitalia (i.e. pre-leakage) and 16 May 2007 for comparables THE PROPOSED EXCHANGE RATIO IMPLIES A PREMIUM OF 11% ON MID-POINT FAIR VALUE WHICH IS JUSTIFIABLE TAKING INTO ACCOUNT THE DEAL VALUE CREATION AND PREMIUM PAID IN PRECEDENT TRANSACTIONS
Control Valuation Methodologies Methodology Strategic Valuation Methodologies
Trading Comparables
Last 6M Min/Max Regression Brokers’ Target Fair Exchange Transaction Max Value Market Value P/E Multiples P/BV-RoAE DDM Prices(1) Ratio(2) Precedents Creation
Exchange Ratio 1.53x 1,46x
1,17x 1,14x 1,12x 1,12x 1,27x 1.06x Proposed 1,00x Exchange Ratio: 1.12x Spot Market 1,04x 1,04x Value (pre- 1,01x leakage): 0.94x 0,91x 0,81x 0,80x 0,82x
UniCredit Value 6.48 – 7.68 6.23 – 6.57 6.24 – 6.82 6.87 – 7.89 6.79 – 7.53 6.45 – 7.23 6.45 – 7.23 6.45 – 7.23 per Share (€)
Capitalia Value 6.23 – 7.23 6.83 – 7.30 6.87 – 7.09 6.35 – 7.29 6.17 – 6.82 6.56 – 7.22 7.54 – 9.38 per Share (€) 9.19 – 9.85
2 Note: Prices as at 8 May 2007 (i.e. pre-leakage) for UniCredit and Capitalia and as at 16 May 2007 for comparables, source from FactSet. Exchange ratio calculated as number of shares to be issued by UniCredit for each share of Capitalia. Valuations are calculated on a fully diluted basis (except for market prices and brokers’ target prices) and ex dividend (1) Median of brokers’ target prices +/-5% (2) Calculated as average of various valuation methodologies findings: last 6m min/max market value, P/E multiples, regression analysis P/BV – ROAE and DDM UNICREDIT/CAPITALIA EXCHANGE RATIO BASED ON MARKET VALUES EQUAL TO APPROXIMATELY 1.0 UNICREDIT ORDINARY SHARE FOR EACH CAPITALIA ORDINARY SHARE OVER ALL PERIODS CONSIDERED (ON AN EX-DIVIDEND BASIS AS OF THE LATEST PRE- LEAKAGE DATE)(1)
Exchange Ratio Over Last 12 Months Exchange Ratio Over Last 6 Months
1.20x 1.20x Max: 1.15x (+26.3%)
1.10x 1.10x Max: 1.08x (+19.1%)
Avg: 1.03x (+13.3%) 1.00x 1.00x Avg: 0.99x (+9.4%)
Spot: 0.91x Spot: 0.91x (-17.3%) 0.90x 0.90x (-15.5%) Min: 0.91x (0.0%) Min: 0.91x (0.0%)
0.80x 0.80x 09-May-06 08-Jul-06 07-Sep-06 07-Nov-06 06-Jan-07 08-Mar-07 08-May-07 09-Nov-06 09-Dec-06 08-Jan-07 07-Feb-07 09-Mar-07 08-Apr-07 08-May-07
Exchange Ratio Over Last 3 Months Exchange Ratio Over Last 1 Month
1.00x 1.00x Max: 0.97x (+8.7%) Max: 0.98x (+8.5%) 0.98x 0.98x
0.96x Avg: 0.95x (+4.8%) Avg: 0.95x (+4.2%) 0.95x 0.94x
0.93x 0.92x Spot: 0.91x Spot: 0.91x Min: 0.91x (0.0%) (-7.3%) Min: 0.91x (0.0%) (-7.8%) 0.90x 0.90x 09-Feb-07 23-Feb-07 10-Mar-07 25-Mar-07 08-Apr-07 23-Apr-07 08-May-07 09-Apr-07 13-Apr-07 18-Apr-07 23-Apr-07 28-Apr-07 03-May-07 08-May-07
3 Note: Prices as at 8 May 2007 (i.e. pre-leakage), source from FactSet. Exchange ratio calculated as number of ordinary shares to be issued by UniCredit for each ordinary share of Capitalia. In brackets change vs. spot, except for spot exchange ratio, where performance vs. beginning of the period is indicated (1) Calculated considering UniCredit ’06 DPS of €0.24 and Capitalia ’06 DPS of €0.22, UniCredit’s ex-dividend date as at 21 May 2007 and Capitalia ex-dividend date as at 23 April 2007 APPENDIX 1 (FINANCIAL BACK-UP) BROKERS INDICATE A VALUATION OF €76.6BN (OR €7.4 PER SHARE(1)) FOR UNICREDIT VS €17.1BN (OR €6.6 PER SHARE(1)) FOR CAPITALIA
UniCredit Target Prices (€)
Recommendation Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Buy Hold Hold Buy Buy Hold Buy Sell
Upside 20.6% 13.9% 11.2% 11.2% 9.8% 9.8% 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% 6.8% 7.2% 7.2% 4.5% 3.1% 1.8 0.5% (0.9%) (0.9%) (15.6%)
9.0 8.5 8.3 8.3 8.2 8.2 8.18.18.18.18.18.18.0 8.0 8.0 Median: €7.4 (0.9%)(1) 7.8 7.7 7.6 7.5 7.4 7.4 6.3 Average: €7.3 (2.8%)(1)
ML FPK Oddo Euro mo biliare Sal. Cheuvreux UBS JPM Citigroup Ixis Centrosim Caboto GS Leonardo CS BNPP M S DZ HSBC WestLB Ras Ibersecurities Opp.
Capitalia Target Prices (€)
Recommendation Buy Buy Buy Buy Buy Hold Buy Hold Sell Buy Hold Hold Hold Hold Hold Hold Sell Hold
Upside 23.2% 13.2% 9.3% 8.9% 7.4% 7.4% 6.0% 5.3% 3.2% 1.7% 1.7% 0.3% 0.3% (1.1%) (2.6%) (2.6%) (3.3%) (4.0%)
8.6 7.9 7.6 7.6 7.5 7.5 7.4 7.4 7.2 7.1 7.1 Average: €6.7 (4.5%)(1) 7.0 7.0 6.9 6.8 6.8 6.8 6.7
Median: €6.6 (5.8%)(1)
Broker BNPP Centrosim JPM Broker Euro mo biliare B ro ker Caboto Cheuvreux HSBC Ixis Broker KBW M L CS FPK Ras Leonardo Withheld Withheld Withheld Withheld
4 Source: Reuters and brokers report (1) Discounted 1-year backwards assuming cost of equity of 10.8% for both UniCredit and Capitalia A PREMIUM OF 11% ON MID-POINT OF FAIR VALUE IMPLIED IN THE PROPOSED EXCHANGE RATIO OF 1.12 UNICREDIT SHARES FOR EACH CAPITALIA SHARE IS BELOW PREMIUM OF CA. 15%-30% PAID IN PRECEDENT DOMESTIC TRANSACTIONS IN EUROPE
Premia Pre-Announcement Trans. Multiples
Date Target Acquiror MOE / Deal Value Announced Target Name Country Acquiror Name Country Status Acq.(1) (€mln) % Acquired 1 Day 1 Week 4 Weeks 3 Months P/BV P/E FY1
13/11/06 B. Lombarda Italy BPU Italy Completed M 6,144 100% (3%) (3%) 0% 33% 2.75x 9.7x 16/10/06 BPI Italy BPVN Italy Completed A 9,527 100% 15% 16% 28% 42% 6.32x 28.8x 26/08/06 SPIMI Italy Intesa Italy Completed M 29,493 100% 7% 7% 14% 12% 2.19x 14.3x 13/03/06 BPI Portugal BCP Portugal Pending A 4,555 100% 19% 25% 30% 53% n.a. n.a. 18/07/05 BNL Italy Unipol Italy Failed A 4,958 59% 17% 27% 35% 28% 1.59x 16.0x 21/12/03 Banco Atlantico Spain Sabadell Spain Completed A 1,500 100% 1% 3% 18% 38% 2.73x 28.3x 16/12/02 BPCI Italy BP Bergamo Italy Completed M 1,318 100% 27% 36% 49% 41% 0.91x n.m. 14/11/01 BP Novara Italy BP Verona Italy Completed M 1,561 100% 37% 39% 31% (1%) 1.03x 12.0x 30/05/00 Bank of Scotland UK Halifax UK Completed M 17,009 100% (1%) (2%) 17% 12% 2.41x n.a. 30/05/00 Banco di Napoli Italy SPIMI Italy Completed A 1,791 56% 33% 33% 39% 45% 1.92x 21.4x 29/11/99 NatWest UK RBoS UK Completed A 42,156 100% 36% 30% 8% 2% 2.84x 12.3x 19/10/99 Argentaria Spain BBV Spain Completed M 10,706 100% (2%) (4%) 2% (4%) 3.44x n.a. 31/05/99 COMIT Italy Banca Intesa Italy Completed A 10,049 70% 9% 11% 13% 2% 2.92x 3.4x 09/03/99 Paribas France BNP France Completed A 12,123 65% 46% 57% 51% 67% 1.84x 15.9x 15/01/99 BCH Spain Santander Spain Completed M 9,713 100% (4%) (15%) (8%) 2% 2.72x 21.0x 10/09/98 BAM Italy BMPS Italy Completed A 1,463 70% 31% 33% 32% 21% 2.53x n.a. 19/02/98 Banesto Spain Santander Spain Completed A 3,468 52% 14% 13% 15% 42% 4.36x 29.0x
Average 16.7% 18.1% 22.0% 25.6% 2.41x 18.1x All Median 15.3% 16.3% 17.7% 27.9% 2.53x 15.9x
Average 8.8% 8.3% 14.9% 13.6% 2.21x 14.3x MOE Median (1.0%) (2.3%) 13.8% 11.5% 2.41x 13.2x
Average 17.1% 19.2% 20.7% 26.1% 1.88x 14.6x Acqusitions Median 15.3% 16.3% 17.7% 27.9% 1.92x 15.9x
5 Source: M&A monitor, Datastream, press releases, investor presentations and newsrun Note: Premia pre-leak for SPIMI / Intesa (1) M = Merger of Equal, A = Acquisition. Definition based on relative sizes / corporate governance agreements and other transaction features, rather than based strictly on legal form (i.e. an acquisition can also be achieved legally via a merger)
Explanatory Report pursuant to art. 2501-quinquies of the Italian Civil Code of the Board of Directors of Capitalia S.p.A.
Board of Directors of Capitalia S.p.A.
May 20, 2007
Directors’ Report on the Plan to Merge by Incorporation Capitalia S.p.A. into UniCredit S.p.A.
Drafted pursuant to Article 2501-quinquies of the Italian Civil Code and Article 70, paragraph 2 of the regulations approved in CONSOB Ruling No. 11971of May 14, 1999, as
subsequently amended
1
Dear Shareholders,
The Board of Directors has called this Extraordinary Shareholders’ Meeting to submit for your approval the plan to merge by incorporation (hereinafter the “Merger”) of Capitalia S.p.A. (hereinafter “Capitalia” or “Company to be Incorporated”) in UniCredito Italiano S.p.A. (hereinafter “UniCredit” or “Incorporating Company”). This report describes the Merger and, specifically, the exchange ratio specified in the merger plan (the “Merger Plan”) from a legal and financial viewpoint. It highlights the criteria used to determine said ratio, in compliance with the provisions contained in Article 2501-quinquies of the Italian Civil Code and Article 70, paragraph 2 of the Regulations approved in Consob Ruling No. 11971 of May 14, 1999, as subsequently amended (the “Issuers’ Regulations”).
The Merger represents a natural step in the further development of Capitalia, and is not just aimed at consolidating its position within the Italian market, but also at joining a group that is firmly established in key markets such as Germany, Austria and Eastern Europe. The Merger will therefore permit the creation of a leading operator, able to compete in the banking and financial services sector on a global level--thanks as well to the increase in dimension and the strengthening of the balance sheet and financial standing achieved as a consequence of the operation.
********
1. DESCRIPTION OF AND REASONS BEHIND THE MERGER
1.1 Introduction
In recent years, the entire banking and financial system has undergone an extensive process of consolidation and reorganization, characterized by the creation of new European banking groups, the acquisition of leading Italian banking institutes by foreign operators and important merger projects between Italian banking groups.
Specifically, note should be taken, at an international level, of the acquisition of Abbey National by Santander, the merger of UniCredit with HVB, the acquisition
2
of Banca Nazionale del Lavoro by BNP Paribas and the acquisition of Banca Antonveneta by ABN Amro; all of these operations helped speed up the changes taking place on the national and international banking scene.
This process triggered another phase of further consolidation, including in the Italian market, making this last market more open and competitive. Banca Intesa and Sanpaolo IMI have recently given birth to a national leader, which boasts noteworthy dimensions. As far as the sector of the cooperative banks (“banche popolari”) is concerned, other operators have joined together in order to compete on the new European market (this is the case of the merger between Banco Popolare Verona e Novara and Banca Popolare Italiana, and the merger between Banche Popolari Unite and Banca Lombarda e Piemontese).
Mention must also be made of the recent developments in the ownership of banks at an international level. For example, this is the case of the offers formulated to acquire the Dutch bank, ABN Amro, a shareholder in Capitalia with an 8.6% interest. Not only are said offers significant insofar as they involve some of the leading European banks, but also inasmuch as they serve to confirm the fact that the competition in the banking arena has now assumed European-wide dimensions.
Despite the positive moment for the (Italian) banking system in general, and Capitalia in particular, the increase in competitiveness calls for the pursuit of strategies to increase size in order to keep up with the most dynamic national and foreign operators and achieve the rationalizations, which Banca d’Italia would also like to see, for the entire system.
Achievement of a greater critical mass offers the possibility of satisfying in a more complete, effective manner, the needs of families and the financial requirements of businesses that must expand in terms of dimension in order to tackle global competition. At the same time, this encourages the development of economies of scale and internal efficiency, which are a requisite for continuing to compete on markets and guaranteeing suitable, long-lasting creation of value for shareholders— this perfectly in tune with Capitalia’s past achievements.
1.2 Reasons behind the merger
3
Therefore, within the aforementioned changed environment, Capitalia needs, on the one hand, to pursue operating dimensions that will allow it to have the means necessary to tackle the challenges linked to the expansion and globalization being experienced within the banking system and, more generally speaking, the financial system. On the other hand, Capitalia needs to look for additional development opportunities with regard to quality and quantity, which allow it to maximize the growth and creation potential of existing values.
The Merger fits into aforementioned strategic context, manifesting itself to be the best instrument for pursuing the aims outlined above.
The Merger with UniCredit will allow, above all, for a significant strengthening of positioning in Italy with the creation of the Euro Zone’s largest banking group.
The merger with UniCredit will also allow Capitalia to achieve a considerable leap sizewise in its distribution channels throughout Italy and in some specialist business areas where the combined Group will attain European standing. Specifically, note should be taken that, on the basis of figures at December 31, 2006, upon completion of the Merger:
the branch distribution network will increase significantly, rising from the current figure of approximately 2,006 to approximately 5,025 in Italy (and approximately 9,275 at a global level);
the financial promoter network will also undergo a major expansion, passing from the current figure of approximately 1,142 to approximately 3,034;
the market share in the consumer credit sector in Italy will increase from 1.1% to 7.5%, allowing the Group to offer a wider product range besides the Salary-Based Consumer Credit product, where Capitalia holds a leadership position (no. 2 with a pre-merger market share of 15.8% and a post-merger market share of 19.3%);
the market share in the leasing and factoring sectors will increase, respectively, from 7.2% to 20.6% and from 5.7% to 11.9%;
4
the Group’s market share in the banking insurance sector will stand at around 18%, significantly higher than Capitalia’s pre-merger figure of 6.5%;
managed assets in the asset management sector in Italy will increase to over € 122.0 billion, for a total value of approximately 16.6% of managed assets on the Italian market (compared to Capitalia’s pre-merger figure of 3.6%).
More specifically, with reference to expansion of the branch network, the Merger will allow the company resulting from the merger to achieve more balanced coverage of the whole of Italy compared to the present-day situation. Indeed, upon completion of the Merger, the Group’s branches would be equally distributed between the north-west, north-east, centre, south and the islands (while at the present moment, Capitalia cannot boast a particularly significant presence in the regions of the north of Italy, which are appealing from a financial viewpoint). The market share in the regions of the north-east will increase from Capitalia’s current figure of approximately 3% to approximately 18% for the company resulting from the Merger, and in the regions of the north-west it will increase from Capitalia’s current figure of approximately 4% to approximately 12% for the company resulting from the Merger.
As stated above, the adoption of a regionally based distribution organization following the Merger, with responsibility for the network in the central and southern areas and Sicily being respectively assigned to Banca di Roma and Banco di Sicilia, will maximize commercial efficiency through improved territorial management as well facilitate possible aggregation with local banks.
Therefore, Banca di Roma and Banco di Sicilia will benefit from considerable growth margins as a result of Capitalia Group’s significant increase in equity and size following the merger, with a related increase in expansion potential and opportunities to improve the quality and quantity of the range of products and services on offer.
The merger will also entail greater penetration of the retail segment in Italy, The post-merger Group will have a market share of more than 10% in 62 out of 103 provinces, which represent approximately 75% of national wealth (compared to Capitalia’s pre-merger figure of 19 provinces representing 19% of national wealth).
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At an international level, the merger with UniCredit will allow Capitalia to acquire a European dimension, thanks also to UniCredit’s positioning as the number two bank in Germany (through HVB) and the number one bank in Austria (through Bank Austria) as well as a franchise offering undisputed leadership in Eastern European countries (which offer especially interesting growth opportunities). The increased dimension at a European level in some specific business areas will also improve the possibility of generating economies of scale in some business areas and of putting itself forward as a key player for establishing partnerships on the global market.
The Group’s customers will also enjoy significant advantages from Capitalia’s future presence in European markets and especially in Eastern European markets, in terms of reduction of costs related to cross-border transactions and special terms and conditions with regard to foreign investments.
Therefore, Capitalia will benefit from increased diversification in geographical terms and in business areas. In geographical terms, the Group’s revenues will roughly be split as follows: 47% Italy, 17% Germany, 10% Austria e 17% CEE (compared to Capitalia’s current revenues that are concentrated almost exclusively in Italy). As regards business areas, the Group’s revenues will be split as follows: 38% Retail, 20% Corporate, 14% Markets & Investment Banking, 11% Private and Asset Management, 17% CEE.
The company resulting from the Merger will become the number three European bank in terms of market capitalization and the first in the Euro Zone. This position will allow it to play a leading role at an international level, also benefiting from greater financial solidity, and to negotiate from a stronger position any additional mergers with operators, including international ones.
The Merger will make it possible to achieve gross synergies estimated at € 1.162 billion in 2010, with a consequent significant increase in Capitalia’s per share profits starting from 2007.
2. THE MERGER ENTITIES
2. 1 Company to be Incorporated: Capitalia S.p.A.
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2.1.1 Company name
Capitalia Società per Azioni
2.1.2 Registered office
Rome, Via Marco Minghetti, 17
2.1.3 Identification data
Capitalia is registered with the Companies Registry of Rome, enrolment and fiscal code number 00644990582
2.1.4 Recent history
Capitalia was born in 2002 out of the integration of two pre-existing entities: the Banca di Roma Group and the Bipop-Carire Group. Under its first 2002-2005 industrial plan the Group was substantially reorganized and grew rapidly after the organizational and corporate rationalization carried out according to the 2005-2007 industrial plan approved in 2005. Specifically, the reorganization, completed on January 1, 2006, led the Group to be composed of the parent company Capitalia, which controls numerous participations, as well as:
o the commercial banks (Banca di Roma, Banco di Sicilia and Bipop Carire, all wholly owned) whose focus is on traditional customers and banking business carried on in their respective areas under their own brand;
o the specialized banks and product companies who carry on more specialist banking business. These are:
9 MCC, wholly owned by Capitalia, whose main businesses are industrial lending, leasing and factoring, structured and acquisition finance, real estate finance, project finance and export finance, as well as all types of marine finance and a complete range of services, incentives and finance in support of economic development in Italy's less developed areas;
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9 directly held banks and finance companies previously owned by Fineco S.p.A., such as FinecoBank S.p.A., Fineco Leasing S.p.A., Capitalia Asset Management SGR S.p.A, Capitalia Investimenti Alternativi SGR S.p.A., or by MCC such as Capitalia Sofipa SGR S.p.A.
o shared service companies such as Capitalia Informatica, specializing in IT and back-office services for the three network banks of the Capitalia Group (Banca di Roma, Banco di Sicilia, Bipop Carire); Capitalia Service JV, which recovers bad debts on behalf of Group entities; Capitalia Solutions, which specializes in property and facility management on behalf of Group and non-Group entities;
o the two sub-holdings Capitalia Partecipazioni and Capitalia Merchant, both wholly owned and charged respectively with the management of strategic and non-strategic equity investments.
2.1.5 Key structure information
Capitalia, based in Rome, is Italy's third-largest banking group by total assets. At 31 December 2006, Capitalia had consolidated total assets of euro 137 billion, customer loans of euro 96 billion, customer direct deposits of euro 97 billion, about 4.5 million customers and a network of 2,006 branches in Italy and 14 outside Italy. Total revenue for fiscal 2006 exceeded euro 5.5 billion, while operating profit was over euro 2.3 billion.
The Group is organized according to the following business lines with the main focus on retail and corporate customers. The main lines of business, together with Credit Policy and Finance (i.e., capital markets) are:
• Commercial Banks: runs the commercial banks (Banca di Roma, Banco di Sicilia and Bipop Carire) and their branches outside Italy;
• Specialized Banks and Product Companies: covers activity relating to governance of MCC, FinecoBank and Wealth Management (asset management and Life);
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• Corporate: performs origination, advisory and business development for corporates (Large Corporates and Private Equity funds) and institutional clients, in relation to products and services offered by the Group.
In terms of segment reporting, Capitalia is structured in the following business areas:
• Retail: includes the business of the Commercial Banks in the mass market, affluent, private banking and small business segments;
• Corporate: focuses on the mid-corporate segment in the Commercial Banks and the business of the foreign branches;
• Wholesale & Investment Banking: includes the large corporate and institutional segments, investment banking and custodian business, as well as the Parent Company's financial transactions and those of individual subsidiaries;
• Financial Services: comprises the business of FinecoBank, MCC, Fineco Leasing and all wealth management (managed savings companies and insurance companies);
• Corporate Center: includes Treasury, the business of the Holding and Capitalia Service JV.
Retail was the business that contributed most to the Group's total revenue in 2006 (54% of the total), followed by Financial Services (16%), Corporate and Wholesale & Investment banking (15% each).
On May 17, 2007, Capitalia had a market capitalization of circa euro 20.6 billion, which ranked it 3rd in Italy and among the first 30 banking groups in Europe.
The Capitalia Banking Group is composed as follows:
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2.1.6. Market Positioning
On the basis of data as at December 31, 2006, Capitalia is the third largest bank in Italy by total assets, with a domestic market share of loans of 5.7% and 6.7% of deposits at end-2006. The Group is most strongly rooted in the regions of Sicily and Latium, where its respective market shares are 26% and 19% in terms of the number of branches, while its national market share is approximately 6,2%.
Outside Italy Capitalia operates mainly through the branches of Banca di Roma, focusing on the corporate segment. The Group has operational branches in 12 markets: Beirut, Bucharest, Frankfurt, Hong Kong, Istanbul, London, Madrid, New York, Paris, Shanghai, Singapore and Tokyo.
2.1.7. Capital Structure and Recent Results
At 31 December 2006, Capitalia had Core Tier 1 Capital of euro 6.2 billion, Tier 1 Capital of euro 6.2 billion and regulatory capital of euro 8.7 billion,
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corresponding, on the basis of risk-weighted assets of euro 102 billion, to a Core Tier 1 ratio / Tier 1 ratio of 6.2% and a Total Capital Ratio of 9.2%.
In 2006 Capitalia recorded consolidated net profits of euro 1,162 million, up by 12.2% over 2005, with ROE of 15.4% vs. 15.0% at the end of 2005. After reclassification (according to the reclassification adopted by Capitalia), net interest income grew by 11.9% to euro 2,837 million while total revenue was euro 5,531 million, an increase of 7.2% over the previous year. Gross operating profit improved by 14.5% to euro 2,298 million, in line with the objective fixed for the following year. Operating profit rose by 18.7% over 2005 to euro 1,680 million. The cost/income ratio fell from 61.1% in 2005 to 58.5%, an improvement of 2.6 percentage points. In terms of business lines these results were mainly due to revenue growth of 9.5% in Retail, followed by Wholesale and Investment Banking (up by 8.6%), Corporate banking (up by 3.4%) and Financial Services (up by 2.3%).
At end-2006 total assets stood at euro 137,132 billion, up by 2.3% over 2005. Customer loans and direct customer deposits were, respectively, euro 96,012 million (up 16.5% over 2005) and euro 96,753 million (up 7.3%). With regard to asset quality, Capitalia's level of non-performing loans was stable as compared to end- 2005, with net non-performing loans amounting to euro 3.3 billion, or 3.5% of net credit exposure (as against euro 3.2 billion at end-2005, or 3.9% of net loans).
In the first quarter 2007, Capitalia recorded consolidated net profit of euro 277 million, up by 1.8% over 2006, with ROE of 14.6% as against 15.0% in the first quarter 2005. On a reclassified basis, net interest income grew by 12.6% to euro 766 million while total revenue reached euro 1,399 million, up by 4.3% over the previous year. Gross operating profit rose by 9% to euro 597 million. Operating profit increased to euro 453 million, up by 12.3% over 2006. The cost/income ratio fell from 59.2% in the previous year to 57.3%, an improvement of 1.9 percentage points. In terms of business lines, these results were mainly due to a growth of revenue in Corporate (up by 13.6%) and Retail (up by 11.0%); Financial Services grew more slowly (up by 2.3%), while the result of Wholesale and Investment Banking was down by 15.6%.
At March 31, 2007, total assets stood at euro 143,590 million, up by 9.3% over 2006. Customer loans and customer direct deposits were respectively euro
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101,161 million (up by 18.8% as against the 2006 figure) and euro 100,576 million (up by 12.3%). With regard to asset quality, Capitalia's non-performing loans were stable compared with end-2006, with net non-performing loans of euro 3.4 billion or 3.3% of net loans (as against euro 3.2 billion in 2005, or 3.9% of net loans).
2.1.8 Company purpose
Pursuant to Article 4 of the By-Laws of Capitalia, «the purpose of the Company shall be to raise funds and to grant credit in its various forms. The Company may, in compliance with law, carry out any permitted banking and financial business and services, may establish open-end pension funds and manage other forms of supplementary pension funds within the limits of current legislation and may carry out any other business instrumental to or otherwise connected with the attainment of the Company’s purposes. The Company may issue bonds in accordance with the laws and regulations in force. It may also issue bonds convertible into either its own shares or share or subscription warrants, again in accordance with current laws and regulations. In the exercise of the supervision and coordination duties assigned to it in its capacity as parent company of the Group, the Company shall give Group companies directions for the application of the instructions issued by the Bank of Italy to ensure the stability of the Group».
2.1.9 Share capital structure and shareholders
The share capital of Capitalia, as at the date of the last entry in the companies’ registry (May 14, 2007), is equal to euro 3,115,790,352 and is represented by 2,596,491,960 ordinary shares with a par value of euro 1.20 each. As mentioned below, after May 14, 2007, more shares were issued to service Capitalia warrants (as defined as follows), which were issued to service defined stock option plans. The Extraordinary Shareholders’ Meetings held on May 16, 2002, April 4, 2005 and November 28, 2005, respectively, approved capital increases to service certain stock option plans. Successively, the Extraordinary Shareholders’ Meeting of April 19, 2007, on the basis of the shares effectively subscribed as of that date and the increase of the par value of the Capitalia’s shares from euro 1 to euro 1.20, modified the residual maximum nominal amount of the approved capital increases. In particular, the above mentioned Extraordinary Shareholders’ Meetings approved:
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a capital increase, in divisible tranches, of up to a maximum nominal amount of euro 20,000,000, to be effected through the issue of up to a maximum 20,000,000 ordinary shares to service 20,000,000 non- transferable warrants, assigned free of charged to Capitalia Group employees. The Extraordinary Shareholders’ Meeting of April 19, 2007, changed the residual maximum nominal amount of the capital increase to euro 5,468,460 to service the possible subscription of 4,557,050 shares. The resolved capital increase must be undertaken by October 10, 2008. Upon expiration of such term, the share capital will be deemed increased by an amount equal to the subscription rights exercised as at that date. The price at which the above mentioned warrants may be exercised is equal, as far as a first tranche of 118,950 warrants is concerned, to euro 1.214 and, as far as a second tranche of 3,820,000 warrants is concerned, to euro 2.4743 (“Employees Warrants A”);
a capital increase, in divisible tranches, of up to a maximum nominal amount of euro 22,000,000 to be effected through the issue of up to a maximum 22,000,000 ordinary shares to service 22,000,000 non- transferable warrants, assigned free of charged to Capitalia Group’s employees. The Extraordinary Shareholders’ Meeting of April 19, 2007 changed the residual maximum nominal amount of the capital increase to euro 25,518,000 to service the possible subscription of 21,265,000 shares. The resolved capital increase must be undertaken by December 31, 2011. Upon expiration of such term, the share capital will be deemed increased by an amount equal to the subscription rights exercised as at that date. The price at which the above mentioned warrants may be exercised is equal to euro 4.1599 each (“Employees Warrants B”);
in the frame of the merger of Fineco S.p.A. into Capitalia, a share capital increase, in divisible tranches, structured as follows:
o an increase of a maximum nominal amount of euro 3,466,650, through the issue of up to a maximum 3,466,650 ordinary shares of Capitalia to be effected within December 31, 2009, to service 2,070,990 warrants assigned in exchange for the 2,070,990 warrants issued in favor of FinecoGroup’s employees and
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FinecoBank’s network of private bankers pursuant to the stock incentive plan approved by the Extraordinary Shareholders’ Meetings of Fineco held on November 13, 2003 and April 1, 2005, respectively. The new shares will be offered for subscription to holders of the above mentioned warrants pursuant to the exchange ratio established for Fineco’s shareholders under the merger into Capitalia, at a price of euro 4.24 for each newly issued share. The Extraordinary Shareholders’ Meeting of April 19, 2007, changed the residual maximum nominal amount of the capital increase to euro 1,823,970 to service the possible subscription of 1,519,975 shares. Upon expiration of the term provided for the completion of the capital increase, the share capital will be deemed increased by an amount equal to the subscription rights exercised as at that date (“Fineco Warrants A)”;
o an increase of a maximum nominal amount of euro 10,543,334, through the issue of up to a maximum 10,543,334 ordinary shares of Capitalia to be effected within December 31, 2011, to service the 6,326,000 warrants assigned in exchange for the 6,326,000 warrants issued in favor of FinecoGroup’s employees and FinecoBank’s network of private bankers pursuant to the stock incentive plan approved by Fineco’s Extraordinary Shareholders’ Meeting of April 1, 2005. The new shares will be offered for subscription to holders of the above mentioned warrants pursuant to the exchange ratio established for Fineco’s shareholders under the merger into Capitalia, at a price of euro 3.9348 for each newly issued share. The Extraordinary Shareholders’ Meeting of April 19, 2007, changed the residual maximum nominal amount of the capital increase to euro 12,652,000.80 to service the possible subscription of 10,543,334 shares. Upon expiration of the term provided for the completion of the capital increase, the share capital will be deemed increased by an amount equal to the subscription rights exercised at that date (“Fineco Warrants B”).
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On February 23, 2005, the Board of Directors of Capitalia approved a Stock Incentive Plan 2005 pursuant to which 850,000 warrants have been allocated in favor of the Chief Executive Officers of the Capitalia Group’s companies who have not an employment relationship with such companies (“CEO Warrants 2005”); each warrant assigns the right to purchase 1 (one) Capitalia’s ordinary share, to be attributed by means of transfer of the own shares held by Capitalia. The relevant purchase price has been fixed at euro 4.1599.
At May 20, 2007, the following existed and could be exercised:
3,938,950 Employees Warrants A;
17,751,750 Employees Warrants B;
466,850 Fineco Warrants A;
9,505,000 Fineco Warrants B;
425,000 CEO Warrants 2005.
In relation to the above, it is planned that as a result of the Merger, Employees Warrants A, Employees Warrants B, Fineco Warrants A, Fineco Warrants B and CEO Warrants 2005 that are still to be exercised at the date the Merger comes into effect shall be cancelled and replaced by an equal number of subscription rights and specifically by (i) “Subscription Rights UniCredit S.p.A. 2007 – 2008 – Former Capitalia Warrants 2002”, (ii) “Subscription Rights UniCredit S.p.A. 2007 – 2011 – Former Capitalia Warrants 2005”, (iii) “Subscription Rights UniCredit S.p.A. 2007 – 2009 – Former FinecoGroup Warrants 2003” and (iv) “Subscription Rights UniCredit S.p.A. 2007 – 2011 – Former FinecoGroup Warrants 2005” (jointly referred to as “UniCredit Subscription Rights), each of which, on the basis of the exchange ration determined as described in paragraph 6 below, shall grant entitlement to the subscription of newly-issued UniCredit ordinary shares, at the terms and conditions listed in the respective regulations. As regards “CEO Warrants 2005“, rights still to be exercised at the date the Merger comes into effect shall be cancelled and replaced by an equal number of purchase warrants “Purchase Warrants UniCredit S.p.A. 2007 – 2011 – Former Capitalia CEO Warrants 2005” which shall grant entitlement to the acquisition of UniCredit ordinary shares on the basis of the exchange ration determined in accordance with the description contained in paragraph 4 above ““Determination of the value of UniCredit and Capitalia and of the exchange ratio”.
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Furthermore, Capitalia’s Extraordinary Shareholders’ Meeting of November 28, 2005, authorized the Board of Directors of Capitalia to increase the share capital in one or more tranches, with the exclusion of any shareholders’ options rights under art. 2441, paragraph 4, second sentence of the Italian Civil Code, by a maximum amount of euro 264,000,000 (as amended by the Extraordinary Shareholders’ Meeting of April 19, 2007), corresponding to a maximum number of shares equal to 220,000,000 to be effected within October 31, 2010, and reserved for subscription by Italian and foreign professional investors.
Capitalia’s share capital is spread among a large number of institutional and retail shareholders. Approximately 31% of the share capital is tied to a shareholders’ pact which includes the most important shareholders: ABN Amro (8.6% of the share capital), Fondazione Manodori (4.1%), Fondiaria-SAI (3.5%), Regione Siciliana (2.8%), Fondazione Banco di Sicilia (2.7%, of which only 1.7% tied to the pact), Tosinvest (2.1%) and Generali (2.3%, of which only 1.0% tied to the pact) (hereinafter referred to as the “Shareholders’ Pact”).
The main shareholders that are not part of the Shareholders’ Pact are:
- Fondazione Cassa di Risparmio di Roma which holds 5% of the share capital of Capitalia;
- Lybian Arab Foreign Bank with a 2.58% shareholding.
The shareholders included in the Shareholders’ Pact and other key shareholders, i.e. those with more than a 2% interest, hold approximately 41% of the share capital of Capitalia in total. The remaining 59% of the share capital is split between institutional and retail investors.
The current Board of Directors and Board of Auditors are as follows:
Board of Directors appointed by the Shareholders’ Meeting of December 5, 2006, in office for three financial years until the Shareholders’ Meeting to approve the financial statements at December 31, 2008.
Cesare Geronzi Chairman (*)
Paolo Savona Deputy Chairman (*)
Paolo Cuccia Deputy Chairman (*)
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Matteo Arpe Chief Executive Officer (*)
Silvio Bianchi Martini Director
Pasquale Cannatelli Director
Carlo Colaiacovo Director
Roberto Colaninno Director
Paolo Fresco Director
Salvatore Mancuso Director
Alfio Marchini Director
Paolo Mariotti Director
Ahmed A. Menesi Director
Ernesto Monti Director (*)
Massimo Pini Director (*)
Alberto Rossetti Director
Carlo Saggio Director
Antonio Scala Director
Pierluigi Toti Director (*)
Walter Vezzosi Director
(*) Member of the Executive Committee
Board of Auditors appointed by the Shareholders’ Meeting of April 19, 2007, in office for three financial years until the Shareholders’ Meeting to approve the financial statements at December 31, 2009.
Umberto Bertini Chairman
Franco Luciano Tutino Statutory Auditor
Vasco Giovanni Palombini Statutory Auditor
Francesco Colombi Substitute Auditor
Stefano Ciccioriccio Substitute Auditor
Marcello Pasquale Maria Mingrone Substitute Auditor
2.2 Incorporating Entity: UniCredit S.p.A.
2.2.1 Company name
UniCredito Italiano Società per Azioni
2.2.2 Registered office
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Genoa, Via Dante No. 1
2.2.3 Identification data
UniCredit is registered with the Companies Registry of Genoa, enrolment and fiscal code No. 00348170101
2.2.4 Recent history
UniCredit was born in 1998 out of the aggregation of Credito Italiano and Unicredito.
Starting in 1999, UniCredit steadily expanded into the high growth markets of Eastern Europe by acquiring a series of significant equity investments including Bank Pekao in Poland, Bulbank in Bulgaria, Zagrebacka Banka in Croatia and Koç Financial Services in Turkey.
In 2000 UniCredit began to create a global asset management platform with the acquisition of Pioneer Investments in the US, which in turn bought Momentum, a world leader in hedge funds, in 2002, and thus established Pioneer Global Asset Management.
In 2005 UniCredit brought about one of the largest cross border business combinations seen in Europe by acquiring the control of HVB and Bank Austria (“BA-CA”) and thus becoming the first truly pan-European bank.
Today UniCredit is one of Europe's leading financial groups with over 7,200 branches, strong local roots in 20 countries, more than 142,000 employees and about 35 million customers.
2.2.5 Key structure information
UniCredit has its legal seat in Genoa and its head office in Milan. It is the second largest Italian banking group by total assets. At December 31, 2006, UniCredit had consolidated total assets of euro 823 billion, customer loans of euro 441 billion, customer deposits of euro 495 billion, about 35 million customers and over 7,200 branches, of which 3,019 are in Italy. Total revenue in 2006 was euro 23.5 billion and operating profit was euro 10.2 billion.
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The Group has adopted a divisional organizational model, based on an offering of personalized services by centralized skill centers and product factories and local banks, with a strong presence in their area. The divisions are the following:
Retail: based in Milan, provides commercial banking services to private individuals (mass market and affluent) and to small businesses operating in Italy, Germany and Austria;
Corporate: based in Munich, markets products and services to corporates with annual turnover of over euro 3 million in Italy, Germany and Austria;
Private Banking & Asset Management (“PB&AM”): based in Milan, PB&AM carries out production and management of investment products and services as well as distribution to private individuals and institutional clients world-wide;
Markets & Investment Banking (“MIB”): based in Munich, the division operates as a global product factory and skill centre for the UniCredit Group in financial markets and investment banking;
Central-Eastern Europe (“CEE”): based in Vienna, the division manages retail and corporate banking business in CEE countries except Poland, through the sub-holding BA-CA;
Poland Markets: based in Warsaw, the division manages retail and corporate banking business in Poland and Ukraine;
Global Banking Services: based in Milan, its function is to provide strategic support for the sustainable growth of the Group's businesses and optimize cost structures and internal processes, ensuring maximum synergy and cost savings together with operational excellence.
The division that contributed most to revenue in 2006 was Retail (34% of the total), followed by Corporate and CEE (both with 21%), MIB (14%) and PB&AM (10%).
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As at May, 8, 2007, UniCredit had a market capitalization equal to over euro 78 billion, which ranked among the first 10 largest European banks and among the first five largest banks in the EuroZone by assets.
2.2.6. Market Positioning
At end-2006, UniCredit was the third-largest bank in Italy in terms of customer loans (with a market share of ca. 10%), the second-largest bank in Germany (with a market share of approximately 5%), the leading bank in Austria (with a market share of approximately 19%) and in CEE (with total assets that are twice those of the closest competitor).
Specifically, the Group possesses strong roots and a unique strategic position in one of the richest regions of Western Europe, including Bavaria, Austria and Northern Italy, as well as undoubted leadership in Central-Eastern Europe – an area with high rates of economic growth and rapid expansion of banking markets – with a strong presence in 17 countries.
2.2.7. Capital Structure and Recent Operating Results
At December 31, 2006, UniCredit had Core Tier 1 Capital of euro 25 billion, Tier 1 Capital of euro 29 billion and total regulatory capital of euro 44 billion, which – on the basis of total risk-weighted assets of euro 422 billion – give rise to a Core Tier 1 ratio of 5.8%, a Tier 1 ratio of 7.0% and a Total Capital Ratio of 10.5%.
In fiscal 2006, UniCredit achieved consolidated net profits of euro 5,448 million, an increase of 61% over 2005, and RoAE of 16.7% (vs. 10.7% in fiscal 2005). Net interest income grew by 6.8% and was euro 12,860 million at end-2006, while total revenue was euro 23,464 million, up by 12.5% over 2005. Gross operating profit grew by 27.8% and reached euro 10,206 million. Operating profit was up by 47.5% over 2005 at euro 8,210 million. The cost/income ratio improved from 61.7% in 2005 to 56.5% at end-2006. In divisional terms these results were mainly due to revenue growth in CEE (up by 28.9%) and Retail business (up by 5.3%).
At end-2006 total assets stood at euro 823 billion, up by 4.6% over 2005. Customer loans and customer deposits were respectively euro 441 billion (up by 3.8% over 2005) and euro 288 billion (up by 7.3%). With regard to asset quality, UniCredit's non-performing loans were stable as compared with end-2005, net non-
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performing loans were euro 6,812 million or 1.5% of net loans (as against euro 6,861 million at end-2005, or 1.6% of net loans).
In the first quarter 2007, the UniCredit Group achieved rapidly improving results thanks to integration with the HVB Group. Total revenue reached euro 6.6 billion, up by 10% year on year (or 11.6% year on year at constant exchange rates and consolidated businesses) while operating costs were euro 3.4 billion, up by only 1.9% year on year, the combined result of reorganization and efficiency gains on the one hand, and business development projects on the other. Operating profit therefore recorded a strong 20% increase year on year rising to euro 3.2 billion. Net profit – which inter alia benefited from a 27.7% year-on-year increase in income from investments – showed 29% year-on-year growth at euro 1,780 million.
On the basis of these results the cost/income ratio markedly improved from 55.5% in March 2006 to 51.5%, perfectly in line with the improvement targeted in the strategic plan.
At March 31, 2007, Group customer deposits (not including securities issued) were euro 294 billion, up by 2% over December 31, 2006, while net customer loans were euro 449 billion (up by 1.7% over end-2006). The improvement in credit quality seen at end-2006 continued with a 5.6% reduction of Group net impaired loans from December 31, 2006, thanks to a reduction in non-performing loans and restructured loans. The ratio of impaired loans to net customer loans fell from 3.23% at end-2006 to 3% at March 31, 2007, with an improved coverage ratio of 50.6% (48.9% at December 31, 2006).
The Core Tier 1 ratio equalled 5.99%, a 17 basis point improvement over the end-2006 ratio of 5.82%.
2.2.8 Company purpose
Pursuant to Article 4 of the By-Laws of UniCredit, «the purpose of the Bank is to engage in deposit-taking and lending in its various forms, in Italy and abroad, operating wherever in accordance with prevailing norms and practice. It may execute, while complying with prevailing legal requirements, all permitted transactions and services of a banking and financial nature. In order to achieve its corporate purpose as efficiently as possible, the Bank may engage in any activity that is instrumental or
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in any case related to the above. The Bank, in compliance with current legal provisions, may issue bonds and acquire shareholdings in Italy and abroad. The Bank, in its role of parent company of the UniCredito Italiano Banking Group, pursuant to the provisions of Clause 61 of Legislative Decree no. 385 dated 1 September 1993, issues – in undertaking its management and co-ordination activities – instructions to other members of the Group in respect of the fulfillment of requirements laid down by the Bank of Italy in the interest of the Group’s stability.».
2.2.9 Share capital structure and shareholders
The share capital of UniCredit is equal to € 5,222,465,096.50, split into 10,444,930,193 shares of a value of € 0.50 each, of which 10,423,223,641 ordinary shares and 21,706,552 unregistered savings shares. The savings shares do not have any voting rights but confer an equity privilege with regard to profit sharing and share capital refund. More specifically, UniCredit’s savings shareholders are granted the following privileges, in accordance with the Company’s By-laws: (i) in the event of a reduction of UniCredit’s share capital for losses, there is no reduction in the par value of savings shares except for the part of losses exceeding the total par value of the other shares; (ii) in the event of UniCredit being wound up, the savings shares have priority for their entire par value in the capital refund; and (iii) as regards distribution of dividends, a percentage of net profits is assigned with priority to savings shares up to the sum of five percent of their par value (with it being clearly understood that if a dividend of less than five percent of their par value is assigned to savings shares in any given year, the difference is calculated to round up the privileged dividend in the two following years), and the profits remaining after assignment of the aforementioned dividend to savings shares are split among all the shares so that savings shares are entitled to a greater overall dividend compared to that of ordinary shares in the measure of three percent of the share’s par value.
UniCredit shareholder base is constituted by numerous institutional and retail shareholders, while there are no shareholder agreements related to UniCredit shares. The main shareholders with more than a 2% interest in the share capital are Fondazione Cassa di Risparmio Verona, Vicenza, Belluno e Ancona (4.987%), Gruppo Munich Re (4.737%), Fondazione Cassa di Risparmio di Torino (4.720%),
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Carimonte Holding S.p.A. (4.274%) and Gruppo Allianz (3.092%); while the remaining 78% of the share capital is freely negotiable on the market
At May 16, 2007, UniCredit held 87,000,000 treasury shares, acquired on the basis of the resolution adopted by the Shareholders’ Meeting on May 4, 2004.
3. TARGET STRUCTURE OF THE GROUP
3.1 Organizational Model of the Group resulting from the Merger
The new Group's organizational model will continue to be based on Divisions focused on customer segments and common product factories.
Given the current organizational models of the two Groups and the great similarities between them, although there are differences between that adopted by UniCredit and Capitalia’s structure due to the smaller scale of certain business lines and to the almost exclusive concentration of the latter in the Italian market, Capitalia’s structure can easily be integrated into UniCredit's.
As stated above, Capitalia has managed its commercial business and adopted reporting lines in the following business areas:
Retail
Corporate
Wholesale & Investment Banking
Financial Services
Corporate Centre.
Given the validity of the business model, which separates distribution, through the Group's banks and legal entities, from the product factories, UniCredit’s current structure would be maintained and Capitalia would be integrated according to the following divisions:
Retail
Private Banking and Asset Management
Corporate/SMEs
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Markets & Investment Banking
Central-Eastern Europe
Poland Markets
Global Banking Services
This solution will not only enable significant acceleration of the integration process, reducing both complexity and execution risk, but also maximizing the economic benefits of the transaction and the achievement of substantial cost and revenue synergies.
The integration of Capitalia into UniCredit’s model will leverage the same model of centralized operational systems. This integration will be managed within the Italian perimeter without affecting the other domestic markets.
However, integration will be carried out paying particular attention to the best use of the distinctive skills and values of the people and structures of the two Groups, in order to maximize the new Group's potential for growth and development.
Specifically in the retail division and with reference to the Italian market, we foresee the adoption of a regional distribution structure and the creation of three retail banks in Italy, exploiting the positioning of UniCredit Banca – the Italian retail bank of the current UniCredit Group – in Northern Italy (Val d’Aosta, Piedmont, Liguria, Lombardy, Veneto, Trentino Alto Adige, Friuli Venezia Giulia and Emilia Romagna), of Banca di Roma in Central-Southern Italy (Tuscany, Umbria, Marches, Latium, Abruzzo, Molise, Sardinia, Campania, Apulia, Basilicata and Calabria) and of Banco di Sicilia in Sicily while maintaining the branch in Milan for Banca di Roma and the historic branches in Milan, Rome and Turin for Banco di Sicilia. This will make it possible to further strengthen the positioning of the new Group in the retail business throughout Italy, leveraging three retail distribution networks with strong regional competitive advantages. From an operational point of view, the reorganization envisages the transfer of businesses related to private banking and corporate client segments currently carried on by Capitalia's commercial banks to UniCredit Private Banking (which has its head office in Turin) and UniCredit Bank d’Impresa (which has its head office in Verona), the absorption of Bipop-Carire by UniCredit Banca (which has its registered office in Bologna) and the transfer within the group of branches located in Central-Southern Italy and Sicily to Banca di Roma (which has its
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head office in Rome) and Banco di Sicilia (which has its head office in Palermo), respectively.
Regarding the Markets and Investment Banking division, with the aim of taking advantage of its special skills, MCC (which has its legal seat in Rome) will become the Group's house bank for public sector entities in Italy.
Product development will be carried out by global product factories, with the complete integration of Capitalia’s and UniCredit’s current product factories:
consumer credit, credit cards and mortgage business, currently managed by FinecoBank, will be transferred to UniCredit’s specialized factories, UniCredit Clarima Bank and UniCredit Banca per la Casa respectively;
activities related to trading on-line will continue to be managed by FinecoBank, currently undisputed leader in the Italian market for the segment, in which the same activities carried out by UniCredit Group will be transferred;
Leasing, factoring and investment banking activities, which are currently managed by MCC and Capitalia, will be transferred to UniCredit’s specialized companies (Locat, UniCredit Factoring and HVB, respectively).
With reference to the Private Banking and Asset Management division, FinecoBank will become the Group's reference company – and one of the main players in the industry – for asset gathering. The same activities at the present carried out by UniCredit Group will be transferred to FinecoBank.
With regard to asset management, however, in order to benefit from Pioneer’s scale and brand recognition at a global level, and achieving cost savings in overlapping areas, shareholdings in Capitalia Asset Management and Capitalia Investimenti Alternativi will be transferred to Pioneer Global Asset Management (with head office in Milan), UniCredit’s sub-holding operating in the sector.
In order to maximize economies of scale and grant a full integration of the two groups, information technology and operations activities, including activities currently managed by Capitalia Informatica, will be integrated into UniCredit’s responsible entities, UniCredit Global Information Services (UGIS) and UniCredit Produzioni
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Accentrate (UPA). In order to facilitate the integration of domestic business, the headquarters of the latter will be transferred to Rome, while employees located in the current Milan location will be dedicated to the further expansion of the Group in Lombardy. The Global Banking Services division would maintain responsibility for improving the cost structure and the internal processes of the combined Group, furnishing services to the other divisions in the area of IT services, organization, back- office, transaction services, procurement and real estate management.
3.2 Shareholdings in other companies
With regard to the Capitalia Group, the following is a list of the main strategic shareholdings currently in its portfolio together with the percentage held and balance sheet value.
Company % held Balance sheet value Mediobanca S.p.A. 9.39 1,366,250,155 Cam Finanziaria S.p.A 1.64 8,675,661 Pirelli & C. S.p.A 1.52 61,845,207 RCS Mediagroup S.p.A 1.99 57,463,950 Gemina S.p.A 1.99 24,370,390 Investimenti Infrastrutture S.p.A 3.00 3,706,500
With regard to its interest in Mediobanca S.p.A. (“Mediobanca”), Capitalia and UniCredit are agreed on the goal of reducing said share to 9.39% by the end of 2007, granting Mediobanca an irrevocable power of attorney to sell the surplus following the Merger, as part of the Mediobanca syndicate agreement, including in favor of new investors whose activities do not generate a conflict of interest with Mediobanca.
3.3 Governance of the Group
UniCredit will be governed on the base of the Articles of Association now in force. In particular, the governance system of the Parent Company will be characterized by a traditional governance system, and, thus, Unicredit will be
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managed by a Board of Directors while the internal control functions will be carried out by a Board of Statutory Auditors.
Within the framework of the merger, simultaneously with the approval of the merger plan, the Board of Directors of UniCredit and Capitalia have approved an agreement relating to the governance of the Incorporating Company.
Pursuant to such agreement, in a date immediately subsequent to the shareholders meetings which shall approve the merger plan, as defined by Capitalia Cesare Geronzi, Donato Fonatanesi, Salvatore Ligresti e Salvatore Mancuso will be elected in the Board of Directors of UniCredit; simultaneously four members of UniCredit’s Board of Directors shall be appointed in the Board of Directors of Capitalia. Furthermore Cesare Geronzi shall be elected as Stand-in Chairman (Vice Presidente Vicario) of the Board of Directors of UniCredit and as Chairman of the Executive Committee, and shall be granted the powers relating to the management of the shareholdings in Mediobanca, Generali, RCS and Pirelli. Should Cesare Geronzi accept an office in other bank, he shall be replaced by Berardino Libonati, who shall act as Stand-in Chairman.
It is also provided that 40% of the Directors of Banca di Roma, Banco di Sicilia, Fineco and MCC shall be selected among the Directors of such companies or among primary representatives of the local economical community for the first mandate after the merger.
UniCredit’s registered office will be transferred from Genoa to Rome, while the Central Management Unit will remain in Milan. Capitalia Group’s position in the central-southern regions of Italy will be given full value within the new Group, also leveraging the Banca di Roma and Banco di Sicilia brands.
4. EXPECTED SYNERGIES
4.1 Overall Synergies
It is expected that the combination of UniCredit Group and Capitalia Group will generate significant synergies, equal to euro 1,162 million gross of tax by 2010, made up of euro 370 million in revenue synergies (32%) and about euro 792 million in cost synergies (68%). Cost synergies represent about 7.8% of 2006 costs and 2.5%
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of 2006 revenues of the combined entity. Revenue increases would mainly be attributable to alignment of the pricing policies and commercial productivity of the two banks, while cost reduction would mainly arise from the rationalization of combined central functions and information technology activities, closing overlapping branches and economies of scale related to procurement.
Specifically, synergies will be generated by the following areas (including cost synergies due to economies of scale related to procurement):
Retail. The combined Group would benefit from centralized management of two of Italy's largest banking networks, making efficiency gains possible on a combined level, and from the centralization of the consumer credit and residential mortgage businesses. The alignment of the commercial productivity of UniCredit and Capitalia, especially in consumer credit distribution and asset gathering, would generate an increase in revenues.
Corporate. Efficiency gains of central functions and distribution networks, as well as the elimination of overlapping international branches and representative offices, would allow a cost reduction.
Markets and Investment Banking. The centralization of specialized personnel to a single business division and the removal of existent redundancies would generate cost savings.
Private Banking and Asset Management. Eliminating duplication in wealth management operations would generate gross cost synergies. These synergies would be created by integrating the two companies which manage Financial Advisor networks and removing overlapping in the asset management business. In the same area, it is expected to achieve additional revenues related to the transfer of funds management to Dublin’s platform and, on the other, to widen the product range distributed by Capitalia with Pioneer’s products and to a stronger positioning of the combined Group in the institutional segment.
IT & Back-Office and Corporate Center. Cost synergies would arise from the centralization of combined services through migration to a single IT platform, which would entail the rationalization of the activities currently carried out by companies of the two banking groups. Integration would entail the rationalization of the central functions, generating cost savings.
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The merger of the two banks would allow the rationalization of the banks’ current headquarter structures as well as commercial management in support of the operations of the Parent Company, increasing the proportion of human resources dedicated to higher value added activities.
Net synergies in 2010 would be euro 758 million, subject to an average tax rate of 36%. The synergic time-frame would see 24% of gross synergies realized in 2008, 67% in 2009, while full realization would occur in 2010.
4.2 One-off Integration Costs
The organization and corporate restructuring process would imply one-off costs of euro 1,058 million, mainly related to layoff costs and write-downs of IT investments recognized in Capitalia’s accounts.
The approach followed to estimate synergies and related costs has been conservative in comparison to recent domestic transactions already completed or announced. In fact, expected synergies represent 21% of Capitalia’s revenues and 36% of Capitalia’s costs (as the smaller partner in the merger), while in the other domestic transactions these percentages are in a range of 13% to 34% and 21% to 46% of the smaller company's revenues and costs respectively. Restructuring costs are equal to about 134% of cost synergies, slightly lower than other domestic transactions (which have averaged around 148%).
4.3 The effects of the merger on capital structure and profitability
Earning per share would increase from 2009 onwards, in comparison to the stand-alone plan.
Given Capitalia Group’s current capital structure, the combined Group would have higher capital ratios than the current ratios of the UniCredit Group. Capitalia Group has a core tier 1 ratio of 6.2% as at December 31, 2006, higher than UniCredit Group’s core tier 1 ratio at the same date, which was 5.8%. Capitalia Group’s tier 1 ratio is in line with core tier 1 ratio (UniCredit Group 7.0%). The total capital ratio of Capitalia Group was 9.2% as at December 31, 2006 (UniCredit Group 10.5%).
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In 2007 the capital base will change mainly, besides the retained earnings generated during 2007, due to the impact of the squeeze-out of minority shareholders of Bayerische Hypo-und Vereinsbank A.G. and of Bank Austria Creditanstalt A.G. and the envisaged reduction of the shareholding held in Mediobanca.
5. LEGAL AND REGULATORY RELATED ASPECTS CONNECTED TO THE MERGER
5.1 Main steps of the merger
The Boards of Directors, which met today, have resolved to call the Shareholders’ Meetings to approve the Merger Plan by the end of July and the beginning of August.
Pursuant to the provisions contained in Article 2501-quater, paragraph two of the Italian Civil Code, Capitalia e UniCredit have used their respective financial statements at December 31, 2006, as financial positions for the purposes of the Merger. It should be noted that the annual financial statements at December 31, 2006, were approved by the Shareholders’ Meetings of Capitalia and UniCredit, held respectively on April 19 and May 10, 2007, in relation to their spheres of responsibility.
The Merger Plan was approved by the Boards of Directors of Capitalia and UniCredit on today’s date. The directors reports’ on the Merger were approved during said board meetings.
The Merger shall result in termination of the company to be incorporated and transfer to UniCredit of all Capitalia’s equity, rights and obligations at the date when said Merger comes into effect.
Pursuant to Article 57, last paragraph of Legislative Decree No. 385 of September 1, 1993 (the so-called Test Unico Bancario or the Unified Banking Code), as a result of the Merger, privileges and guarantees of any kind, furnished by any party or in any case in favor of the company to be incorporated, shall remain valid without the need for any formalities or registration in favor of the Incorporating Company.
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Capitalia shall submit a request to the Court of Rome for the appointment, pursuant to Article 2501-sexies of the Italian Civil Code, of an specialist responsible for drafting a report on the congruency of the share exchange ratio. UniCredit shall submit a similar request to the Court of Genoa.
The merger represents the outcome of studies and valuations carried out with the support of advisors of long-standing experience and professionalism.
Specifically:
- Capitalia’s advisors were as follows (i) Claudio Costamagna for strategic and financial issues and (ii) Citigroup Global Markets Limited, Credit Suisse Securities Limited and Rothschild S.p.A. with regard to valuations related to the share swap, who issued specific fairness opinions to the Company’s Board of Directors, and
- Merrill Lynch International Limited which acted as UniCredit’s financial advisor.
5.2 Regulation-related aspects
Given that the Merger involves banking companies, it is subject to the obtainment of authorization from Banca d’Italia, pursuant to Article 56 and 57 of the so-called Unified Banking Law. Therefore, the Merger Plan shall only be entered in the relevant Companies Registries subsequent to authorization by Banca d’Italia, in accordance with the content of Article 57, paragraph 2, of the Unified Banking Law.
All additional authorization needed to transfer shareholdings to supervised companies (Banca d’Italia, ISVAP, Consob and Covip) shall also be requested.
The procedures involving the relevant antitrust authorities shall also be initiated (EU Commission, Italian Antitrust Authority).
6. INDICATION OF THE EXCHANGE RATIO AND BRIEF DESCRIPTION OF THE VALUATION METHODS USED TO CALCULATE SAID RATIO
6.1 Introduction
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The Board of Directors of Capitalia submitted the Merger exchange ratio (the “Exchange Ratio”) for examination by Citigroup Global Markets Limited, Credit Suisse Securities Limited and Rothschild S.p.A., which issued specific fairness opinions to the Board of Directors (the “Financial Consultants”). The Board of Directors analyzed the fairness opinions regarding the congruency of the Exchange Ratio for Capitalia shareholders from a financial viewpoint, and wholly undersigned the conclusions contained therein. Capitalia availed itself of the consulting services of Claudio Costamagna, in his capacity as financial advisor for strategic and financial issues. The Board of Directors of UniCredit availed itself of the financial advisor, Merill Lynch International Limited to determine the Exchange Ratio.
The valuations were carried out with a view to expressing a comparative estimate of the value of Capitalia and UniCredit, favoring the uniformity and comparability of the criteria adopted to calculate the absolute value of the entities looked at individually, and must only be interpreted in relative terms and solely in relation to the Merger.
In order to safeguard the uniformity of valuations, the same valuation methods were applied to both companies, taking into account the specific characteristics of each and the status of listed company which characterizes the banks in question.
In order to take into account the difference in size of the banks involved in the Merger, as well as the proposed governance structures for the performance of said merger, the premiums implicit in amicable public share purchase offers that have recently involved the European banking market were also taken into consideration.
In order to calculate the Exchange Ratio, note was taken of the fact that Capitalia and UniCredit pay the dividend related to fiscal year 2006 on different dates and hence the two companies’ shares are considered net of the 2006 dividend, both for valuation purposes and for the purposes of the share swap.
Lastly, it was decided to define a reference interval for the share swap, and a verification was undertaken to check that the premium implicit in the Exchange Ratio was in line with those generally acknowledged by the market.
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The market data included in all the valuation methods have been updated as at May 17, 2007, inclusive. The stock exchange prices recorded for the shares of the Incorporating Company and the Company to be Incorporated subsequent to May 8, 2007, have not been taken into consideration with regard to share listings. On May 8, 2007, the Board of Directors of Capitalia resolved to appoint a consultant for the purpose of examining and evaluating various strategic options.
6.2 Reference date of valuation and documentation used
6.2.1 Reference date
The reference date of the valuation coincides with the date of this report and is performed on the basis of theories outlined below. For the purposes of the aforementioned valuation, it is presumed that no events of such a nature as to alter significantly the equity, economic and financial position of the companies involved in the Merger occurred during the period from the most recently available financial statements, as per the point below, to the date of this report.
6.2.2 Documentation used
For Capitalia:
– consolidated financial statements and financial statements of the Parent Company for the years 2004, 2005, 2006;
– consolidated half-yearly reports at June 30, 2005 and 2006;
– consolidated quarterly report at March 31, 2007 (not audited);
– Capitalia’s financial forecasts for 2007 – 2009 as per reports of Financial analysts that monitor the share;
– stock exchange performance of the Capitalia share over the last 24 months.
For UniCredit:
– consolidated financial statements and financial statements of the Parent Company for the years 2004, 2005, 2006;
– consolidated half-yearly reports at June 30, 2005 and 2006;
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– consolidated quarterly report at March 31, 2007 (not audited);
– UniCredit’s financial forecasts for 2007 – 2009 as per reports of Financial analysts that monitor the share;
– stock exchange performance of the UniCredit share over the last 24 months.
6.3 Analysis limits and valuation difficulties
The valuations performed by the Board of Directors, including with the assistance and support of the Financial Consultants, must be considered in the light of some limits and valuation difficulties, which can be summarized as follows for the case in question:
given that Capitalia had no business plan drawn up, it was considered suitable to use the consensus of financial brokers as forecasts for both banks: it must be remembered that forecasts, by their very nature, are uncertain and potentially not homogeneous in relative terms;
valuation criteria: the estimates made are affected by the limits and specific characteristics of the valuation methods used, partially offset by the joint analysis of results.
Capitalia and UniCredit jointly agreed not to perform any due diligence.
6.4 Valuation Methods Adopted
The methods chosen for the valuation of the adequacy of the exchange ratio, while being based on recognized international standards, should not be considered separately, but rather as an inseparable part of a single valuation process. The analysis of the results of each single valuation method on their own and not in light of their complementary relationship with the other criteria would render the whole valuation process meaningless.
In light of these observations and bearing in mind the “qualitative” characteristics of the banks and the valuation practice used for similar transactions that have occurred in Italy and elsewhere, the valuation methods are indicated below and described in greater detail in later sections:
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Discounted Dividend Model (“DDM”);
Market Multiples;
Analysis of Stock Market Prices
In addition to the above mentioned methods, the following control methods were chosen:
Analysis of brokers' target prices;
Contribution analysis.
6.4.1 Dividend Discount Model Method
The Dividend Discount Model in its excess capital version assumes that the economic value of a bank is the sum of:
the present value of future cash flows generated in the chosen time horizon and distributable to the shareholders while maintaining a level of regulatory capital that is considered sufficient to make future growth possible, and
the terminal value, calculated on the cash flow of the last year of explicit forecasts, the cost of capital and the perpetual growth rate.
We preferred to use the excess capital version of the DDM as opposed to pure DDM (which discounts dividend considered distributable on the basis of the dividend policy of the company), since we believe this version is more suited to a uniform and consistent valuation of banks. This version is also unaffected by the announced or historic dividend policy of the banks under valuation, which could distort the analysis.
The excess capital version of the DDM method therefore estimates the value of a bank's economic capital using the following:
W = DIVa + Vta
where:
“W” is economic value of the bank under valuation;
“DIVa” is the present value of future cash flows distributable to the shareholders in an certain time horizon, while maintaining a satisfactory level of capitalization;
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“Vta” is the present value of the terminal value of the bank.
The excess capital version of the DDM method is applied in the following stages:
1. Identification of future cash flows and the reference time frame: for the purposes of valuation we assumed the period 2007-2009 as the explicit time horizon for the determination of cash flows, which were defined, for the two banks, on the base of the brokers’ consensus.
2. Determination of the perpetual growth rate and the discount rate: the discount rate corresponds to the rate of return on equity required by investors or shareholders on investments with similar risk characteristics and was calculated on the basis of the Capital Asset Pricing Model, using the following formula:
Ke = Rf + (Beta * (Rm – Rf))
where:
“Rf” (risk-free rate) = the rate of return on risk-free investments, defined as being equal to the ten-year BTP yield;
“Rm – Rf” (market premium), i.e. the premium for investor risk in shares as opposed to a risk-free investment.
“Beta” = correlation factor between the actual yield on shares in comparable companies and the overall yield of the reference market (i.e., the measure of the volatility of the share compared to the market portfolio).
3. Calculation of the Terminal Value: the terminal value is the present value of cash flows theoretically distributable to shareholders in the long term, beyond the explicit forecast period. Terminal value is calculated using the following formula:
Terminal Value = Sustainable Dividend / (Ke – g)
where:
“g” = the nominal rate of sustainable long-term growth;
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“Ke” = the discount rate, i.e. the cost of risk capital, calculated as in the preceding paragraph.
6.4.2 Market Multiples Method
The market multiples method is based on analysis of the stock market prices of a sample of banks that can be compared to the bank subject to valuation. To apply the method, a series of ratios (“multiples”) – referred to the selected sample of comparable banks – are calculated from stock market capitalization and some significant parameters (usually forecast net profit and net equity). The average ratios obtained in this manner are then applied to the results of the company subject to valuation so as to obtain the theoretical value attributed to said company by the market.
For the purposes of this valuation, reference was made to (i) the “market capitalization/net equity” ratio (Price to Book Value or P/BV) and to (ii) the “market capitalization/expected net profit” ratio (Price to Earnings or P/E).
The multiples considered are ex-dividend, based on the average prices at one month from May 17, 2007.
The samples of comparable companies were formulated taking into account the specific characteristics of the two banks:
for Capitalia, average to large size Italian banks with supraregional coverage, not currently involved in M&A transactions, were taken into consideration;
for UniCredit, Italian and European banks with similar levels of operations were taken into consideration.
6.4.3 Analysis of stock market prices
The stock market price method calculates the value of the company subject to valuation on the basis of capitalization determined in relation to the share prices traded on regulated stock markets. Specifically, the stock market price method is considered important for the valuation of listed companies in the event of significant average volumes of trading.
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Therefore, the ratio between the banks’ stock market prices makes it possible to refer to an implicit share swap ratio inferable by the market in relation to the various temporal horizons subject to observation.
For Capitalia and Unicredit, it is felt that stock market capitalization is representative of their economic value insofar as (i) the two shares are traded in the Blue Chip segment of Italy’s electronic share market (MTA); and (ii) the shares offer a suitable daily level of liquidity.
Share prices ex-dividend were taken into account for both banks in order to develop an analysis with homogeneous bases.
The analysis of stock market prices was performed with reference to the period prior to May 8, 2007, the start date for contacts related to the merger.
6.4.4 Control method: Analysis of brokers’ target prices
The main characteristic of this method is the possibility to identify the fair value attributed to the banks by the market, expressed in studies published by investment bank research analysts.
When selecting studies, only those published subsequent to the announcement of the banks’ consolidated annual results for 2006 were taken into consideration. As regards Capitalia, the value that can be attributed to expectations for an M&A transaction was separated from the price shown.
6.4.5 Control method: Contribution analysis
The contribution method identifies the relative importance of the companies involved in the merger. Therefore, said method does not express absolute values, but rather the contributions made by each company to the new company resulting from the merger. Specifically, the criterion in question is based on comparison between the banks’ economic-equity-operating dimensions deemed significant prior to the merger.
In terms of application, the corresponding value per share was identified for each of the selected dimensions. The figures at December 31, 2006, were the basis of the analysis in question.
6.5 Summary of results and calculation of Exchange Ratio
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Without prejudice to the observations and theories outlined in the paragraphs above, the table below offers a summary of the results obtained from application of the valuation methods described above.
Exchange Ratio
Valuation Method Citigroup Credit Suisse Rothschild
Dividend Discount Model [0.86 – 0.95•] [0.85 – 0.92] [0.86 – 0.93]
Market Multiples [0.83 – 0.97] [0.92 – 1.00] [0.92 – 1.01]
Stock market price analysis [0.94 – 1.00] [0.96 – 0.98] [0.96 – 0.98]
Reference interval [0.87 – 0.97] [0.91 – 0.97] [0.91 – 0.97]
Control Method
Analysis of brokers’ target [0.77 – 1.01] [0.77 – 1.01] [0.77 – 1.01] prices
Contribution analysis [0.67 – 1.02] [0.67 – 1.02] [0.67 – 1.02]
In light of the observations contained in the paragraphs above, and taking into account the work of financial consultants, the Board of Directors calculated the Exchange Ratio at 1.12 new UniCredit ordinary shares for one Capitalia ordinary share.
The Exchange Ratio includes a premium in relation to the reference interval set by Financial consultants at between 15.5% and 28.7%.
The existence of said premium (”Control Premium”) is considered appropriate given the difference in size between Capitalia and UniCredit and the proposed governance set-up for the resulting group which implies transfer of control of Capitalia to UniCredit.
The Control Premium is in line with the premiums acknowledged in recent amicable public share purchase offers involving the European banking market, which range between 14.3% and 18.2%.
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No cash settlements are planned.
6.6 Effects of merger on incentive plans adopted by Capitalia
At the date when the Merger comes into effect (as defined below), the Incorporating Company shall take over all Capitalia’s legal relations including those related to stock option plans. To this end, the Incorporating Company shall resolve upon capital increases to service said plans in accordance with the contents of paragraph 7 below, making available to the holders of stock option plans a number of UniCredit shares calculated in compliance with the Exchange Ratio.
In other words, upon exercising the option and for the original exercise price, the holders of Capitalia stock options shall maintain the right to subscribe, not the number of Capitalia ordinary shares listed in the respective regulations, but a number of UniCredit ordinary shares calculated by multiplying the number of warrants provided for in each plan by the Exchange Ratio.
7. CAPITAL INCREASE OF THE INCORPORATING COMPANY, ALLOCATION PROCEDURE AND RIGHTS OF NEW SHARES
In connection with the merger described hereunder, UniCredit will increase its share capital to service the exchange ratio. In particular, UniCredit will approve the following:
(a) a capital increase of up to a maximum nominal amount of euro 1,473,547,088 to be effected through the issue of up to a maximum 2,947,094,176 ordinary shares with a par value of euro 0.50 each, to be allocated in exchange for the ordinary shares of Capitalia, issued as of the effective date of the merger;
(b) a capital increase divisible in tranches, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of euro 2,205,812, to be effected within October 10, 2008 through the issue of up to a maximum 4,411,624 ordinary shares with a par value of euro 0.50 each to service the subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2008 – Ex Capitalia Warrants
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2002” allocated in exchange for Employees Warrants A as mentioned in paragraph 2.1.9;
(c) a capital increase, divisible in tranches, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of euro 9,940,980, to be effected within December 31, 2011 through the issue of up to a maximum 19,881,960 ordinary shares with a par value of euro 0.50 each to service the subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia Warrants 2005” allocated in exchange for Employees Warrants B as mentioned in paragraph 2.1.9;
(d) a capital increase, divisible in tranches, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of euro 261,436, to be effected within December 31, 2009 through the issue of up to a maximum 522,872 ordinary shares with a par value of euro 0.50 each to service the subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2009 – Ex FinecoGroup Warrants 2003” allocated in exchange for Fineco Warrants A, as mentioned in paragraph 2.1.9;
(e) a capital increase, divisible in tranches, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of euro 5,322,800, to be effected within December 31, 2011, through the issue of up to a maximum 10,645,600 ordinary shares with a par value of euro 0.50 each, to service the subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Ex FinecoGroup Warrants 2005” allocated in exchange for Fineco Warrants B as mentioned in paragraph 2.1.9 above.
Therefore, during approval of the merger detailed herein and the aforementioned share capital increases, the Extraordinary Shareholders’ Meeting of UniCredit, the Incorporating Company, shall be called to approve the related amendments to Articles 5 and 6 of its By-Laws.
Subject to the completion of the merger transaction, UniCredit, the Incorporating Company, will:
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• cancel, without consideration, all treasury shares held by Capitalia, pursuant to art. 2504-ter of the Italian Civil Code;
• cancel all residual Capitalia ordinary shares by issuing and allocating to the holders of Capitalia’s ordinary shares (different from Capitalia) issued before the effective date of the merger, such number of ordinary shares of UniCredit calculated in accordance with the exchange ratio in execution of the capital increase indicated under paragraph 7 (a) above;
• allocate, in exchange for the Employees Warrants A, the Employees Warrants B, the Fineco Warrants A and the Fineco Warrants B that, at the effective date of the merger, result not having been exercised, and that will be cancelled, an equal number of UniCredit subscription rights, which, on the basis of the exchange ratio determined, will entitle the subscription of newly issued ordinary shares of UniCredit;
• allocate, in exchange for the CEO Warrants that, at the effective date of the merger, result not having been exercised, and that will be cancelled, an equal number of option rights “Option Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia CEO Warrants 2005” which will entitle the purchase ordinary shares of UniCredit, on the basis of the exchange ratio determined above.
It must be noted that, at the Merger Plan date, (a) UniCredit does not hold any Capitalia ordinary shares while (b) Capitalia holds 20,000 treasury shares which are due to be assigned to the service of CEO Warrants 2005 prior to the effective date of the Merger. The provisions contained in Article 2357-bis of the Italian Civil Code shall be applied with regard to Capitalia shares held by UniCredit subsidiaries.
At the time of the allocation, UniCredit’s ordinary shares offered in exchanged for Capitalia’s shares will be listed on the Milan Stock Exchange at the same price of the existing shares. The new shares of UniCredit assigned in exchange for those of Capitalia will enjoy all normal share rights.
The ordinary shares of UniCredit, the Incorporating Company, issued to service the exchange against the shares of Capitalia, the Incorporated Company, will be provided to shareholders of the latter as de-materialized securities deposited with Monte Titoli (the Italian securities settlement clearing house) starting from the first
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working day following the effective date of the merger, in compliance with the procedure which will be made public by UniCredit by way of publication of an ad- hoc notice on at least one newspaper distributed nationwide, as set forth by legislation in force.
An equal number of treasury shares held by UniCredit will be allocated to service the “Option Rights UniCredit S.p.A. 2007 - 2011 – Ex Capitalia CEO Warrants 2005”; for this purpose the Extraordinary Shareholders’ Meeting will also be called to modify the allocation of the aforesaid shares approved by the Shareholders’ Meeting of December 16, 2005.
No expenses will be charged to the shareholders in relation to the exchange operations. For the purpose of ensuring whole number exchange ratios, if necessary, an authorized company will be instructed to negotiate, at market prices, the residuals, without expenses, charges or commissions, for the purpose of reaching the minimum exchange ratio. It is planned for a similar procedure to be adopted with regard to the subsequent exercise of UniCredit Subscription Rights that will be assigned to replace Capitalia Warrants.
8. FURTHER AMENDMENTS TO THE BY-LAWS OF THE COMPANY RESULTING FROM THE MERGER
Without prejudice to the amendments to the By-Laws of the company resulting from the Merger in relation to share capital (described above), the Incorporating Company shall amend its By-Laws as follows, as a result of the Merger:
- Article 2 of the current By-Laws shall be amended to transfer the registered office to Via Marco Minghetti 17, Rome.
All the amendments to the By-Laws of the Incorporating Company, related to and as a result of the Merger, shall be effective from the date the Merger comes into effect.
The Shareholders’ Meeting of UniCredit which will approve the Merger Plan shall also be called upon to amend Articles 27, 28 and 32 in order to provide for the
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Chairman of the Executive Committee to be elected by said Committee and for the possibility of said individual being a different person from the Chairman of the Board of Directors. Said amendment shall become effective as from when the resolution is registered with the Companies Registry.
The wording of the By-Laws of the Incorporating Company, with the aforementioned amendments resulting from the Merger, shall be attached to the Merger Plan.
9. DATE AS OF WHEN THE OPERATIONS OF THE COMPANY TO BE INCORPORATED ARE ENTERED, INCLUDING FOR TAXATION PURPOSES, INTO THE FINANCIAL STATEMENTS OF THE INCORPORATING COMPANY
The date as from when the Merger comes into effect, pursuant to Article 2504- bis, paragraph two of the Italian Civil Code, shall be date of the last of the registrations provided for in Article 2504 of the Italian Civil Code, or a later date which shall be established in the Deed of Merger (the “Effective Date of the Merger”).
The operations of the Company to be Incorporated shall be entered into the financial statements of the Incorporated Company, including for taxation purposes, as from the Effective Date of the Merger.
10. ACCOUNTING AND TAXATION-RELATED ASPECTS OF THE MERGER
10.1 Accounting-related aspects of the Merger
Capitalia and UniCredit, in their capacity as listed banking companies, are obliged to apply the international accounting standards (IASs/IFRSs) when drafting
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financial statements, in compliance with the content of Italian Legislative Decree No. 38 of February 28, 2005.
Specifically, given that the Merger shall result in the combination of two separate legal and corporate entities into one single entity, it represents a procedure for obtaining a “business combination” and as such is included in the sphere of application of IFRS 3.
In accordance with the aforementioned standard, mergers between independent parties are recorded using the purchase method. By virtue of this method, a buyer, understood to refer to the party obtaining control of the other entities involved in the merger is identified; this is based on the assumption that in any corporate merger, a buyer and a seller can be identified.
Therefore, the result is that the merger by incorporation of Capitalia into UniCredit is classed as an acquisition for the purpose of balance sheet entry and application of the international accounting standards even though it is a corporate merger which, from a corporate viewpoint, generates the effects of taking over and integration provided for by civil law. Therefore, given that it is necessary to identify the “buyer” in one of the companies involved in the Merger, UniCredit has been identified as such, in relation to the criteria set forth in IFRS 3 and specifically the comparison between the respective fair values of the entities taking part in the Merger.
Once the buyer has been identified, IFRS 3 provides for definition of the cost of the business combination, which refers to the sum of the fair value of the transferred assets, sustained liabilities and shares issued by the buyer in relation to the share swap, as well as all costs that can be directly attributed to the Merger, at the effective date of the Merger.
Once the cost of the business combination has been calculated, said costs are allocated to the assets acquired and liabilities undertaken by the buyer. The outcome is that, as a result of said procedure, the company unit of the company being sold shall be shown in the financial situation of the entity resulting from the merger at the value
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corresponding to the purchase cost, with the inclusion of any greater (or smaller) values of the assets and liabilities as well as the goodwill of said company to be incorporated.
Lastly, it should be noted that, pursuant to Article 2504-bis, paragraph 3 of the Italian Civil Code, the consequences of the merger from an accounting viewpoint could come into effect from a date prior to the effective date of the merger; said option is precluded from application of IFRS 3. Indeed, in accordance with said standard, in the event of a business combination which results in a transfer of control, the figures of the company to be incorporated must be entered in the financial statements of the incorporating company, referring exclusively to the date when the merger comes into effect for civil law purposes.
Therefore, in relation to the provisions contained in Article 2501-ter, paragraph 1, no. 6 of the Italian Civil Code, the operations performed by the Company to be Incorporated shall be consolidated into the financial statements of the Incorporating Company as from the Effective Date of the Merger. The consequences of the Merger in relation to taxation shall also apply as from said date.
10.2 Taxation-related aspects for companies involved in the Merger
Upon completion of the Merger outlined in this Report, UniCredit shall take over the subjective tax positions of Capitalia. Specifically, UniCredit will become the owner of Capitalia’s tax receivables still to be refunded by the Inland Revenue at the time of the Merger.
The Merger between UniCredit and Capitalia is a completely neutral operation for taxation purposes. It does not entail the realization of any taxable capital gains by the shareholders of the companies taking part in the Merger. No consequences from the Merger for VAT purposes are planned other than those of a purely formal nature.
10.3 Taxation-related aspects for shareholders
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The swapping of Capitalia shares with UniCredit shares does not entail the realization of any income or losses for Capitalia shareholders given that it simply involves the replacement of shares of the Company to be Incorporated with shares of the Incorporating Company. Specifically, the fiscally acknowledged value of the shareholding in the Company to be Incorporated is transferred to the shares of the Incorporating Company received as a share swap. To conclude, the Merger shall not have any fiscal consequences for the companies involved, their shareholders, their customers and any other third parties.
11. EFFECTS OF THE MERGER ON THE COMPOSITION OF KEY SHAREHOLDERS AND ON THE CONTROLLING STRUCTURE OF THE COMPANY RESULTING FROM THE MERGER
At the date of this Report, in accordance with the entries in Capitalia’s share register and the information disclosed by shareholders pursuant to Article 120 of Legislative Decree No. 58 of February 24, 1998 (Amalgamated Finance Laws), the parties holding, either directly and indirectly, shares with voting rights accounting for 2% of Capitalia’s share capital are as follows:
Number of Key shareholders ( ≥ )%2 % held shares
ABN-AMRO Bank (Luxembourg) S.A. (1) 117,133,575 4.51 ABN-AMRO Bank N.V. (1) 77,972,112 3.00 } 8.60 ALGEMENE BANK NEDERLAND B.V. (1) 28,114,964 1.08
FONDAZIONE CASSA DI RISPARMIO DI ROMA 130,409,704 5.02
FONDAZIONE MANODORI 107,072,401 4.12
FONDIARIA - SAI S.p.A. (2) 67,911,042 2.62 } 3.51 MILANO ASSICURAZIONI S.p.A. (2) 23,184,363 0.89
REGIONE SICILIANA 73,746,225 2.84
FONDAZIONE BANCO DI SICILIA 70,875,000 2.73
LIBYAN ARAB FOREIGN BANK 66,873,409 2.58
ASSICURAZIONI GENERALI S.p.A. (direct and 60,997,877 2.35 indirect shareholding) (3)
TOSINVEST S.A. (4) 54,633,051 2.10
OTHER SHAREHOLDERS 1,717,568,237 66.15
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(1) Subsidiary of ABN-AMRO Holding N.V. (2) Subsidiary of PREMAFIN FINANZIARIA S.p.A. Holding di Partecipazioni (3) INDIRECT SHAREHOLDING VIA: Agricola San Giorgio S.p.A., Augusta Assicurazioni S.p.A., BSI S.A., Genagricola -Generali Agricoltura S.p.A., Ina Assitalia S.p.A., Inf - Società Agricola S.p.A., Intesa Vita S.p.A., La Venezia Assicurazioni S.p.A., Nuova Tirrena S.p.A., Toro Targa Assicurazioni S.p.A.. (4) Subsidiary of SPA DI ANTONIO ANGELUCCI S.A.P.A S.C.A.
Note: Figures as a percentage of total capital
On the basis of the above and the aforementioned Exchange Ratio, if we assume that the current shareholders of Capitalia and UniCredit remain unchanged, the shareholders of the company resulting from the Merger would basically be as follows upon completion of the Merger:
Fondazione Cassa di Risparmio Verona, Vicenza, Belluno e Ancona 3.9% Fondazione Cassa di Risparmio di Torino 3.7% Munich Re 3.7% Carimonte Holding 3.3% Gruppo Allianz 2.4% ABN Amro 1.9% Fondazione Cassa di Risparmio di Roma 1.1% Fondazione Manodori 0.9% Fondiaria – SAI 0.8% Regione Siciliana 0.6% Fondazione Banco di Sicilia 0.6% Libyan Arab Foreign Bank 0.6% Assicurazioni Generali 0.5% Other shareholders 76.0%
Note: Figures as percentage of total capital
Therefore, it is envisaged that no shareholder shall exercise control over the company resulting from the Merger.
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Shareholders duly entered in the share register of the Company to be Incorporated shall be automatically entered in the share register of the company resulting from the Merger.
12. CONSEQUENCES OF THE MERGER ON KEY SHAREHOLDERS’ AGREEMENTS PURSUANT TO ARTICLE 122 OF THE UNIFIED BANKING LAW
As far as Capitalia is concerned, at the date of this Report, the Shareholders’ Pact involving 17 leading Italian and foreign industrial operators is in force. The parties to the Shareholders’ Pact with interests in excess of 2% of Capitalia’s share capital are as follows: Gruppo ABN Amro (8.60%), Fondazione Manodori (4.12%), Gruppo Fondiaria – SAI (3.51%), Regione Siciliana (2.84%) and Tosinvest (2.10%). The Shareholders’ Pact expires on July 3, 2008.
At the present moment, no notification has been received from shareholders involved in the Shareholders’ Pact with regard to continuation of the effectiveness or termination of said Agreement for all or for some of the parties currently involved.
As regards UniCredit, there is no shareholders’ agreement involving UniCredit shares with the exception of the voting syndicate promoted by the Trade Union Organizations of Managerial Staff of Credit Institutes - “Uniosind” and “Sinfub” – which, according to UniCredit’s figures, sees the involvement of 394 shareholders, that are employees of Gruppo UniCredito Italiano, holding a total of 903,134 ordinary shares, equal to 0.014% of the ordinary share capital. The parties involved in said syndicate have not communicated any effects resulting from the share capital increase.
13. OPINION OF THE BOARD OF DIRECTORS WITH REGARD TO APPLICATION OF THE RIGHT OF WITHDRAWAL
Capitalia shareholders that are not in agreement with the resolution to approve the Merger Plan, are entitled to withdraw all or a part of their shares in relation to Article 2437, paragraph 1, letter g) of the Italian Civil Code. This is because, upon completion of the Merger, the maximum limit on the number of votes that can be
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exercised during the Shareholders’ Meeting, provided for in Article 5, paragraph 9 of UniCredit’s By-Laws, shall apply for both Capitalia and UniCredit shareholders - differing from what is currently provided for in Capitalia’s By-Laws.
The liquidation value of the shares subject to withdrawal shall be calculated in accordance wit Article 2437-ter, paragraph 3 of the Italian Civil Code, referring exclusively to the arithmetical average of the closing prices in the six months prior to publication of the notice calling the Shareholders’ Meeting to approve the Merger.
The current law provisions shall apply with regard to terms, exercise and liquidation procedures. Capitalia shall undertake to provide shareholders with prompt, complete information in this regard.
14. GENERAL CALENDAR OF EVENTS
The key phases of the merger subsequent to today’s Board of Directors meetings, should take place in accordance with the following calendar:
roughly by June 30, 2007 – registration of the Merger Plan in the relevant Companies Registry subject to obtainment of the authorization needed from Banca d’Italia;
by the end of July 2007 and the beginning of August 2007 – approval of the Merger Plan by the Extraordinary Shareholders’ Meetings of Capitalia and UniCredit;
roughly by Autumn 2007 (with the target date of September 30, 2007) – registration of the Deed of Merger.
The general timeframe listed above may be subject to additions or amendments in relation to any requests made by the relevant authorities. The dates of the accomplishments and phases detailed above will be clarified in press releases issued at later dates.
* * * * *
Lastly, it must be noted that, in relation to the content of the Merger Plan, the Board of Directors of Capitalia shall resolve that pending completion of the Merger, it shall
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not avail itself of the power granted by the Shareholders’ Meeting of Capitalia on November 28, 2005, to increase the share capital in one or more tranches by October 31, 2010, for a maximum amount of euro 264,000,000.
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Proposed Resolution for the Shareholders’ Meeting
Dear Shareholders,
In consideration of the above, the Board of Directors invites you to approve the following resolutions:
“The Extraordinary Shareholders’ Meeting of Capitalia S.p.A., having reviewed the content and explanations contained in the Directors’ Report:
¾ having taken note of fulfillment of the obligation to file and register the merger plans and additional documentation as per Article 2501-septies of the Italian Civil Code; ¾ having examined the authorization for the merger issued by Banca d’Italia on June 26, 2007 pursuant to Article 57 of Legislative Decree No. 385 of September 1, 1993 in letter no. 637424; ¾ having examined the report drafted by PricewaterhouseCoopers S.p.A. in its capacity as expert, pursuant to Article 2501-sexies of the Italian Civil Code, ¾ subject to the issue of additional authorization provided for by law,
hereby resolves
1. to approve, on the basis of the financial statements at December 31 2006, the merger by incorporation of UniCredit S.p.A. into Capitalia S.p.A., as described in the merger plan registered with the Companies Registry of Genoa on June 27, 2007 and Rome on June 26, 2007 and filed on June 28, 2007 at UniCredit’s registered office in Genoa and at Capitalia’s registered office in Rome, and specifically to approve the aforementioned merger plan;
2. to separately grant the Chairman, General Manager and Co-General Manager the powers needed to:
(a) take care of all the formalities so that the resolutions passed obtain all the necessary approvals, with the faculty to make any amendments, additions and deletions to the resolutions, merger plans and By-Laws requested by the Supervisory Authority or during registration with the Companies Registry;
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(b) stipulate and sign, including through special representatives or agents, in compliance with the content of point 1 above, the public deed of merger as well as all acknowledgements, additions and corrections which may prove necessary, defining all conditions, clauses, terms and procedures in compliance and in fulfillment of the Merger Plan”.
* * *
The Board of Directors
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Merger Plan in accordance with art. 2501-ter of the Italian Civil Code
.
MERGER PLAN OF CAPITALIA S.P.A WITH AND INTO UNICREDIT S.P.A. IN ACCORDANCE WITH ARTICLE 2501-TER ITALIAN CIVIL CODE
The Boards of Directors of UniCredit S.p.A. (“UniCredit” or the “Incorporating Company”) and of Capitalia S.p.A. (“Capitalia” or the “Incorporated Company”) have prepared and approved the following merger plan (the “Merger Plan”) in accordance with articles 2501-ter and following of the Italian Civil Code.
The strategic, economic and legal reasons of the Merger Plan, with specific reference to criteria for the determination of the exchange ratio of the shares (the “Exchange Ratio”), are described in the Directors’ Report prepared pursuant to article 2501-quinquies of the Italian Civil Code and article 70, paragraph 2, of the regulation adopted with CONSOB Resolution of 14 May 1999 n. 11971, as subsequently amended and supplemented (“Issuers Regulation”); such document has been approved, jointly with this Merger Plan, by resolutions adopted on the date hereof by the Board of Directors of the Incorporating Company and of the Incorporated Company.
Furthermore, the Boards of Directors have approved in the frame of the merger described in this Merger Plan (the “Merger”) certain understandings relating to the corporate governance of the Incorporating Company and the main subsidiaries of the Incorporated Company.
1. THE TYPE OF MERGER
The Merger will be carried out by way of incorporation of Capitalia into UniCredit pursuant to articles 2501 and following of the Italian Civil Code.
2. COMPANIES INVOLVED IN THE MERGER
Incorporating company
UniCredito Italiano S.p.A. ¾ Registered office in Genua, Via Dante n. 1; ¾ Head office in Milan, Piazza Cordusio; ¾ Share capital, as at the date of approval of this Merger Plan, Euro 5,222,465,096.50, fully-paid in, divided into 10,444,930,193 shares with a nominal value of 0.50 euro each, of which 10,423,223,641 ordinary shares and 21,706,552 savings shares; during the merger procedure, and before the effective date of the Merger, the share capital may change, should the Board of Directors exercise the authority - granted to it by the extraordinary shareholders’ meeting of the Company, in accordance with article 2443 of the Italian Civil Code, with resolution of 10 May 2007 - to increase the share capital for - 2 -
the purpose of possible acquisitions; the ordinary shares and the savings shares of UniCredit, representing the entire share capital of the Company, are listed on the Milan Stock Exchange (Mercato Telematico Azionario organized and managed by Borsa Italiana S.p.A.). The ordinary shares of UniCredit are also listed on the Frankfurt Stock Exchange. ¾ Fiscal Code and registration number with the Company Register of Genua: 00348170101; ¾ Company registered in the National Register of Banks and as parent company of the UniCredito Italiano Group, with n. 3135.1; ¾ Company member of the National Interbank Deposit Guarantee Fund and the National Guarantee Fund.
It is acknowledged that, in accordance with the applicable terms and conditions of the subscription plans reserved to the employees of UniCredit Group, the exercise of the options by such employees is suspended from the date of approval of this Merger Plan by Unicredit’s Board of Directors up to the effective date of the Merger.
Incorporated Company
Capitalia S.p.A. ¾ Registered office in Rome, Via Marco Minghetti 17; ¾ Share capital, as at the date of approval of this Merger Plan, Euro 3,119,605,842.00, fully-paid in (including no. 820,425 new shares to be issued within 23 May 2007 in relation to the exercise of warrants which has been communicated to the Incorporated Company on the date of this Merger Plan), divided into 2,599,671,535 shares with a nominal value of Euro 1.20 each; during the merger procedure, and before the effective date of the Merger, the share capital may change as a result of the exercise of the right to subscribe ordinary shares, granted to the employees of Capitalia Group pursuant to the applicable terms and conditions of the stock incentive plans described below. The shares representing the entire share capital of Capitalia are listed on the Milan Stock Exchange (Mercato Telematico Azionario organized and managed by Borsa Italiana S.p.A.); ¾ Fiscal Code and registration number with the Company Register of Rome: 00644990582; ¾ VAT Code: 00919681007; ¾ Company registered in the National Register of Banks under no. 5525;
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¾ Parent company of the Capitalia Group registered in the National Register of Banks under no. 3207.8; ¾ Company member of the National Interbank Deposit Guarantee Fund and the National Guarantee Fund.
The extraordinary shareholders’ meeting of Capitalia has adopted the following resolutions:
on 16 May 2002, a separable capital increase up to a maximum nominal amount of Euro 20,000,000 through the issue of up to 20,000,000 ordinary shares to service 20,000,000 non-transferable warrants, granting the right to subscribe ordinary shares, assigned free of charge to Capitalia Group’s employees. The extraordinary shareholders’ meeting held on 19 April 2007 changed the residual maximum nominal amount of the capital increase to Euro 5,468,460 to service the possible subscription of 4,557,050 shares. The share capital increase shall be completed within 10 October 2008 and, following such date, the share capital will be deemed increased by an amount equal to the subscriptions received within such date. Such warrants may be exercised, as to n. 118,950 warrants, at a price equal to Euro 1.214 and, as to n. 3,820,000 at a price equal to Euro 2.4743 for each newly issued share (“Warrants Employees A”);
on 4 April 2005, a separable capital increase up to a maximum nominal amount of Euro 22,000,000 through the issue of up to 22,000,000 ordinary shares to service 22,000,000 non-transferable warrants, granting the right to subscribe ordinary shares, assigned free of charge to Capitalia Group’s employees. The extraordinary shareholders’ meeting held on 19 April 2007 changed the residual maximum nominal amount of the capital increase to Euro 25,518,000 to service the possible subscription of 21,265,000 shares. The share capital increase shall be completed within 31 December 2011 and, following such date, the share capital will be deemed increased by an amount equal to the subscriptions received within such date. Each of such warrants may be exercised at a price equal to Euro 4.1599 (“Warrants Employees B”);
on 28 November 2005, in the frame of the merger of Fineco S.p.A. into Capitalia, a separable share capital increase structured as follows:
o a maximum nominal amount of Euro 3,466,650, to service an equal number of warrants granted in exchange for the 2,079,990 warrants previously allotted to the employees of Fineco Group and to the financial promotion agents of the Fineco Bank S.p.A. network under the incentive plan approved by Fineco’s
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extraordinary shareholders’ meetings of 13 November 2003 and 1 April 2005, to be completed within 31 December 2009 through the issue up to 3,466,650 ordinary Capitalia shares, offered for subscription to the holders of the above- mentioned warrants on the basis of the exchange ratio determined for the Fineco shareholders in relation to the merger of such company into Capitalia, at a price of Euro 4.24 for each newly issued share. The extraordinary shareholders’ meeting of 19 April 2007 changed the residual maximum nominal amount of the capital increase to Euro 1,823,970 to service the possible subscription of 1,519,975 shares. Following 31 December 2009, the share capital will be deemed increased by an amount equal to the subscriptions received within such date (“Warrants Fineco A”);
o a maximum nominal amount of Euro 10,543,334 to service an equal number of warrants granted in replacement of the 6,326,000 warrants previously alloted to the employees of Fineco Group and to the financial promotion agents network of the Fineco Bank S.p.A. under the incentive plan approved by Fineco S.p.A.’s extraordinary shareholders’ meeting of 1 April 2005, to be completed within 31 December 2011 through the issue of 10,543,334 ordinary shares of Capitalia, offered for subscription to the holders of the above-mentioned warrants on the basis of the exchange ratio determined for Fineco shareholders in relation to the merger of such company into Capitalia, at a price of Euro 3.9348 for each newly issued share.The extraordinary shareholders’ meeting of 19 April 2007 changed the residual maximum nominal amount of the capital increase to Euro 12,652,000.80 to service the possible subscription of 10,543,334 shares. Following 31 December 2011, the share capital will be deemed increased by an amount equal to the subscriptions received within such date (“Warrants Fineco B”).
The Board of Directors of Capitalia, on 23 February 2005, approved a Stock Incentive Plan 2005 in favour of the managing directors of the companies belonging to Capitalia Group who are not employed by the same, pursuant to which 850,000 warrants (“Warrants MD 2005”) have been assigned to such managing directors; each warrant grants the right to purchase one ordinary Capitalia share, by way of transferring own shares held by Capitalia itself. The relevant purchase price has been determined in Euro 4.1599.
On 20 May 2007, the following Warrants result existing and exercisable:
no. 3,938,950 Warrants Employees A; - 5 -
n. 17,751,750 Warrants Employees B;
no. 466,850 Warrants Fineco A;
no. 9,505,000 Warrants Fineco B;
no. 425,000 Warrants MD 2005.
Capitalia’s Extraordinary Shareholders’ Meeting held on 28 November 2005 authorized the Board of Directors of Capitalia to increase the share capital in one or more tranches within 31 October 2010, for the subscription by Italian and foreign professional investors with the exclusion of shareholders’ option rights pursuant to art. 2441, paragraph 4, second sentence of the Italian Civil Code, by a maximum amount of Euro 264,000,000 (as amended by the Extraordinary Shareholders’ Meeting of 19 April 2007), corresponding to a maximum number of shares equal to 220,000,000. The Board of Directors of the Incorporated Company, in approving this Merger Plan and the directors’ report relating to the same, has undertaken not to exercise such authority during the merger procedure described herein.
3. EXCHANGE RATIO
In accordance with article 2501-quater, second paragraph, of the Italian Civil Code, the reference financial statements used to determine the Exchange Ratio are, respectively, represented by:
- the annual accounts of UniCredit as at 31 December 2006, approved by the ordinary shareholders’ meeting of UniCredit held on 10 May 2007;
- the annual accounts of Capitalia as at 31 December 2006, approved by the ordinary shareholders’ meeting of Capitalia held on 19 April 2007.
The exchange ratio is determined as follows:
• no. 1.12 newly issued ordinary shares of UniCredit for each ordinary share of Capitalia.
Whereas between the date of approval of this Merger Plan and the effective date of the Merger any of the warrants “Warrants Employees A”, “Warrants Employees B”, “Warrants Fineco A”, and “Warrants Fineco B” may be exercised, in the event the Merger is completed, the warrants which as at the effective date of the Merger, will be existing and outstanding will be cancelled and replaced with an equal number of subscription rights: (i) “Subscription Rights UniCredit S.p.A. 2007-2008 - Former Warrants Capitalia 2002”; (ii) “Subscription Rights UniCredit
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S.p.A. 2007-2011 - Former Warrants Capitalia 2005”; (iii) “Subscription Rights UniCredit S.p.A. 2007-2009 - Former Warrants FinecoGroup 2003”; (iv)“Subscription Rights UniCredit S.p.A. 2007-2011 - Former Warrants FinecoGroup 2005”. Each of such rights will entitle to the subscription of newly issued ordinary shares of UniCredit on the basis of the Exchange Ratio, pursuant to the terms and conditions set forth in the respective regulations.
The rights relating to the Warrants MD 2005 outstanding as at the effective date of the Merger will be cancelled and replaced by an equal number of purchase rights “Option Rights UniCredit S.p.A. 2007-20011 – Former Warrants Capitalia 2005 MD” which will grant the right to purchase ordinary UniCredit shares held by UniCredit as own shares, on the basis of the Exchange Ratio.
No adjustment payments shall be made in cash.
Pursuant to article 2501-sexies of the Italian Civil Code, the external auditors appointed by, respectively the Court of Genua following application of the Incorporating Company and the Court of Rome following application by the Incorporated Company, have expressed their opinion on the fairness of the Exchange Ratio. The reports of the external auditors will remain filed during the thirty days preceding the extraordinary shareholders meetings convened to resolve upon the Merger envisaged by this Merger Plan in accordance with the terms provided by article 2501-septies of the Italian Civil Code and in the places mentioned therein.
4. ARTICLES OF ASSOCIATION OF THE INCORPORATING COMPANY
4.1. Capital increases instrumental to the Merger
In relation to the Merger, the extraordinary shareholders’ meeting of UniCredit will be asked to resolve upon the following capital increases simultaneously with the approval of this Merger Plan:
a) a separable capital increase of UniCredit, Incorporating Company, up to the maximum nominal amount of Euro 1,473,547,088 through the issuance of maximum 2,947,094,176 ordinary shares with nominal value equal to Euro 0.50 each, serving the exchange of the ordinary shares of Capitalia, Incorporated Company, outstanding (excluding the treasury shares) as at the effective date of the Merger; b) a separable capital increase, with exclusion of the option right in accordance with article 2441, paragraph 8, of the Italian Civil Code of up to the maximum nominal amount of Euro 2,205,812, to be executed through the issue of maximum 4,411,624 ordinary shares having a nominal value of Euro 0.50 each, to service the exercise of the
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“Subscription Rights UniCredit S.p.A. 2007-2008 – Former Warrants Capitalia 2002” granted in replacement of an equal number of Warrants Employees A previously granted, free of charge, to the employees of Capitalia Group and outstanding on the effective date of the Merger. Such subscription rights may be exercised, as for no. 118,950 , at a price equal to Euro 1.214 and, as for no. 3,820,000 at a price equal to Euro 2.4743 for each newly issued share and the share capital increase shall be completed within 10 October 2008; following the latter date the share capital shall be deemed to have been increased by an amount equal to the subscriptions received within such date; c) a separable capital increase, with exclusion of the option right in accordance with article 2441, paragraph 8, of the Italian Civil Code of up to a maximum nominal amount of Euro 9,940,980, to be executed through the issue of maximum 19,881,960 ordinary shares having a nominal value of Euro 0.50 each, to service the exercise of the “Subscription Rights UniCredit S.p.A. 2007-2011 – Former Warrants Capitalia 2005” granted in replacement of an equal number of Warrants Employees B previously granted, free of charge, to the employees of Capitalia Group and outstanding on the effective date of the Merger. Each of such subscription rights may be exercised at a price equal to Euro 4.1599 and the share capital increase shall be completed within 31 December 2011; following the latter date the share capital shall be deemed to have been increased by an amount equal to the subscriptions received within such date; d) a separable capital increase, with exclusion of the option right in accordance with article 2441, paragraph 8, of the Italian Civil Code of up to a maximum nominal amount of Euro 261,436, to be executed through the issue of maximum 522,872 ordinary shares having a nominal value of Euro 0.50 each, to service the exercise of the “Subscription Rights UniCredit S.p.A. 2007-2009 – Former Warrants Fineco Group 2003” granted in replacement of an equal number of Warrants Fineco A previously granted, free of charge, to the employees of Fineco Group and the financial promoters network of the FinecoBank and outstanding on the effective date of the Merger. Each of such subscription rights may be exercised at a price equal to Euro 4.24 and the share capital increase shall be completed within 31 December 2009; following the latter date the share capital shall be deemed to have been increased by an amount equal to the subscriptions received within such date; e) a separable capital increase, with exclusion of the option right in accordance with article 2441, paragraph 8, of the Italian Civil Code of up to the maximum nominal amount of Euro 5,322,800, to be executed through the issue of maximum 10,645,600 ordinary shares having a nominal value of Euro 0.50 each, to service the exercise of the “Subscription Rights UniCredit S.p.A. 2007-2011 – Former Warrants FinecoGroup
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2005” granted in replacement of an equal number of Warrants Fineco B previously granted, free of charge, to the employees of Fineco Group and the financial promoters network of the FinecoBank and outstanding on the effective date of the Merger. Each of such subscription rights may be exercised at a price equal to Euro 3.9348 and the share capital increase shall be completed within 31 December 2011, following the latter date the share capital shall be deemed to have been increased by an amount equal to the subscriptions received within such date.
Therefore, in the same shareholder’s meeting which shall resolve upon the Merger envisaged by this Merger Plan and upon the above mentioned capital increases, the extraordinary shareholders meeting of UniCredit shall resolve upon the consequential amendments of articles 5 and 6 of the company’s Articles of Association.
4.2. Other amendments to the Articles of Association of the Incorporating Company
Furthermore, in relation to the Merger, article 2 of the company’s current Articles of Association shall be amended to reflect the transfer of the registered office to Rome, Via Minghetti 17.
To the Extraordinary Shareholders’ Meeting will also be submitted the proposal to amend articles 27, 28 and 32 of the Articles of Association, in order to state explicitly that the Chairman of the Executive Committee may be a person other than the Chairman of the Board of Directors.
The entire text of the UniCredit Articles of Association to be submitted to the extraordinary shareholders meeting is attached to this Merger Plan as Annex 1. The amendments to articles 2, 5 and 6 of the Articles of Association shall take effect from the effective date of the Merger pursuant to paragraph 7 below; the amendments to articles 27, 28 and 32 of the Incorporating Company’s Articles of Association shall take effect from the date of registration of the shareholders’ resolution with the competent Company Register..
4.3. Withdrawal right pursuant to article 2437 of the Italian Civil Code
Capitalia’s shareholders which have not approved the Merger Plan will be entitled to exercise a withdrawal right pursuant to article 2437, paragraph 1, letter g) of the Italian Civil Code, as article 5, paragraph 9 of UniCredit’s current Articles of Association provides for a 5% limit on voting rights. Such limit, which is not provided for by Capitalia’s Articles of Association, remains in the Articles of Association of the Incorporating Company.The liquidation value of
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the shares in relation to which such withdrawal right is exercised will be determined being Capitalia a listed company, pursuant to article 2437-ter, paragraph 3 of the Italian Civil Code, solely on the basis of the arithmetic average of Capitalia shares’ closing prices during the six months preceding the publication of the calling notice for the shareholders’ meeting called to resolve upon the Merger.
Such right may be exercised within fifteen days from the registration with the Companies’ Register of the resolution of Capitalia’s extraordinary shareholders’ meeting which approves this Merger Plan and will take effect on the effective date of the Merger. A more detailed description of the terms and conditions for exercising the withdrawal right will be provided in the Information Documents which will be prepared by the Incorporating Company and the Incorporated Company.
5. ASSIGNMENT OF THE SHARES OF THE INCORPORATING COMPANY TO THE SHAREHOLDERS OF CAPITALIA S.PA.
Subject to completion of the Merger, UniCredit shall:
• cancel without replacement any possible treasury shares held by Capitalia pursuant to article 2504-ter of the Italian Civil Code;
• cancel the ordinary shares of Capitalia not held by Capitalia itself, issuing and granting to the holders of Capitalia’s ordinary shares (other than Capitalia itself), outstanding on the effective date of the Merger, a number of shares of UniCredit calculated in accordance with the Exchange Ratio issued pursuant to the capital increase mentioned in paragraph 4.1 (a) above;
• allocate, in exchange for the Employees Warrants A, the Employees Warrants B, the Warrants Fineco A and the Warrants Fineco B outstanding at the effective date of the Merger, that will be cancelled, an equal number of subscription rights “Subscription Rights UniCredit S.p.A. 2007 - 2008 – Former Capitalia Warrants 2002”, “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Former Capitalia Warrants 2005”, “Subscription Rights UniCredit S.p.A. 2007 - 2009 – Former FinecoGroup Warrants 2003” and “Subscription Rights UniCredit S.p.A. 2007 - 2011 – Former FinecoGroup Warrants 2005” each of which, in accordance with the exchange ratio set forth under paragraph 3 above, shall be allocated to the capital increases mentioned in paragraphs 4.1 (b), (c), (d) and (e) above;
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• allocate, in exchange for the Warrants MD 2005 outstanding as at the effective date of the Merger, that will be cancelled, an equal number of purchase rights “Option Rights UniCredit S.p.A. 2007 - 2011 – Former Capitalia MD Warrants 2005” which will entitle to purchase ordinary shares of UniCredit held by UniCredit as treasury shares, on the basis of the Exchange Ratio.
It is acknowledged that UniCredit does not hold ordinary shares of Capitalia; for any shares that may be held by subsidiary companies of the Incorporating Company, the provisions of article 2357 bis of the Italian Civil Code will apply.
At the time of the allocation, the new shares of UniCredit will be listed just as the existing shares of UniCredit.
The shares of UniCredit issued to service the exchange for the shares of Capitalia, will be provided to shareholders of the latter as de-materialized securities deposited with Monte Titoli S.p.A. starting from the first business day following the effective date of the Merger, in compliance with the procedure which will be made public by UniCredit by way of publication of an ad-hoc notice on at least one newspaper distributed nationwide, in compliance with applicable legislation.
No expenses will be charged to the shareholders in relation to the exchange operations. For the purpose of ensuring entire exchange ratios, if necessary, an authorized company will be instructed to negotiate, at market prices, the residuals, without expenses, charges or commissions, for the purpose of reaching the minimum exchange ratio.
6. DATE FROM WHICH SHARES OF THE INCORPORATING COMPANY ISSUED IN EXCHANGE FOR CAPITALIA SHARES SHALL PARTICIPATE IN THE DISTRIBUTION OF PROFITS
The ordinary shares of UniCredit which will be issued in exchange for the Capitalia shares due to the exchange shall have ordinary rights and, thus, will grant to their holders identical rights to those granted, by law and/or the Articles of Association, to the holders of ordinary UniCredit shares outstanding at the time of their issue.
7. LEGAL EFFECTS OF THE MERGER
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The deed of merger will set the date from which the merger will take legal effect vis-à-vis third parties, which may also be later than the date of the last registration pursuant to article 2504-bis of the Italian Civil Code.
8. ACCOUNTING AND TAX EFFECTS OF THE MERGER
The transactions carried out by Capitalia shall be allocated to UniCredit’s accounts starting from the legal effective date of the Merger. Starting from such date, the Merger will also take effect from a tax perspective pursuant to article 123, paragraph 7 of the Consolidated Income Tax Act.
9. TREATMENT WHICH MAY BE RESERVED TO SPECIAL CATEGORIES OF SHAREHOLDERS AND HOLDERS OF SECURITIES OTHER THAN SHARES
There are no special categories of shareholders or holders of securities other than shares, in relation to which special treatments are envisaged.
The holders of Warrants Employees A, Employees B, Fineco A and Fineco B will receive, for each of such warrants – which shall be cancelled – an equal number of subscription rights “Subscription Rights UniCredit S.p.A. 2007-2008 - Former Warrants Capitalia 2002”, “Subscription Rights UniCredit S.p.A. 2007-2011 - Former Warrants Capitalia 2005”, “Subscription Rights UniCredit S.p.A. 2007-2009 - Former Warrants FinecoGroup 2003”, and “Subscription Rights UniCredit S.p.A. 2007-2011 - Former Warrants FinecoGroup 2005”; each of such subscription rights – on the basis of the Exchange Ratio set forth in paragraph 3 above – will entitle to the subscription of 1.12 newly issued ordinary shares of UniCredit, pursuant to the terms and conditions set forth in the respective regulations. The holders of the above-mentioned Warrants will be granted rights equivalent to the rights granted to them before the Merger.
The holders of Warrants MD 2005 will receive, for each of such warrants – which shall be cancelled – an equal number of option rights “Option Rights UniCredit S.p.A. 2007-2011 - Former Warrants Capitalia 2005 MD”; each of such option rights – on the basis of the Exchange Ratio – will entitle to the purchase of 1.12 ordinary UniCredit shares.
10. PARTICULAR ADVANTAGES FOR THE MANAGEMENT OF THE COMPANIES INVOLVED IN THE MERGER
The directors of the companies involved in the merger will not be granted with any particular advantages.
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11. AUTHORIZATION BY THE BANK OF ITALY
It is highlighted that, pursuant to article 57 of the Consolidated Banking Act (legislative decree no. 385/1993), the Merger described in this Merger Plan will require authorization by the Bank of Italy; furthermore, the Bank of Italy will have to issue its assessment pursuant to article 56 of the Consolidated Banking Act in relation to all amendments to the Articles of Association described in this Merger Plan.
12. OTHER INFORMATION
The entire transaction is subject to the granting of authorizations by the competent Authorities.
It is acknowledged that, in addition to the documentation required purusant to article 2501- septies of the Italian Civil Code, the Information Documets pursuant to art. 70, paragraph 4 of the Issuers Regulation will be timely filed and made available to the public.
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Any modifications to the Merger Plan – including those to the Articles of Association attached hereto – which may be requested by the Supervisory Authorities or upon registration of this Merger Plan with the Company Register are hereby expressly reserved. Milan, 20th May 2007 Rome, 20th May 2007
UniCredit S.p.A. Capitalia S.p.A.
The Chairman The Chairman
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Articles of Association of UniCredit S.p.A.
AArrttiicclleess ooff AAssssoocciiaattiioonn
A Joint Stock Company - Registered Office in Genoa Via Dante, 1 - Head Office in Milan - Piazza Cordusio; Registered with the Genoa Courts in the Companies Register, fiscal code and VAT number 00348170101; Registered in the Register of Banking Groups and Parent Company of the UniCredito Italiano Banking Group registered with code 3135.1 - Member of the Interbank Fund for Deposit Protection
SECTION I Establishment, registered office and duration of the Bank
Clause 1 Clause 1
1. UniCredito Italiano, a limited company, 1. UniCredito Italiano, a limited company, formerly known as Credito Italiano and formerly known as Credito Italiano and Banca di Genova prior to that, and Banca di Genova prior to that, and established in Genoa by way of a private established in Genoa by way of a private deed dated 28 April 1870, is a bank deed dated 28 April 1870, is a bank pursuant to the provisions of Legislative pursuant to the provisions of Legislative Decree no. 385 dated 1 September 1993, Decree no. 385 dated 1 September 1993, also known by the abbreviated form of also known by the abbreviated form of UniCredit S.p.A. UniCredit S.p.A.
Clause 2 * Clause 2 *
1. The Registered Office of the Bank is 1. The registered office of the Bank is located at Via Dante 1, Genoa, while its located in Rome, via Minghetti 17, Central Management Unit is located in while its Central Management Unit is Piazza Cordusio, Milan. It may establish, located in Milan, Piazza Cordusio. It both in Italy and abroad, sub-offices, may establish, both in Italy and agencies, outlets and representative abroad, branches, agencies, outlets offices. and representative offices.
* The amendment of such clause shall be effective as of the date in which the Merger will take legal effect.
Clause 3 Clause 3
1. The duration of the Bank runs until 31 1. The duration of the Bank runs until 31 December 2050. December 2050.
SECTION II Regarding the transactions of the Bank
Clause 4 Clause 4
1. The purpose of the Bank is to engage in 1. The purpose of the Bank is to engage in deposit-taking and lending in its various deposit-taking and lending in its various forms, in Italy and abroad, operating forms, in Italy and abroad, operating wherever in accordance with prevailing wherever in accordance with prevailing norms and practice. It may execute, while norms and practice. It may execute, while complying with prevailing legal complying with prevailing legal requirements, all permitted transactions requirements, all permitted transactions and services of a banking and financial and services of a banking and financial nature. In order to achieve its corporate nature. In order to achieve its corporate purpose as efficiently as possible, the Bank purpose as efficiently as possible, the Bank may engage in any activity that is may engage in any activity that is instrumental or in any case related to the instrumental or in any case related to the above. above.
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2. The Bank, in compliance with current 2. The Bank, in compliance with current legal provisions, may issue bonds and legal provisions, may issue bonds and acquire shareholdings in Italy and abroad. acquire shareholdings in Italy and abroad.
3. The Bank, in its role of parent to the 3. The Bank, in its role of parent to the Banking Group UniCredito Italiano, Banking Group UniCredito Italiano, pursuant to the provisions of Clause 61 of pursuant to the provisions of Clause 61 of Legislative Decree no. 385 dated 1 Legislative Decree no. 385 dated 1 September 1993, issues – in undertaking September 1993, issues – in undertaking its management and co-ordination its management and co-ordination activities – instructions to other members activities – instructions to other members of the Group in respect of the fulfilment of of the Group in respect of the fulfilment of requirements laid down by the Bank of requirements laid down by the Bank of Italy in the interest of the Group’s stability. Italy in the interest of the Group’s stability.
SECTION III Regarding share capital and shares
Clause 5* Clause 5*
1. The Bank’s share capital, fully 1. The share capital, fully subscribed subscribed and paid-up, amounts to Euro and paid-up, amounts to Euro 5,222,465,096.50 and is divided into 6,678,281,157 and is divided into 10,444,930,193 shares of Euro 0.50 each, 13,356,562,313 shares of Euro 0.50 in turn made up of 10,423,223,641 each, in turn made up of ordinary shares and 21,706,552 savings 13,334,855,761 ordinary shares and shares. 21,706,552 savings shares.
2. The Board of Directors, in exercising the 2. The Board of Directors, in exercising the power assigned to it pursuant to the power assigned to it pursuant to the provisions of Clause 2443 of the Italian provisions of Clause 2443 of the Italian Civil Code by the Special Meeting of Civil Code by the Special Meeting of Shareholders held on 2 May 2000 and that Shareholders held on 2 May 2000 and that assigned to it by the Special Meeting of assigned to it by the Special Meeting of Shareholders held on 5 May 2001, decided, Shareholders held on 5 May 2001, decided, on 23 May 2000, to increase the Bank’s on 23 May 2000, to increase the Bank’s share capital up to a maximum nominal share capital up to a maximum nominal amount of Euro 9,317,500, equating to a amount of Euro 9,317,500, equating to a maximum number of 18,635,000 ordinary maximum number of 18,635,000 ordinary shares bearing a nominal value of Euro shares bearing a nominal value of Euro 0,50 each and, on 28 March 2001, to 0,50 each and, on 28 March 2001, to increase share capital up to a maximum increase share capital up to a maximum nominal amount of Euro 15,682,500, nominal amount of Euro 15,682,500, equating to a maximum number of equating to a maximum number of 31,365,000 ordinary shares bearing a 31,365,000 ordinary shares bearing a nominal value of Euro 0,50 each, to service nominal value of Euro 0,50 each, to service 2 the exercising of the equivalent number of the exercising of the equivalent number of stock rights reserved for the Executive stock rights reserved for the Executive Staff of UniCredito Italiano S,p,A and Staff of UniCredito Italiano S,p,A and federated banks, as well as other Group federated banks, as well as other Group companies identified by the Board of companies identified by the Board of Directors, subscribing to the “Growth in Directors, subscribing to the “Growth in Group Value - Global Action Plan” resolved Group Value - Global Action Plan” resolved upon by the Board itself, of the rights upon by the Board itself, of the rights issued pursuant to the resolution passed issued pursuant to the resolution passed on May 23rd 2000, a total of 9,979,765 on May 23rd 2000, a total of 9,979,765 were exercised, against which 9,979,765 were exercised, against which 9,979,765 ordinary shares were subscribed for and ordinary shares were subscribed for and issued; of the rights issued pursuant to the issued; of the rights issued pursuant to the resolution passed on March 28th 2001, a resolution passed on March 28th 2001, a total of 12,894,080 were exercised against total of 12,894,080 were exercised against which 12,894,080 ordinary shares were which 12,894,080 ordinary shares were subscribed for and issue. subscribed for and issue.
3. The Board of Directors, in exercising the 3. The Board of Directors, in exercising the power assigned to it pursuant to the power assigned to it pursuant to the provisions of Clause 2443 of the Italian provisions of Clause 2443 of the Italian Civil Code by the Special Meeting of Civil Code by the Special Meeting of Shareholders held on 6 May 2002, decided, Shareholders held on 6 May 2002, decided, on 25 July 2002, to increase the Bank’s on 25 July 2002, to increase the Bank’s share capital up to a maximum nominal share capital up to a maximum nominal amount of Euro 17,500,000, equating to a amount of Euro 17,500,000, equating to a maximum number of 35,000,000 ordinary maximum number of 35,000,000 ordinary shares bearing a nominal value of Euro shares bearing a nominal value of Euro 0,50 each, to service the exercising of the 0,50 each, to service the exercising of the equivalent number of stock rights reserved equivalent number of stock rights reserved for the Executive Staff of UniCredito for the Executive Staff of UniCredito Italiano Limited company, as well as other Italiano Limited company, as well as other Group banks and companies identified by Group banks and companies identified by the Board of Directors, subscribing to the the Board of Directors, subscribing to the “Growth in Group Value - Global Action “Growth in Group Value - Global Action Plan” resolved upon by the Board itself on Plan” resolved upon by the Board itself on 11 March 2002, 18,317,852 rights were 11 March 2002, 18,317,852 rights were exercised, against which a total of exercised, against which a total of 18,317,852 ordinary shares were 18,317,852 ordinary shares were subscribed for and issued. subscribed for and issued.
4. The Special Meeting of Shareholders 4. The Special Meeting of Shareholders held on 6 May 2002 carried a resolution, held on 6 May 2002 carried a resolution, agreeing to increase share capital, with the agreeing to increase share capital, with the exclusion of the option right pursuant to exclusion of the option right pursuant to the provisions of the Clause 2441, the provisions of the Clause 2441, paragraph 8, of the Italian Civil Code, by a paragraph 8, of the Italian Civil Code, by a maximum nominal amount of Euro maximum nominal amount of Euro 2,516,676, equating to a maximum 2,516,676, equating to a maximum number of 5,033,352 ordinary shares number of 5,033,352 ordinary shares bearing a nominal value of Euro 0,50 each, bearing a nominal value of Euro 0,50 each, to service 585,899 “Stock Rights to service 585,899 “Stock Rights UniCredito Italiano S.p.A. 2001 – 2010 – UniCredito Italiano S.p.A. 2001 – 2010 – Ex Stock Rights Rolo Banca 1473 S.p.A. Ex Stock Rights Rolo Banca 1473 S.p.A.
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2001-2005” and 738,667 “Stock Rights 2001-2005” and 738,667 “Stock Rights UniCredito Italiano S.p.A. 2002 – 2010 – UniCredito Italiano S.p.A. 2002 – 2010 – Ex Stock Rights Rolo Banca 1473 S.p.A. Ex Stock Rights Rolo Banca 1473 S.p.A. 2002-2005” allotted to replace 2002-2005” allotted to replace respectively, the same number of “Stock respectively, the same number of “Stock Rights for Rolo Banca 1473 S.p.A. 2001- Rights for Rolo Banca 1473 S.p.A. 2001- 2005” and “Stock Rights for Rolo Banca 2005” and “Stock Rights for Rolo Banca 1473 S.p.A. 2002-2005”, in turn allotted to 1473 S.p.A. 2002-2005”, in turn allotted to members of the Executive Staff of Rolo members of the Executive Staff of Rolo Banca 1473 S.p.A. in compliance with the Banca 1473 S.p.A. in compliance with the “Stock Option Plan for Top Management” “Stock Option Plan for Top Management” adopted by the Board of Directors of same adopted by the Board of Directors of same bank. Of the “2001-2010” rights, a total of bank. Of the “2001-2010” rights, a total of 413,566 were exercised, against which a 413,566 were exercised, against which a total of 1,571,549 ordinary shares were total of 1,571,549 ordinary shares were subscribed for and issued; of the “2002- subscribed for and issued; of the “2002- 2010” rights, a total of 534,829 were 2010” rights, a total of 534,829 were exercised, against which a total of exercised, against which a total of 2,032,349 ordinary shares were subscribed 2,032,349 ordinary shares were subscribed for and issued. for and issued.
5. In partial exercise of powers conferred 5. In partial exercise of powers conferred by the Extraordinary Shareholders’ Meeting by the Extraordinary Shareholders’ Meeting held on May 4th 2004 pursuant to Article held on May 4th 2004 pursuant to Article 2443 of the Italian Civil Code, the Board of 2443 of the Italian Civil Code, the Board of Directors passed a resolution on July 22nd Directors passed a resolution on July 22nd 2004 to increase capital by a maximum 2004 to increase capital by a maximum amount of Euro 7,284,350 corresponding amount of Euro 7,284,350 corresponding to a maximum number of 14,568,700 to a maximum number of 14,568,700 ordinary shares of Euro 0,50 each, passing ordinary shares of Euro 0,50 each, passing another resolution on November 18th 2005 another resolution on November 18th 2005 to increase capital by a maximum amount to increase capital by a maximum amount of Euro 20,815,000 corresponding to a of Euro 20,815,000 corresponding to a maximum number of 41,630,000 ordinary maximum number of 41,630,000 ordinary shares of Euro 0,50 each, to be used to shares of Euro 0,50 each, to be used to exercise a corresponding number of exercise a corresponding number of subscription rights reserved for the subscription rights reserved for the Executive Personnel of UniCredito Italiano Executive Personnel of UniCredito Italiano Spa and the other Group Banks and Spa and the other Group Banks and Companies who hold positions which are Companies who hold positions which are significant in terms of achieving the overall significant in terms of achieving the overall objectives of the Group, and passing objectives of the Group, and passing another resolution on December 15th 2005 another resolution on December 15th 2005 to increase capital by a maximum amount to increase capital by a maximum amount of Euro 750,000 corresponding to a of Euro 750,000 corresponding to a maximum number of 1,500,000 ordinary maximum number of 1,500,000 ordinary shares of Euro 0.50 each. shares of Euro 0.50 each.
6. The Board of Directors, in partial 6. The Board of Directors, in partial exercise of the powers received as per art. exercise of the powers received as per art. 2443 Civil Code from the Extraordinary 2443 Civil Code from the Extraordinary Shareholders’ Meeting of May 12th 2006, Shareholders’ Meeting of May 12th 2006, has resolved, on June 13th 2006 to has resolved, on June 13th 2006 to increase the share capital of a maximum increase the share capital of a maximum
4 nominal amount of € 14,602,350 nominal amount of € 14,602,350 corresponding to a maximum number of corresponding to a maximum number of 29,204,700 ordinary shares having a value 29,204,700 ordinary shares having a value of € 0.50 each, on July 1st 2006 to increase of € 0.50 each, on July 1st 2006 to increase the share capital of a maximum nominal the share capital of a maximum nominal amount of € 45,150 corresponding to a amount of € 45,150 corresponding to a maximum number of 90,300 ordinary maximum number of 90,300 ordinary shares having a value of € 0.50 each, at shares having a value of € 0.50 each, at the service of the exercise of a the service of the exercise of a corresponding number of subscription corresponding number of subscription rights to be granted to the Management of rights to be granted to the Management of UniCredit S.p.A., as well as of the other UniCredit S.p.A., as well as of the other Banks and companies of the Group, who Banks and companies of the Group, who hold positions considered highly relevant hold positions considered highly relevant for the attainment of the overall Group for the attainment of the overall Group targets. targets.
7. The Extraordinary Shareholders’ Meeting of [●] approved a capital increase, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of Euro 2,205,812, to be effected through the issue of up to a maximum 4,411,624 ordinary shares with a par value of Euro 0.50 each, to service the 20,000,000 “Subscriptions Rights UniCredit S.p.A. 2007-2008 – Ex Capitalia Warrants 2002” assigned in exchange for an equal number of Warrants issued pursuant to the “Stock Incentive Plan 2002 in favour of Banca di Roma Group’s employees” formerly allocated, free of charged, to Capitalia Group’s employees pursuant to the resolution adopted by the Capitalia S.p.A.’s Extraordinary Shareholders meeting of 16 May 2002. The subscription rights may be exercised, as far as a first tranche of 118,950 rights is concerned, at a price equal to Euro 1.214 each and, as far as a second tranche of 3,820,000 rights is concerned, at a price equal to Euro 2.4743 each and each of them assigns the right to purchase 1.12 ordinary shares of the company within and no later than 10 October 2008 in accordance with the Terms and Conditions approved by the above mentioned Extraordinary Shareholders’ Meeting.
8. The Extraordinary Shareholders’ Meeting of [●] approved a capital
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increase, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of Euro 9,940,980, to be effected through the issue of up to a maximum 19,881,960 ordinary shares with a par value of Euro 0.50 each, to service the 22,000,000 “Subscription Rights UniCredit S.p.A. 2007-2011 – Ex Capitalia Warrants 2005” assigned in exchange for an equal number of Warrants issued pursuant to the “Stock Incentive Plan 2005 in favour of Capitalia Group’s employees” formerly allocated, free of charged, to Capitalia Group’s employees pursuant to the resolution adopted by the Capitalia S.p.A.’s Extraordinary Shareholders meeting of 4 April 2005. Each option may be exercised at a price equal to Euro 4.1599 and assigns the right to purchase 1.12 ordinary shares of the company, within and no later than 31 December 2011 pursuant to the relevant Terms and Conditions approved by the above mentioned Extraordinary Shareholders’ Meeting.
9. The Extraordinary Shareholders’ Meeting of [●] approved a capital increase, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of Euro 261,436, to be effected through the issue of up to a maximum 522,872 ordinary shares with a par value of Euro 0.50 each, to service the 3,466,650 “Subscription Rights UniCredit S.p.A. 2007-2009 – Ex FinecoGroup Warrants 2003” assigned in exchange for an equal number of Warrants formerly allocated, free of charged, to Fineco Group’s employees and Fineco Bank’s private bankers pursuant to the resolution adopted by the Capitalia S.p.A.’s Extraordinary Shareholders meeting of 28 November 2005. Each subscription right may be exercised at a price equal to Euro 4.24 and assigns the right to purchase 1.12 ordinary shares of the company, within and no later than 31 December 2009 pursuant to the relevant Terms and Conditions approved by the above mentioned Extraordinary Shareholders’ Meeting.
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10. The Extraordinary Shareholders’ Meeting of [●] approved a capital increase, with the exclusion of the shareholders’ options rights under art. 2441, paragraph 8, of the Italian Civil Code, of a maximum nominal amount of Euro 5,322,800, to be effected through the issue of up to a maximum 10,645,600 ordinary shares with a par value of Euro 0.50 each, to service the 10,543,334 “Subscription Rights UniCredit S.p.A. 2007-2011 – Ex FinecoGroup Warrants 2005” assigned in exchange for an equal number of Warrants formerly allocated, free of charged, to Fineco Group’s employees and Fineco Bank’s private bankers pursuant to the resolution adopted by the Capitalia S.p.A.’s Extraordinary Shareholders Meeting of 28 November 2005. Each subscription right may be exercised at a price equal to Euro 3.9348 and assigns the right to purchase 1.12 ordinary shares of the company, within and no later than 31 December 2011 pursuant to the relevant Terms and Conditions approved by the above mentioned Extraordinary Shareholders’ Meeting.
7. The Special Meeting of Shareholders 11. The Special Meeting of Shareholders may resolve upon the allocation of may resolve upon the allocation of earnings to the employees of the Bank or earnings to the employees of the Bank or subsidiaries, in conformity to prevailing subsidiaries, in conformity to prevailing laws. laws.
8. Ordinary shares are registered shares. 12. Ordinary shares are registered shares.
9. No one entitled to vote may vote, for 13. No one entitled to vote may vote, for any reason whatsoever, for a number of any reason whatsoever, for a number of Bank shares exceeding five per cent of Bank shares exceeding five per cent of share capital bearing voting rights, To this share capital bearing voting rights, To this end, the global stake held by the end, the global stake held by the controlling party, (be it a private controlling party, (be it a private individual, legal entity or company), all individual, legal entity or company), all direct and indirect subsidiaries and direct and indirect subsidiaries and affiliates has been taken into affiliates has been taken into consideration; those shareholdings consideration; those shareholdings included in the portfolios of mutual funds included in the portfolios of mutual funds managed by subsidiaries or affiliates have managed by subsidiaries or affiliates have not, on the other hand, been taken into not, on the other hand, been taken into consideration., Control, including with consideration., Control, including with regard to parties other than companies, regard to parties other than companies, emerges in the situations provided for by emerges in the situations provided for by 7
Clause 2359, first and second paragraph, Clause 2359, first and second paragraph, of the Italian Civil Code. Control whereby of the Italian Civil Code. Control whereby significant influence is exercised is significant influence is exercised is regarded to be present in the situations regarded to be present in the situations provided for by Clause 23, second provided for by Clause 23, second paragraph, of Legislative Decree no, 385 paragraph, of Legislative Decree no, 385 dated 1 September 1993 (Consolidation dated 1 September 1993 (Consolidation Act for Laws Relating to Banking and Act for Laws Relating to Banking and Lending Activities). An affiliation emerges Lending Activities). An affiliation emerges in the situations referred to in Clause in the situations referred to in Clause 2359, third paragraph, of the Italian Civil 2359, third paragraph, of the Italian Civil Code, For the purposes of computing the Code, For the purposes of computing the stake held, those shares held through stake held, those shares held through custodian companies and/or intermediaries custodian companies and/or intermediaries and/or those shares whose voting rights and/or those shares whose voting rights are assigned for any purpose or reason to are assigned for any purpose or reason to a party other than their owner, are also a party other than their owner, are also taken into consideration. In the event of taken into consideration. In the event of the above provisions being breached, any the above provisions being breached, any shareholders resolution carried may be shareholders resolution carried may be impugned impugnabile pursuant to the impugned impugnabile pursuant to the provisions of Clause 2377 of the Italian provisions of Clause 2377 of the Italian Civil Code, where the majority required Civil Code, where the majority required would not have been reached without this would not have been reached without this breach. Those shares whose voting rights breach. Those shares whose voting rights may not be exercised are in any event may not be exercised are in any event computed in order for the Meeting to be computed in order for the Meeting to be properly formed. properly formed.
10. Savings shares do not bear any voting 14. Savings shares do not bear any voting rights. Any reduction of share capital due rights. Any reduction of share capital due to losses does not reduce the nominal to losses does not reduce the nominal value of savings shares, other than by the value of savings shares, other than by the portion of any loss exceeding the global portion of any loss exceeding the global nominal value of other shares; in the event nominal value of other shares; in the event of the Bank being wound up, savings of the Bank being wound up, savings shares enjoy the right of pre-emption in shares enjoy the right of pre-emption in respect of the redemption of capital, for respect of the redemption of capital, for their full nominal value. In the event of their full nominal value. In the event of reserves being distributed, savings shares reserves being distributed, savings shares bear the same rights as other shares. bear the same rights as other shares.
11. Whenever the Bank’s ordinary shares 15. Whenever the Bank’s ordinary shares or savings shares are barred from trading, or savings shares are barred from trading, the holder of savings shares may ask for the holder of savings shares may ask for its shares to be converted into ordinary its shares to be converted into ordinary shares, in accordance with the procedures shares, in accordance with the procedures resolved upon by the Special Meeting of resolved upon by the Special Meeting of Shareholders, convened as and when the Shareholders, convened as and when the need arises within two months from shares need arises within two months from shares being barred from trading. being barred from trading.
8
12. Savings shares, when fully paid-up, are 16. Savings shares, when fully paid-up, bearer shares, unless provided for are bearer shares, unless provided for otherwise by law. At the request and otherwise by law. At the request and expense of the Shareholder, they may be expense of the Shareholder, they may be transformed into registered savings shares transformed into registered savings shares and vice versa. and vice versa.
* The amendment of such clause shall be effective as of the date in which the Merger will take legal effect.
Clause 6* Clause 6*
1. Share capital may be increased by way 1. Share capital may be increased by way of a shareholders’ resolution, through the of a shareholders’ resolution, through the issuance of shares bearing various rights, issuance of shares bearing various rights, in conformity to legal requirements, in conformity to legal requirements,
2. Specifically, the Meeting may resolve 2. Specifically, the Meeting may resolve upon the issuance of savings shares upon the issuance of savings shares bearing the features and rights provided bearing the features and rights provided for by prevailing laws and by these Articles for by prevailing laws and by these Articles of Association, of Association,
3. The 17,479,663 ordinary shares issued 3. The 17,479,663 ordinary shares issued following the capital increase decided by following the capital increase decided by the Board of Directors on 22 July 2004 and the Board of Directors on 22 July 2004 and the 16,984,286 ordinary shares issued the 16,984,286 ordinary shares issued following the capital increase decided by following the capital increase decided by the Board of Directors on 12 June 2005, in the Board of Directors on 12 June 2005, in partial exercise of powers conferred partial exercise of powers conferred pursuant to Article 2443 of the Italian Civil pursuant to Article 2443 of the Italian Civil Code by the Extraordinary Shareholders’ Code by the Extraordinary Shareholders’ Meeting on 4 May 2004, were allotted to all Meeting on 4 May 2004, were allotted to all members of staff of UniCredito Italiano and members of staff of UniCredito Italiano and the other Group banks and companies the other Group banks and companies when implementing the “Medium-term when implementing the “Medium-term Incentive Scheme for Group Staff – Year Incentive Scheme for Group Staff – Year 2004” approved by the Board of Directors 2004” approved by the Board of Directors of UniCredito Italiano. Such shares may of UniCredito Italiano. Such shares may not be transferred between living persons not be transferred between living persons or used as collateral. or used as collateral.
4. The 2,893,400 ordinary shares issued 4. The 2,893,400 ordinary shares issued following the capital increase decided by following the capital increase decided by the Board of Directors on July 22nd 2004 the Board of Directors on July 22nd 2004 and the 2,946,000 ordinary shares issued and the 2,946,000 ordinary shares issued following the capital increase decided by following the capital increase decided by the Board on November 30th 2005, in the Board on November 30th 2005, in
9
partial exercise of the powers conferred partial exercise of the powers conferred pursuant to Article 2443 of the Italian Civil pursuant to Article 2443 of the Italian Civil Code by the Extraordinary Shareholders’ Code by the Extraordinary Shareholders’ Meeting held on May 4th 2004, were Meeting held on May 4th 2004, were assigned to Executive Personnel of assigned to Executive Personnel of UniCredito Italiano and the other Group UniCredito Italiano and the other Group banks and companies during banks and companies during implementation of the “Medium-term implementation of the “Medium-term Incentive Scheme for Group Staff – Year Incentive Scheme for Group Staff – Year 2005” approved by the Board of Directors 2005” approved by the Board of Directors of UniCredito Italiano. Such shares are of UniCredito Italiano. Such shares are encumbered by a restriction freezing them encumbered by a restriction freezing them for three years from issue, and may not be for three years from issue, and may not be transferred between living persons or used transferred between living persons or used as collateral. In the case of death of the as collateral. In the case of death of the employee, the shares will be transferred to employee, the shares will be transferred to his/her heirs and the above restriction will his/her heirs and the above restriction will no longer apply. In the case of resignation no longer apply. In the case of resignation or sacking for just cause or justified or sacking for just cause or justified motives, or if the employee resigns without motives, or if the employee resigns without being entitled to a pension, the Pension being entitled to a pension, the Pension Fund for staff of the companies of the Fund for staff of the companies of the UniCredito Italiano Group will have the UniCredito Italiano Group will have the right to repurchase the shares assigned to right to repurchase the shares assigned to the employee who has retired, at their the employee who has retired, at their nominal value. The right to repurchase the nominal value. The right to repurchase the shares must be exercised by the Pension shares must be exercised by the Pension Fund for personnel of the companies of the Fund for personnel of the companies of the UniCredito Italiano Group within 90 days of UniCredito Italiano Group within 90 days of the employee’s ceasing to work for the the employee’s ceasing to work for the company, and if in the meantime the 3- company, and if in the meantime the 3- year restriction set out in the present year restriction set out in the present clause expires, the shares will remain clause expires, the shares will remain frozen for 90 days. The dividend relating to frozen for 90 days. The dividend relating to such shares will only be paid once the such shares will only be paid once the restriction period has expired. restriction period has expired.
5. The 50,000,000 stock rights – of which 5. The 50,000,000 stock rights – of which 18,635,000 were issued on 23 May 2000 18,635,000 were issued on 23 May 2000 and 31,365,000 were issued on 28 March and 31,365,000 were issued on 28 March 2001, by virtue of the Board of Directors 2001, by virtue of the Board of Directors exercising the power assigned to it, exercising the power assigned to it, pursuant to the provisions of Clause 2443 pursuant to the provisions of Clause 2443 of the Italian Civil Code, by the Special of the Italian Civil Code, by the Special Meeting of Shareholders held on 2 May Meeting of Shareholders held on 2 May 2000, to increase share capital with the 2000, to increase share capital with the exclusion of option rights pursuant to the exclusion of option rights pursuant to the provisions of Clause 2441, paragraph 8, of provisions of Clause 2441, paragraph 8, of the Italian Civil Code – and allotted to the the Italian Civil Code – and allotted to the Executive Staff of UniCredito Italiano and Executive Staff of UniCredito Italiano and other Group banks and companies other Group banks and companies identified by the Board of Directors, are identified by the Board of Directors, are registered and non-transferable and registered and non-transferable and automatically lapse in the event of automatically lapse in the event of dismissal for just cause or justifiable dismissal for just cause or justifiable reason; similarly, the stock rights lapse in reason; similarly, the stock rights lapse in
10
the event of an employee resigning without the event of an employee resigning without the right to receive a pension, unless the right to receive a pension, unless established otherwise by the Board of established otherwise by the Board of Directors on an individual case basis; in Directors on an individual case basis; in the event of an employee’s death, the right the event of an employee’s death, the right shall be transferred to his heirs. These shall be transferred to his heirs. These rights, may be exercised until 2009 at the rights, may be exercised until 2009 at the unit price of Euro 4.53 referring to n. unit price of Euro 4.53 referring to n. 18,635,000, at a unit price of Euro 4.99 18,635,000, at a unit price of Euro 4.99 referring to n. 31,365,300, with both referring to n. 31,365,300, with both prices subject to change, pursuant to the prices subject to change, pursuant to the provisions of their respective Issue provisions of their respective Issue Regulations and in accordance with the Regulations and in accordance with the criteria and during the periods identified by criteria and during the periods identified by the Board of Directors. the Board of Directors.
6. The 35,000,000 stock rights - issued on 6. The 35,000,000 stock rights - issued on 25 July 2002, further to the Board of 25 July 2002, further to the Board of Directors exercising the power assigned to Directors exercising the power assigned to it, pursuant to the provisions of Clause it, pursuant to the provisions of Clause 2443 of the Italian Civil Code, by the 2443 of the Italian Civil Code, by the Special Meeting of Shareholders held on 6 Special Meeting of Shareholders held on 6 May 2002, to increase share capital with May 2002, to increase share capital with the exclusion of option rights pursuant to the exclusion of option rights pursuant to the provisions of Clause 2441, paragraph the provisions of Clause 2441, paragraph 8, of the Italian Civil Code – and allotted to 8, of the Italian Civil Code – and allotted to the Executive Staff of UniCredito Italiano the Executive Staff of UniCredito Italiano and other Group banks and companies and other Group banks and companies identified by the Board of Directors, are identified by the Board of Directors, are registered and non-transferable and registered and non-transferable and automatically lapse in the event of automatically lapse in the event of dismissal for just cause or justifiable dismissal for just cause or justifiable reason; similarly, the stock rights lapse in reason; similarly, the stock rights lapse in the event of an employee resigning without the event of an employee resigning without the right to receive a pension, unless the right to receive a pension, unless established otherwise by the Board of established otherwise by the Board of Directors on an individual case basis; in Directors on an individual case basis; in the event of an employee’s death, the right the event of an employee’s death, the right shall be transferred to his heirs. These shall be transferred to his heirs. These rights may be exercised until 2011, with rights may be exercised until 2011, with effective on the days provided for in the effective on the days provided for in the Issue Regulations, at a unit price of Euro Issue Regulations, at a unit price of Euro 4.263 each, which is subject to change, 4.263 each, which is subject to change, pursuant to the provisions of their Issue pursuant to the provisions of their Issue Regulations. Regulations.
7. The 585,899 “Stock rights UniCredito 7. The 585,899 “Stock rights UniCredito Italiano 2001 – 2010 - Ex Stock rights Rolo Italiano 2001 – 2010 - Ex Stock rights Rolo Banca 1473 Spa 2001 – 2005” and the Banca 1473 Spa 2001 – 2005” and the 738,667 “Stock rights UniCredito Italiano 738,667 “Stock rights UniCredito Italiano 2002 – 2010 - Ex Stock rights Rolo Banca 2002 – 2010 - Ex Stock rights Rolo Banca 1473 Spa 2002 – 2005” by virtue of the 1473 Spa 2002 – 2005” by virtue of the resolution carried by the Special Meeting of resolution carried by the Special Meeting of Shareholders on 6 May 2002 and allotted Shareholders on 6 May 2002 and allotted
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to replace the same number of stock rights to replace the same number of stock rights allotted in turn to the Executive Staff of allotted in turn to the Executive Staff of Rolo Banca 1473 S.p.A. are registered and Rolo Banca 1473 S.p.A. are registered and non-transferable and automatically lapse in non-transferable and automatically lapse in the event of an employee leaving the the event of an employee leaving the Group’s service for reasons other than Group’s service for reasons other than retirement or resignation due to his retirement or resignation due to his transfer to another company belonging to transfer to another company belonging to the Banking Group UniCredito Italiano, the Banking Group UniCredito Italiano, These rights also lapse in the event of an These rights also lapse in the event of an employee retiring and subsequently employee retiring and subsequently engaging in activities that compete with engaging in activities that compete with those of UniCredito Italiano. In the event those of UniCredito Italiano. In the event of an employee’s death, the right shall be of an employee’s death, the right shall be transferred to his heirs. transferred to his heirs.
8. The 14,568,700 subscription rights 8. The 14,568,700 subscription rights issued by the Board of Directors on July 22 issued by the Board of Directors on July 22 2004 pursuant to powers conferred by the 2004 pursuant to powers conferred by the Extraordinary Shareholders’ Meeting of 4 Extraordinary Shareholders’ Meeting of 4 May 2004 may be exercised between 2008 May 2004 may be exercised between 2008 and 2017 at a unit price of Euro 4.018, and 2017 at a unit price of Euro 4.018, subject to change on the basis of the issue subject to change on the basis of the issue Regulations and according to such criteria Regulations and according to such criteria and periods as may be chosen by the and periods as may be chosen by the Board of Directors. The 41,630,000 Board of Directors. The 41,630,000 subscription rights issued by the Board of subscription rights issued by the Board of Directors on November 18th 2005 on the Directors on November 18th 2005 on the basis of powers conferred by the basis of powers conferred by the Extraordinary Shareholders’ Meeting of 4 Extraordinary Shareholders’ Meeting of 4 May 2004 may be exercised from 2009 May 2004 may be exercised from 2009 until 2018 at the unit price of Euro 4.817, until 2018 at the unit price of Euro 4.817, subject to amendment pursuant to the subject to amendment pursuant to the Regulations of Issue and according to the Regulations of Issue and according to the criteria and periods decided by the Board criteria and periods decided by the Board of Directors. The 1,500,000 subscription of Directors. The 1,500,000 subscription rights issued by the Board of Directors on rights issued by the Board of Directors on December 15th 2005 on the basis of December 15th 2005 on the basis of powers conferred by the Extraordinary powers conferred by the Extraordinary Shareholders’ Meeting referred to in the Shareholders’ Meeting referred to in the present clause may be exercised from present clause may be exercised from 2009 until 2018 at the unit price of Euro 2009 until 2018 at the unit price of Euro 5.301, subject to amendment pursuant to 5.301, subject to amendment pursuant to the Regulations of Issue and according to the Regulations of Issue and according to the criteria and periods decided by the the criteria and periods decided by the Board of Directors. The subscription rights Board of Directors. The subscription rights set forth in this paragraph were allocated set forth in this paragraph were allocated to Management of UniCredito Italiano to Management of UniCredito Italiano S.p.A. and of the Group banks and S.p.A. and of the Group banks and companies who hold positions of particular companies who hold positions of particular importance for the purposes of achieving importance for the purposes of achieving the Group’s overall objectives. The the Group’s overall objectives. The subscription rights shall be nominative and subscription rights shall be nominative and non-transferrable and automatically expire non-transferrable and automatically expire in the case of dismissal for just cause or in the case of dismissal for just cause or justified motives; similarly the subscription justified motives; similarly the subscription
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rights shall expire in the event of the rights shall expire in the event of the voluntary resignation of the employee voluntary resignation of the employee without entitlement to receive pension without entitlement to receive pension benefits unless the Board of Directors of benefits unless the Board of Directors of UniCredito Italiano has specified otherwise UniCredito Italiano has specified otherwise with respect to this specific case. In the with respect to this specific case. In the event of the death of the employee, the event of the death of the employee, the right shall be transferred to his/her heirs. right shall be transferred to his/her heirs.
9. The 20,000,000 “Subscription Rights UniCredit S.p.A. 2007-2008 – Ex Capitalia Warrants 2002”, the 22,000,000 “Subscription Rights UniCredit S.p.A. 2007-2011 – Ex Capitalia Warrants 2005”, the 3,466,650 “Subscription Rights UniCredit S.p.A. 2007-2009 – Ex FinecoGroup Warrants 2003” and the 10,543,334 “Subscription Rights UniCredit S.p.A. 2007-2011 – Ex FinecoGroup Warrants 2005” issued pursuant to the resolution adopted by the Extraordinary Shareholders’ Meeting of [●], assigned and exercisable in accordance with paragraph 5 above and the relevant Terms and Conditions, are registered and non-transferable inter vivos (between living persons); in the event of beneficiary’s death, such options shall be transferred to beneficiary’s heirs. In the event of interruption of the relationship between the beneficiary and the UniCredit Group before the normal term, the options shall automatically lapse.
9. The Board of Directors has the ability, 10. The Board of Directors has the ability, pursuant to the provisions of Clause 2443 pursuant to the provisions of Clause 2443 of the Italian Civil Code, to agree to of the Italian Civil Code, to agree to increase – through one or more increase – through one or more transactions and over a period of no more transactions and over a period of no more than five years from the shareholders’ than five years from the shareholders’ resolution carried on 4 May 2004, a rights resolution carried on 4 May 2004, a rights issue, pursuant to the provisions of Clause issue, pursuant to the provisions of Clause 2349 of the Italian Civil Code, for a 2349 of the Italian Civil Code, for a maximum nominal amount of Euro maximum nominal amount of Euro 52,425,000, equating to a maximum 52,425,000, equating to a maximum number of 104,850,000 ordinary shares number of 104,850,000 ordinary shares bearing a nominal value of Euro 0,50 each, bearing a nominal value of Euro 0,50 each, to be allotted to the Staff of UniCredito to be allotted to the Staff of UniCredito Italiano and other Group banks and Italiano and other Group banks and companies. This capital increase shall be companies. This capital increase shall be effected by utilising the special reserve effected by utilising the special reserve known as the “Reserve relating to the known as the “Reserve relating to the medium-term incentive scheme for Group medium-term incentive scheme for Group
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staff” established as and when necessary staff” established as and when necessary and restored or increased from year to and restored or increased from year to year, or in accordance with the various year, or in accordance with the various procedures laid down by the laws in force procedures laid down by the laws in force at any given time, The powers pertaining at any given time, The powers pertaining to the present clause were exercised by to the present clause were exercised by resolutions of the Board of Directors dated resolutions of the Board of Directors dated July 22nd 2004, March 14th 2005, June July 22nd 2004, March 14th 2005, June 12th 2005, November 30th 2005, March 12th 2005, November 30th 2005, March 22 2006 and March 21 2007 for 22 2006 and March 21 2007 for 20,373,063, 1,341,480, 16,984,286, 20,373,063, 1,341,480, 16,984,286, 2,946,000, 2,548,860 and 4,085,100 2,946,000, 2,548,860 and 4,085,100 ordinary shares, respectively. ordinary shares, respectively.
10. The Board of Directors has the power, 11. The Board of Directors has the power, under the provisions of section 2443 of the under the provisions of section 2443 of the Italian Civil Code, to resolve - including on Italian Civil Code, to resolve - including on one or more occasions for a maximum one or more occasions for a maximum period of one year starting from the period of one year starting from the shareholders' resolution dated May 12 shareholders' resolution dated May 12 2006 - to increase share capital with the 2006 - to increase share capital with the exclusion of rights, as allowed by section exclusion of rights, as allowed by section 2441.8 of the Italian Civil Code, to service 2441.8 of the Italian Civil Code, to service the exercise of options issued by the Board the exercise of options issued by the Board of Directors to subscribe to a maximum of Directors to subscribe to a maximum number of 42,000,000 ordinary shares, number of 42,000,000 ordinary shares, corresponding to a maximum nominal corresponding to a maximum nominal amount of € 21,000,000, to be reserved amount of € 21,000,000, to be reserved for Management of UniCredit S.p.A. and of for Management of UniCredit S.p.A. and of Group banks and companies who hold Group banks and companies who hold positions of particular importance for the positions of particular importance for the purposes of achieving the Group's overall purposes of achieving the Group's overall objectives. The resolutions of the Board of objectives. The resolutions of the Board of Directors shall specify that if the sole Directors shall specify that if the sole increase or individual partial increases increase or individual partial increases approved are subscribed, then share approved are subscribed, then share capital will be treated as having been capital will be treated as having been increased by the amount corresponding to increased by the amount corresponding to the subscriptions received. The unit price the subscriptions received. The unit price of the shares being issued shall be equal to of the shares being issued shall be equal to the mean price of UniCredit S.p.A. shares the mean price of UniCredit S.p.A. shares reported in the month before the related reported in the month before the related Board resolution, bearing in mind the rules Board resolution, bearing in mind the rules on the taxation of employment income tax on the taxation of employment income tax applying at that time. The stock options applying at that time. The stock options shall be registered, non-transferable shall be registered, non-transferable securities; the Holding Company's Board of securities; the Holding Company's Board of Directors shall establish the terms of Directors shall establish the terms of forfeiture of the right to exercise stock forfeiture of the right to exercise stock options if the employee leaves the Group options if the employee leaves the Group or dies. The Board of Directors will be able or dies. The Board of Directors will be able to decide one or more periods in which the to decide one or more periods in which the options may be exercised, starting from options may be exercised, starting from the fourth year after their grant, unless the fourth year after their grant, unless otherwise established by the Board of otherwise established by the Board of Directors if a public bid is made involving Directors if a public bid is made involving
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the purchase and exchange of UniCredit the purchase and exchange of UniCredit shares. The 29.204.700 subscription shares. The 29.204.700 subscription rights issued by the Board of Directors on rights issued by the Board of Directors on June 13th 2006, based on the powers June 13th 2006, based on the powers received from the Extraordinary received from the Extraordinary Shareholders’ Meeting of May 12th 2006, Shareholders’ Meeting of May 12th 2006, are exercisable starting from the year are exercisable starting from the year 2010 and up to the year 2019 at a unitary 2010 and up to the year 2019 at a unitary price of € 5.951 subject to variation price of € 5.951 subject to variation according to the relevant Regulations of according to the relevant Regulations of issue, according to the criteria and in the issue, according to the criteria and in the periods defined by the Board of Directors, periods defined by the Board of Directors, the 45,150 subscription rights issued by the 45,150 subscription rights issued by the Board of Directors on July 1st 2006, the Board of Directors on July 1st 2006, based on the powers received from the based on the powers received from the Extraordinary Shareholders’ Meeting of Extraordinary Shareholders’ Meeting of May 12th 2006, are exercisable starting May 12th 2006, are exercisable starting from the year 2010 and up to the year from the year 2010 and up to the year 2019 at a unitary price of € 5.879 subject 2019 at a unitary price of € 5.879 subject to variation according to the relevant to variation according to the relevant Regulations of issue, according to the Regulations of issue, according to the criteria and in the periods defined by the criteria and in the periods defined by the Board of Directors. Board of Directors.
11. The Board of Directors has the power, 12. The Board of Directors has the power, under the provisions of section 2443 of the under the provisions of section 2443 of the Italian Civil Code, to resolve, on one or Italian Civil Code, to resolve, on one or more occasions for a maximum period of more occasions for a maximum period of five years starting from the shareholders' five years starting from the shareholders' resolution dated May 12th 2006, to carry resolution dated May 12th 2006, to carry out a free capital increase, as allowed by out a free capital increase, as allowed by section 2349 of the Italian Civil Code, for a section 2349 of the Italian Civil Code, for a maximum nominal amount of € 6,500,000 maximum nominal amount of € 6,500,000 corresponding to up to 13,000,000 corresponding to up to 13,000,000 ordinary shares of par value € 0.50 each, ordinary shares of par value € 0.50 each, to be granted to Management of UniCredit to be granted to Management of UniCredit and of Group banks and companies. Such and of Group banks and companies. Such an increase in capital shall be carried out an increase in capital shall be carried out using the special reserve known as using the special reserve known as "Reserve for group personnel long-term "Reserve for group personnel long-term incentive plans" set up for this purpose and incentive plans" set up for this purpose and reinstated or increased each year or in reinstated or increased each year or in accordance with other methods dictated by accordance with other methods dictated by applicable laws and regulations, applicable laws and regulations,
12. The Board of Directors has the right, in 13. The Board of Directors has the right, in accordance with art. 2443 of the Civil accordance with art. 2443 of the Civil Code, to resolve - once or more times and Code, to resolve - once or more times and for a period of maximum 5 years from the for a period of maximum 5 years from the date of the Extraordinary Shareholders date of the Extraordinary Shareholders Meeting resolution taken on May 10th 2007 Meeting resolution taken on May 10th 2007 - to increase the registered capital for cash - to increase the registered capital for cash in accordance with art. 2441, paragraphs in accordance with art. 2441, paragraphs 1, 2 and 3 of the Civil Code, for a total 1, 2 and 3 of the Civil Code, for a total
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amount of nominal Euro 525,000,000 amount of nominal Euro 525,000,000 corresponding to up to 1,050,000,000 corresponding to up to 1,050,000,000 ordinary shares in UniCredit of par value € ordinary shares in UniCredit of par value € 0.50 each, to be used for potential 0.50 each, to be used for potential acquisition transactions by UniCredit. The acquisition transactions by UniCredit. The Board resolutions will have to specify that, Board resolutions will have to specify that, in case the capital increase which has been in case the capital increase which has been resolved upon is not fully underwritten resolved upon is not fully underwritten within the established term from time to within the established term from time to time, the capital will be increased by an time, the capital will be increased by an amount equal to the subscriptions collected amount equal to the subscriptions collected up to such term. The Board resolutions will up to such term. The Board resolutions will also have to determine the terms and also have to determine the terms and conditions of each capital increase, conditions of each capital increase, including the number of shares to be including the number of shares to be issued from time to time in execution of issued from time to time in execution of the delegation, the subscription price the delegation, the subscription price (including potential issue premiums) of (including potential issue premiums) of new shares, determined also considering new shares, determined also considering the conditions of financial markets, as well the conditions of financial markets, as well as the market trend of UniCredit’s common as the market trend of UniCredit’s common shares in the period prior to the mentioned shares in the period prior to the mentioned increase. In any event, such issue price increase. In any event, such issue price could never be lower than the nomial value could never be lower than the nomial value of common shares as of the date of the of common shares as of the date of the Board resolution. Board resolution.
13. The Board of Directors has the power, 14. The Board of Directors has the power, under the provisions of section 2443 of the under the provisions of section 2443 of the Italian Civil Code, to resolve - including on Italian Civil Code, to resolve - including on one or more occasions for a maximum one or more occasions for a maximum period of one year starting from the period of one year starting from the shareholders' resolution dated May 10th shareholders' resolution dated May 10th 2007 - to increase share capital with the 2007 - to increase share capital with the exclusion of rights, as allowed by section exclusion of rights, as allowed by section 2441.8 of the Italian Civil Code, to service 2441.8 of the Italian Civil Code, to service the exercise of options issued by the Board the exercise of options issued by the Board of Directors to subscribe to a maximum of Directors to subscribe to a maximum number of 47,350,000 ordinary shares number of 47,350,000 ordinary shares corresponding to a maximum nominal corresponding to a maximum nominal amount of € 23,675,000, to be reserved amount of € 23,675,000, to be reserved for Management of UniCredit S.p.A. and of for Management of UniCredit S.p.A. and of Group banks and companies who hold Group banks and companies who hold positions of particular importance for the positions of particular importance for the purposes of achieving the Group's overall purposes of achieving the Group's overall objectives. The resolutions of the Board of objectives. The resolutions of the Board of Directors shall specify that if the sole Directors shall specify that if the sole increase or individual partial increases increase or individual partial increases approved are subscribed, then share approved are subscribed, then share capital will be treated as having been capital will be treated as having been increased by the amount corresponding to increased by the amount corresponding to the subscriptions received. The unit price the subscriptions received. The unit price of the shares being issued shall be equal to of the shares being issued shall be equal to the mean price of UniCredit S.p.A. shares the mean price of UniCredit S.p.A. shares reported in the month before the related reported in the month before the related Board resolution, bearing in mind the rules Board resolution, bearing in mind the rules
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on the taxation of employment income tax on the taxation of employment income tax applying at that time. The stock options applying at that time. The stock options shall be registered, non-transferable shall be registered, non-transferable securities; the Holding Company's Board of securities; the Holding Company's Board of Directors shall establish the terms of Directors shall establish the terms of forfeiture of the right to exercise stock forfeiture of the right to exercise stock options if the employee leaves the Group options if the employee leaves the Group or dies. The Board of Directors will be able or dies. The Board of Directors will be able to decide one or more periods in which the to decide one or more periods in which the options may be exercised, starting from options may be exercised, starting from the fourth year after their grant, unless the fourth year after their grant, unless otherwise established by the Board of otherwise established by the Board of Directors if a public bid is made involving Directors if a public bid is made involving the purchase and exchange of UniCredit the purchase and exchange of UniCredit shares. shares.
14. The Board of Directors has the power, 15. The Board of Directors has the power, under the provisions of section 2443 of the under the provisions of section 2443 of the Italian Civil Code, to resolve, on one or Italian Civil Code, to resolve, on one or more occasions for a maximum period of more occasions for a maximum period of five years starting from the shareholders' five years starting from the shareholders' resolution dated May 10th 2007, to carry resolution dated May 10th 2007, to carry out a free capital increase, as allowed by out a free capital increase, as allowed by section 2349 of the Italian Civil Code, for a section 2349 of the Italian Civil Code, for a maximum nominal amount of € 5,500,000 maximum nominal amount of € 5,500,000 corresponding to up to 11,000,000 corresponding to up to 11,000,000 ordinary shares of par value € 0.50 each, ordinary shares of par value € 0.50 each, to be granted to Management of UniCredit to be granted to Management of UniCredit and of Group banks and companies. Such and of Group banks and companies. Such an increase in capital shall be carried out an increase in capital shall be carried out using the special reserve known as using the special reserve known as "Reserve for group personnel long-term "Reserve for group personnel long-term incentive plans" set up for this purpose and incentive plans" set up for this purpose and reinstated or increased each year or in reinstated or increased each year or in accordance with other methods dictated by accordance with other methods dictated by applicable laws and regulations. applicable laws and regulations.
15. Resolutions carried for the issuance of 16. Resolutions carried for the issuance of new savings and/or ordinary shares at the new savings and/or ordinary shares at the time of a capital increase or the conversion time of a capital increase or the conversion of shares of another class that have of shares of another class that have already been issued, do not require the already been issued, do not require the approval of a Special Meeting of Savings approval of a Special Meeting of Savings Shareholders. Shareholders.
16. A resolution of the Special Meeting of 17. A resolution of the Special Meeting of Shareholders may vest the holders of Shareholders may vest the holders of savings shares with the ability to convert savings shares with the ability to convert said shares into ordinary shares in said shares into ordinary shares in accordance with the procedures and by the accordance with the procedures and by the deadlines determined. deadlines determined.
* The amendment of such clause shall be effective as of the date in which the Merger will take legal effect.
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Clause 7 Clause 7
1. In the event of a share capital increase, 1. In the event of a share capital increase, the rules, terms and conditions for the the rules, terms and conditions for the issuance of the new capital and the dates issuance of the new capital and the dates and procedures for the payments to be and procedures for the payments to be effected in this regard, except for the effected in this regard, except for the mandatory requirements laid down in this mandatory requirements laid down in this regard by the law, are resolved upon by regard by the law, are resolved upon by the Board of Directors; requests are the Board of Directors; requests are addressed to subscribers by way of a addressed to subscribers by way of a notice that is to be published in two notice that is to be published in two national newspapers, one of which is to be national newspapers, one of which is to be a business newspaper, whilst specific legal a business newspaper, whilst specific legal provisions shall continue to apply. provisions shall continue to apply.
2. Late payment shall incur, by full right, 2. Late payment shall incur, by full right, annual interest at a level that shall be annual interest at a level that shall be established by Board of Directors, that established by Board of Directors, that shall not however exceed 3% over the shall not however exceed 3% over the benchmark determined from year to year benchmark determined from year to year by the Bank of Italy, on the understanding by the Bank of Italy, on the understanding that the legal provisions to be observed by that the legal provisions to be observed by any Shareholder that does not pay the any Shareholder that does not pay the quotas due, and the liability of assigners quotas due, and the liability of assigners and transferors of shares not paid-up shall and transferors of shares not paid-up shall remain in force. remain in force.
SECTION IV Regarding Meetings of Shareholders
Clause 8 Clause 8
1. A General Meeting of Shareholders is 1. A General Meeting of Shareholders is convened at least one a year, within 120 convened at least one a year, within 120 days of the end of the year, or within 180 days of the end of the year, or within 180 days of the end of the year when the days of the end of the year when the conditions foreseen by law prevail, in order conditions foreseen by law prevail, in order to resolve upon the issues that the law and to resolve upon the issues that the law and the Articles of Association make it the Articles of Association make it responsible for. responsible for.
2. A Special Meeting of Shareholders is 2. A Special Meeting of Shareholders is convened whenever it is necessary to convened whenever it is necessary to resolve upon any of the matters that are resolve upon any of the matters that are exclusively attributed to it by law. exclusively attributed to it by law.
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Clause 9 Clause 9
1. The Meeting takes place at the Bank’s 1. The Meeting takes place at the Bank’s Registered Office, at its Central Registered Office, at its Central Management Unit or in another location Management Unit or in another location within Italy, as indicated in the Notice of within Italy, as indicated in the Notice of Meeting. Meeting.
Clause 10 Clause 10
1. The Meeting – be it an Ordinary or 1. The Meeting – be it an Ordinary or Special Meeting – is convened, in Special Meeting – is convened, in accordance with the terms and deadlines accordance with the terms and deadlines provided for by prevailing laws, with a provided for by prevailing laws, with a notice published in Gazzetta Ufficiale della notice published in Gazzetta Ufficiale della Repubblica Italiana containing the Repubblica Italiana containing the Meeting’s Agenda, with every other Meeting’s Agenda, with every other provision laid down by prevailing laws to provision laid down by prevailing laws to be duly observed in the process. be duly observed in the process.
Clause 11 Clause 11
1. The Agenda of the Meeting is 1. The Agenda of the Meeting is established by whoever exercises the established by whoever exercises the power to call a meeting, pursuant to legal power to call a meeting, pursuant to legal requirements and the Bank’s Articles of requirements and the Bank’s Articles of Association, in keeping - where the Association, in keeping - where the Meeting is convened further to a request Meeting is convened further to a request from shareholders – with the comments from shareholders – with the comments contained in said request. contained in said request.
2. The right to amend the agenda may be 2. The right to amend the agenda may be exercised, in the situations, methods and exercised, in the situations, methods and time limits indicated in current regulations, time limits indicated in current regulations, by shareholders who individually or by shareholders who individually or collectively represent at least 0.50% of collectively represent at least 0.50% of share capital. share capital.
Clause 12 Clause 12
1. The Meeting may be attended by those 1. The Meeting may be attended by those holders of ordinary shares who provide a holders of ordinary shares who provide a copy of the notice sent to the Company by copy of the notice sent to the Company by the broker holding their accounts, at least the broker holding their accounts, at least
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two days prior to the date set for the first two days prior to the date set for the first call of the Meeting. The notice of meeting call of the Meeting. The notice of meeting may specify that the above advance notice may specify that the above advance notice of two days is also applicable to any of two days is also applicable to any subsequent calls. subsequent calls.
Clause 13 Clause 13
1. Unless provided for otherwise by 1. Unless provided for otherwise by prevailing legislation relating to the prevailing legislation relating to the delegation of voting powers, those entitled delegation of voting powers, those entitled to attend the Meeting may arrange to be to attend the Meeting may arrange to be represented by third parties that are not represented by third parties that are not necessarily Shareholders, in accordance necessarily Shareholders, in accordance with the provisions of Clause 2372 of the with the provisions of Clause 2372 of the Italian Civil Code. Italian Civil Code.
Clause 14 Clause 14
1. Every ordinary share entitles its holder 1. Every ordinary share entitles its holder to one vote, the provisions of Clause 5, to one vote, the provisions of Clause 5, paragraph 9 excepted. paragraph 9 excepted.
Clause 15 Clause 15
1. The Meeting is chaired by the Chairman 1. The Meeting is chaired by the Chairman of the Board of Directors or, where he is of the Board of Directors or, where he is absent or impeded, by the sole Deputy absent or impeded, by the sole Deputy Chairman or, where there is more than one Chairman or, where there is more than one Deputy Chairman, by the Stand-in Deputy Chairman, by the Stand-in Chairman or, where the latter is absent or Chairman or, where the latter is absent or impeded, by the older Deputy Chairman. impeded, by the older Deputy Chairman. Where both the Chairman and the sole Where both the Chairman and the sole Deputy Chairman or all Deputy Chairmen Deputy Chairman or all Deputy Chairmen are absent or impeded, the Meeting is are absent or impeded, the Meeting is chaired by a Director or by a Shareholder chaired by a Director or by a Shareholder designated by those in attendance, The designated by those in attendance, The person chairing the Meeting is assisted by person chairing the Meeting is assisted by a Secretary designated by the majority of a Secretary designated by the majority of shareholders in attendance. shareholders in attendance.
2. The Chairman of the Meeting has full 2. The Chairman of the Meeting has full powers to regulate activities and powers to regulate activities and discussions, in conformity to the criteria discussions, in conformity to the criteria
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and procedures established by law and and procedures established by law and foreseen in the Regulations for foreseen in the Regulations for Shareholders’ Meetings. Shareholders’ Meetings.
Clause 16 Clause 16
1. In order for a Meeting – be it an 1. In order for a Meeting – be it an Ordinary or Special Meeting – along with Ordinary or Special Meeting – along with the resolutions carried therein to be valid, the resolutions carried therein to be valid, the relevant legal provisions are to be duly the relevant legal provisions are to be duly observed, except for what is provided for observed, except for what is provided for in the Articles of Association. in the Articles of Association.
2. Further sessions of a Meeting may be 2. Further sessions of a Meeting may be held after the second call, in accordance held after the second call, in accordance with legal provisions. with legal provisions.
Clause 17 Clause 17
1. All resolutions (including those relating 1. All resolutions (including those relating to the appointment of individuals to to the appointment of individuals to executive organs) are carried by way of an executive organs) are carried by way of an open vote. open vote.
2. The election of Directors is resolved upon 2. The election of Directors is resolved upon in accordance with the procedures set forth in accordance with the procedures set forth in Clause 20 below. in Clause 20 below.
3. With regard to the appointment of 3. With regard to the appointment of permanent and stand-in members to the permanent and stand-in members to the Statutory Board of Auditors, Clause 36 Statutory Board of Auditors, Clause 36 applies. applies.
Clause 18 Clause 18
1. The minutes of Meetings are prepared, 1. The minutes of Meetings are prepared, approved and signed by the Chairman of approved and signed by the Chairman of the Meeting, the Secretary and the the Meeting, the Secretary and the scrutineers when not prepared by a notary. scrutineers when not prepared by a notary.
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Clause 19 Clause 19
1. The copies and extracts of minutes, 1. The copies and extracts of minutes, signed and certified as valid and in signed and certified as valid and in conformity to requirements by the conformity to requirements by the Chairman of the Board or by whoever Chairman of the Board or by whoever deputises for him or where the latter is/are deputises for him or where the latter is/are absent or impeded by two Directors, absent or impeded by two Directors, constitute full evidence. constitute full evidence.
SECTION V Regarding the Board of Directors
Clause 20 Clause 20
1. The Board of Directors is composed of 1. The Board of Directors is composed of between nine and twenty-four members. between nine and twenty-four members.
2. Members of the Board of Directors must 2. Members of the Board of Directors must meet the experience and integrity meet the experience and integrity requirements laid down by prevailing requirements laid down by prevailing regulations and other laws. regulations and other laws.
3. In addition, at least three directors must 3. In addition, at least three directors must meet the independence requirements meet the independence requirements established for statutory auditors by established for statutory auditors by Clause 148, paragraph 3 of Legislative Clause 148, paragraph 3 of Legislative Decree No. 58 of 24 February 1998, and at Decree No. 58 of 24 February 1998, and at least five directors must meet the least five directors must meet the additional independence requirements additional independence requirements indicated by the Code on Corporate indicated by the Code on Corporate Governance for Listed Companies issued Governance for Listed Companies issued by Borsa Italiana S.p.A. The independence by Borsa Italiana S.p.A. The independence requirements established by Clause 148, requirements established by Clause 148, paragraph 3 of Legislative Decree No. 58 paragraph 3 of Legislative Decree No. 58 of of 24 February 1998 and those specified by 24 February 1998 and those specified by the Code on Corporate Governance for the Code on Corporate Governance for Listed Companies issued by Borsa Italiana Listed Companies issued by Borsa Italiana S.p.A. may be cumulative for the same S.p.A. may be cumulative for the same person. person.
4. The directors term in office spans three 4. The directors term in office spans three operating years, except where a shorter operating years, except where a shorter term is established at the time they are term is established at the time they are appointed, and ends on the date of the appointed, and ends on the date of the meeting convened for the approval of the meeting convened for the approval of the accounts relating to the last operating year accounts relating to the last operating year in which they were in office. in which they were in office.
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5. With regard to their election, 5. With regard to their election, termination and replacement, the relevant termination and replacement, the relevant legal requirements are to be observed. legal requirements are to be observed.
6. In particular, directors must be 6. In particular, directors must be appointed by the Meeting on the basis of appointed by the Meeting on the basis of lists submitted by shareholders in which lists submitted by shareholders in which candidates must be listed using a candidates must be listed using a progressive number. progressive number.
7. In order to be valid, the lists submitted 7. In order to be valid, the lists submitted by shareholders must be filed at the by shareholders must be filed at the registered office and published in at least registered office and published in at least two national newspapers, including one two national newspapers, including one business newspaper, at least fifteen days business newspaper, at least fifteen days prior to the date set for the first session of prior to the date set for the first session of the Meeting. Each shareholder may submit the Meeting. Each shareholder may submit or contribute to the submission of only one or contribute to the submission of only one list, and similarly, each candidate may only list, and similarly, each candidate may only be included on one list, on penalty of be included on one list, on penalty of ineligibility. Only those shareholders who ineligibility. Only those shareholders who individually or collectively with other individually or collectively with other shareholders represent at least 0.5% of shareholders represent at least 0.5% of share capital in the form of ordinary shares share capital in the form of ordinary shares with voting rights at ordinary Meetings are with voting rights at ordinary Meetings are entitled to submit lists. entitled to submit lists.
8. In order to substantiate ownership of 8. In order to substantiate ownership of the number of shares necessary for filing the number of shares necessary for filing lists, shareholders must submit and/or lists, shareholders must submit and/or deliver to the registered office, at the same deliver to the registered office, at the same time that lists are filed, a copy of the time that lists are filed, a copy of the notice of the meeting issued by the notice of the meeting issued by the authorised brokers holding the shares on authorised brokers holding the shares on deposit. deposit.
9. By the deadline indicated above, 9. By the deadline indicated above, shareholders who filed lists must file the shareholders who filed lists must file the following together with each list: following together with each list: - the information on shareholders - the information on shareholders who filed lists with information on who filed lists with information on the total percentage of equity the total percentage of equity investment held; investment held; - information on the personal and - information on the personal and professional characteristics of the professional characteristics of the candidates indicated on the list; candidates indicated on the list; - a statement whereby the individual - a statement whereby the individual candidates irrevocably accept the candidates irrevocably accept the position (subject to their position (subject to their
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appointment) and attest, under appointment) and attest, under their responsibility, that there are their responsibility, that there are no reasons for their ineligibility or no reasons for their ineligibility or incompatibility, and that they meet incompatibility, and that they meet the experience and integrity the experience and integrity requirements provided for by requirements provided for by current regulatory and other current regulatory and other provisions; provisions; - a statement submitted by at least - a statement submitted by at least five candidates for each list, that the five candidates for each list, that the independence requirements dictated independence requirements dictated by current regulatory and other by current regulatory and other provisions and by these Articles of provisions and by these Articles of Association, have been met. Association, have been met. Any list that does not meet the above Any list that does not meet the above requirements shall be deemed to have not requirements shall be deemed to have not been filed. been filed.
10. All those entitled to vote may only vote 10. All those entitled to vote may only vote for one list. for one list.
11. The election of Members of the Board 11. The election of Members of the Board of Directors shall proceed as follows: of Directors shall proceed as follows:
a) from the list obtaining the majority a) from the list obtaining the majority of votes cast by shareholders shall of votes cast by shareholders shall be taken - in the consecutive order be taken - in the consecutive order in which they are shown on the list in which they are shown on the list – as much directors as to be – as much directors as to be appointed, decreased of one appointed, decreased of one director – if the Board of Directors director – if the Board of Directors consists in a number lower or equal consists in a number lower or equal to 20 members – or decreased of to 20 members – or decreased of two directors - if the Board of two directors - if the Board of Directors consists in a number Directors consists in a number higher than 20 members. The higher than 20 members. The remaining directors shall be taken - remaining directors shall be taken - in the consecutive order in which in the consecutive order in which they are shown on the list – from they are shown on the list – from the minority list receiving the the minority list receiving the highest votes. highest votes.
b) If the majority list doesn’t reach a b) If the majority list doesn’t reach a sufficient number of candidates for sufficient number of candidates for the election of the number of the election of the number of directors to be appointed – directors to be appointed – following the mechanism pointed following the mechanism pointed out under the previous lett a) – all out under the previous lett a) – all the candidates from the majority the candidates from the majority list shall be appointed and the list shall be appointed and the remaining directors shall be taken remaining directors shall be taken from the minority list receiving the from the minority list receiving the highest votes, in the consecutive highest votes, in the consecutive order in which they are shown on order in which they are shown on 24
the such list. If the minority list the such list. If the minority list receiving the highest votes doesn’t receiving the highest votes doesn’t reach a sufficient number of reach a sufficient number of candidates for the election of the candidates for the election of the number of directors to be appointed number of directors to be appointed – following the previous mechanism – following the previous mechanism - the remaining directors shall be - the remaining directors shall be taken in succession from the further taken in succession from the further minorities lists receiving the highest minorities lists receiving the highest votes, always in the order in which votes, always in the order in which they are shown on the lists. they are shown on the lists.
c) If the number of candidates c) If the number of candidates included on the majority as well as included on the majority as well as minorities lists submitted is less minorities lists submitted is less than the number of the directors to than the number of the directors to be elected, the remaining directors be elected, the remaining directors shall be elected by a resolution shall be elected by a resolution passed by the Meeting by a relative passed by the Meeting by a relative majority. If there is a tie vote majority. If there is a tie vote between several candidates, a run- between several candidates, a run- off will be held between these off will be held between these candidates by means of another candidates by means of another vote at the Meeting. vote at the Meeting.
d) If in accordance with the deadlines d) If in accordance with the deadlines and procedures specified in the and procedures specified in the above paragraphs only one list or above paragraphs only one list or no list is filed, the Meeting shall no list is filed, the Meeting shall deliberate in accordance with the deliberate in accordance with the procedures set forth in item c) procedures set forth in item c) above. above.
e) If the criterion set forth in this e) If the criterion set forth in this paragraph is followed and the paragraph is followed and the minimum number of independent minimum number of independent directors established pursuant to directors established pursuant to this paragraph 3 is not elected, the this paragraph 3 is not elected, the directors who have in each list the directors who have in each list the highest consecutive number and do highest consecutive number and do not meet the requirements in not meet the requirements in question shall be replaced by the question shall be replaced by the subsequent candidates, who meet subsequent candidates, who meet the necessary requirements, taken the necessary requirements, taken from the same list. If the from the same list. If the replacement of the directors who do replacement of the directors who do not meet the requirements in not meet the requirements in question with the subsequent question with the subsequent candidates taken from the same list candidates taken from the same list is not possible, they shall be is not possible, they shall be replaced by the candidates who replaced by the candidates who meet the necessary requirements meet the necessary requirements taken in succession from minorities taken in succession from minorities lists receiving the highest votes, in lists receiving the highest votes, in the order in which they are shown the order in which they are shown on the lists. on the lists.
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12. In the event of a director dying or 12. In the event of a director dying or leaving office or where his term in office is leaving office or where his term in office is lapse or losing for any other reason the lapse or losing for any other reason the experience or integrity requirements, the experience or integrity requirements, the Board of Directors shall take steps to co- Board of Directors shall take steps to co- opt a director, taking into proper account opt a director, taking into proper account the right of minority interests to be the right of minority interests to be represented. In the event of a director represented. In the event of a director lacking or subsequent losing of the lacking or subsequent losing of the independence requirements, pursuant to independence requirements, pursuant to the above paragraph 9, the Board of the above paragraph 9, the Board of Directors shall replace such director Directors shall replace such director according the provision of the above according the provision of the above paragraph 11, lett. e). paragraph 11, lett. e).
Clause 21 Clause 21
1. The Board of Directors elects from 1. The Board of Directors elects from amongst its members, for three operating amongst its members, for three operating years, unless a different duration is years, unless a different duration is established by the Meeting pursuant to the established by the Meeting pursuant to the provisions of Clause 20 above, one provisions of Clause 20 above, one Chairman, one or more Deputy Chairmen Chairman, one or more Deputy Chairmen (including one who acts as a stand-in) and (including one who acts as a stand-in) and a Secretary, who need not be one of its a Secretary, who need not be one of its members. Where absent or impeded, the members. Where absent or impeded, the Chairman is replaced by the Stand-in Chairman is replaced by the Stand-in Chairman. Where both the Chairman and Chairman. Where both the Chairman and Stand-in Chairman are absent or impeded, Stand-in Chairman are absent or impeded, the Meeting is chaired by the oldest the Meeting is chaired by the oldest Deputy Chairman of those in attendance Deputy Chairman of those in attendance or, where all Deputy Chairmen are absent or, where all Deputy Chairmen are absent or impeded, by the oldest Director. Where or impeded, by the oldest Director. Where the Secretary is absent or impeded, the the Secretary is absent or impeded, the Board of Directors designates a person to Board of Directors designates a person to replace him. replace him.
2. The Board of Directors may appoint one 2. The Board of Directors may appoint one or more Managing Directors, while also or more Managing Directors, while also determining their duties, powers and determining their duties, powers and authorities, and may bestow special duties authorities, and may bestow special duties and powers upon other Board members. and powers upon other Board members. The Managing Directors may also be The Managing Directors may also be vested with powers that the Executive vested with powers that the Executive Committee decides to delegate to them, Committee decides to delegate to them, said powers being part of those delegated said powers being part of those delegated to said Committee by the Articles of to said Committee by the Articles of Association and by the Board of Directors. Association and by the Board of Directors.
3. Unless a General Manager is appointed, 3. Unless a General Manager is appointed, 26
pursuant to the provisions of paragraph 6 pursuant to the provisions of paragraph 6 of this Clause – the Managing Directors are of this Clause – the Managing Directors are responsible for following the execution of responsible for following the execution of resolutions carried by the Board of resolutions carried by the Board of Directors and Executive Committee, Directors and Executive Committee, availing themselves of the Bank’s Central availing themselves of the Bank’s Central Management Unit. Management Unit.
4. The Board of Directors appoints a 4. The Board of Directors appoints a “Comitato Strategico” (the “Management “Comitato Strategico” (the “Management Committee”), consisting of members of the Committee”), consisting of members of the Head Office, in charge of consultation and Head Office, in charge of consultation and support functions to the activity of the support functions to the activity of the Managing Director/s for the management Managing Director/s for the management of the company and of its Banking Group. of the company and of its Banking Group. Terms and conditions governing the Terms and conditions governing the “Comitato Strategico” functions are set “Comitato Strategico” functions are set forth in the Company’s internal rules. In forth in the Company’s internal rules. In their respective capacities as of members their respective capacities as of members of the Head Office, the members of the of the Head Office, the members of the “Comitato Strategico” also implement “Comitato Strategico” also implement decisions adopted by the Managing decisions adopted by the Managing Director/s, according to the provisions of Director/s, according to the provisions of the subsequent Article 33, par. 2, and the subsequent Article 33, par. 2, and reports to him/her/them. reports to him/her/them.
5. The Managing Directors and other 5. The Managing Directors and other Directors entrusted with specific duties Directors entrusted with specific duties report to the Board of Directors and/or to report to the Board of Directors and/or to the Executive Committee, as per the the Executive Committee, as per the procedures and deadlines established by procedures and deadlines established by the latter, on the activities undertaken by the latter, on the activities undertaken by themselves, in conformity to legal themselves, in conformity to legal requirements. requirements.
6. The Board of Directors, as an alternative 6. The Board of Directors, as an alternative to, or in addition to, the Managing to, or in addition to, the Managing Directors, may appoint a General Manager Directors, may appoint a General Manager and one or more Deputy General and one or more Deputy General Managers, while also determining their Managers, while also determining their duties, powers and authorities and the duties, powers and authorities and the duration of their term in office. The duration of their term in office. The General Manager may also be vested with General Manager may also be vested with powers that the Executive Committee powers that the Executive Committee decides to delegate to them, said powers decides to delegate to them, said powers being part of those delegated to said being part of those delegated to said Committee by the Articles of Association Committee by the Articles of Association and by the Board of Directors. and by the Board of Directors.
7. The General Manager, where no 7. The General Manager, where no
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Managing Director has been appointed, Managing Director has been appointed, may be elected Director of the Bank, in may be elected Director of the Bank, in such a situation, the Board of Directors such a situation, the Board of Directors shall appoint him Managing Director. shall appoint him Managing Director.
8. The General Manager is responsible for 8. The General Manager is responsible for following the execution of resolutions following the execution of resolutions carried by the Board of Directors and carried by the Board of Directors and Executive Committee, availing himself, Executive Committee, availing himself, where appointed, of the Deputy General where appointed, of the Deputy General Managers and the Bank’s Central Managers and the Bank’s Central Management Unit. Management Unit.
9. Except where he also holds the position 9. Except where he also holds the position of Managing Director pursuant to the of Managing Director pursuant to the provisions of paragraph 7 of this Clause, provisions of paragraph 7 of this Clause, the General Manager, in exercising the the General Manager, in exercising the powers assigned to him shall operate powers assigned to him shall operate below the Managing Directors, where below the Managing Directors, where appointed, performing the management appointed, performing the management duties that they ask him to perform., duties that they ask him to perform.,
10. The General Manager, unless specific 10. The General Manager, unless specific powers are assigned to him as a member powers are assigned to him as a member of the Board of Directors or Executive of the Board of Directors or Executive Committee, participates in the meetings of Committee, participates in the meetings of the Board of Directors and the Executive the Board of Directors and the Executive Committee, vested with the ability to table Committee, vested with the ability to table proposals and cast an advisory vote. proposals and cast an advisory vote.
Clause 22 Clause 22
1. The Board of Directors meets at the 1. The Board of Directors meets at the Bank’s Registered Office or elsewhere in Bank’s Registered Office or elsewhere in Italy or abroad at intervals of usually no Italy or abroad at intervals of usually no more than three months and every time more than three months and every time the Chairman feels it necessary or a Board the Chairman feels it necessary or a Board meeting is requested by the Managing meeting is requested by the Managing Directors or by least three Directors. A Directors or by least three Directors. A Board meeting may also be convened on Board meeting may also be convened on the initiative of at least two Statutory the initiative of at least two Statutory Auditors. Auditors.
2. Whenever the Chairman of the Board of 2. Whenever the Chairman of the Board of Directors deems it opportune, meetings of Directors deems it opportune, meetings of the Board of Directors may be held by the Board of Directors may be held by
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using means of telecommunication, using means of telecommunication, providing that each of the attendees may providing that each of the attendees may be identified by all the others and that be identified by all the others and that each of the attendees is in a position to each of the attendees is in a position to intervene real time during the discussion of intervene real time during the discussion of the topics being examined, as well as the topics being examined, as well as receive, transmit and view documents. receive, transmit and view documents. Once the fulfilment of these prerequisites Once the fulfilment of these prerequisites has been verified, the meeting of the has been verified, the meeting of the Board of Directors is considered held in the Board of Directors is considered held in the place where the Chairman is located and place where the Chairman is located and where the secretary of the meeting is also where the secretary of the meeting is also located. located.
3. The Board is convened by the Chairman 3. The Board is convened by the Chairman or by whoever replaces him pursuant to or by whoever replaces him pursuant to the provisions of Clause 21 above, and the provisions of Clause 21 above, and may also be convened – in urgent may also be convened – in urgent situations – by telegram or fax. situations – by telegram or fax.
4. The Chairman and Managing Directors 4. The Chairman and Managing Directors may invite the Deputy General Managers, may invite the Deputy General Managers, Executive Managers, Assistant Executive Executive Managers, Assistant Executive Managers and other Managers within the Managers and other Managers within the Central Management Unit, or a number of Central Management Unit, or a number of them, to attend Board meetings, without them, to attend Board meetings, without being granted voting rights., being granted voting rights.,
Clause 23 Clause 23
1. The Board of Directors is vested with all 1. The Board of Directors is vested with all powers necessary for the ordinary and powers necessary for the ordinary and extraordinary running of the Bank, except extraordinary running of the Bank, except for those powers reserved for Meetings of for those powers reserved for Meetings of Shareholders by law and by the Articles of Shareholders by law and by the Articles of Association. Association.
2. In compliance with applicable laws and 2. In compliance with applicable laws and the Company’s articles of association, the the Company’s articles of association, the Board of Directors adopt rules concerning Board of Directors adopt rules concerning its functioning and attributions, Such rules its functioning and attributions, Such rules are published consistently with the are published consistently with the provisions applicable to other provisions applicable to other communications addressed to shareholders communications addressed to shareholders and/or the market, making them publicly and/or the market, making them publicly available with the market management available with the market management company and through publication on the company and through publication on the Company’s web site. Company’s web site.
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3. In addition to those duties and powers 3. In addition to those duties and powers that may not be not delegated according to that may not be not delegated according to the law, the Board of Directors is the law, the Board of Directors is exclusively responsible for carrying exclusively responsible for carrying resolutions regarding the following: resolutions regarding the following:
- the general guiding of, as well as the - the general guiding of, as well as the adoption and amendment of, the Bank’s adoption and amendment of, the Bank’s industrial, strategic and financial plans; industrial, strategic and financial plans;
- assessing the general trend of business; - assessing the general trend of business;
- adjustments made to the Articles of - adjustments made to the Articles of Association to comply with legal Association to comply with legal requirements; requirements;
- the merger by incorporation of - the merger by incorporation of companies in the situations foreseen by companies in the situations foreseen by Clauses 2505 and 2505 (ii) of the Italian Clauses 2505 and 2505 (ii) of the Italian Civil Code; Civil Code;
- the reduction of capital in the event of a - the reduction of capital in the event of a shareholder withdrawing; shareholder withdrawing;
- decisions as to which Directors, in - decisions as to which Directors, in addition to those indicated in these addition to those indicated in these Articles of Association, may represent Articles of Association, may represent the Bank; the Bank;
- the determination of criteria for the - the determination of criteria for the coordination and management of Group coordination and management of Group companies and the determination of companies and the determination of criteria for compliance with Bank of Italy criteria for compliance with Bank of Italy requirements; requirements;
- risk management policies, as well as the - risk management policies, as well as the evaluation of the functionality, efficiency evaluation of the functionality, efficiency and effectiveness of the internal audit and effectiveness of the internal audit system and the adequacy of the system and the adequacy of the organisational, administrative and organisational, administrative and accounting set-up; accounting set-up;
- the acquisition and sale of - the acquisition and sale of shareholdings, companies and/or shareholdings, companies and/or businesses involving investments or businesses involving investments or divestments that exceed 5% of equity, divestments that exceed 5% of equity, as recorded in the last set of accounts as recorded in the last set of accounts approved by the Bank, and in any event approved by the Bank, and in any event the acquisition and sale of shareholdings the acquisition and sale of shareholdings that modify the composition of the that modify the composition of the Banking Group not included in the Banking Group not included in the industrial, strategic and financial plans industrial, strategic and financial plans already approved by the Board of already approved by the Board of Directors, whilst the provisions of Directors, whilst the provisions of Clause Clause 2361, second paragraph, of the 2361, second paragraph, of the Italian Italian Civil Code continue to be duly 30
observed; Civil Code continue to be duly observed;
- the resolutions concerning organization - the resolutions concerning organization structures of the company and the structures of the company and the related internal rules and regulations related internal rules and regulations that shall be considered relevant, that shall be considered relevant, following the criteria established by the following the criteria established by the Board of Directors; Board of Directors;
- the creation and organisation (with a - the creation and organisation (with a view to creating, among other things, a view to creating, among other things, a structure for signing powers), in Italy structure for signing powers), in Italy and abroad, of sub-offices, agencies, and abroad, of sub-offices, agencies, outlets and representative offices, as outlets and representative offices, as well as their elimination; well as their elimination;
- the appointment and revocation of - the appointment and revocation of members within the Central members within the Central Management Unit; Management Unit;
- the matters the determination of which - the matters the determination of which is assigned to the exclusive competence is assigned to the exclusive competence of the Board of Directors in the rules of of the Board of Directors in the rules of procedures provided for by the procedures provided for by the preceding paragraph 2. preceding paragraph 2.
4. The Board of Directors may delegates its 4. The Board of Directors may delegates its own duties, powers and authorities to the own duties, powers and authorities to the Executive Committee, and specifically Executive Committee, and specifically every power relating to the granting of every power relating to the granting of loans. It may also delegate duties, powers loans. It may also delegate duties, powers and authorities to the Central Management and authorities to the Central Management Unit, determining the procedures by which Unit, determining the procedures by which they are to be exercised by the latter. they are to be exercised by the latter.
5. The Directors report to the Statutory 5. The Directors report to the Statutory Board of Auditors on the activities Board of Auditors on the activities undertaken by the Bank and its undertaken by the Bank and its subsidiaries, as well as on those subsidiaries, as well as on those transactions effected by them that are of transactions effected by them that are of significant importance from an economic, significant importance from an economic, financial and balance-sheet perspective, financial and balance-sheet perspective, with specific attention being paid to those with specific attention being paid to those transactions that could potentially give rise transactions that could potentially give rise to a conflict of interest. To this end, they to a conflict of interest. To this end, they provide the Statutory Board of Auditors, at provide the Statutory Board of Auditors, at least once every quarter, with reports least once every quarter, with reports received from the Bank’s relevant bodies received from the Bank’s relevant bodies and from subsidiaries that concern the and from subsidiaries that concern the activities and transactions in question, said activities and transactions in question, said reports being prepared in accordance with reports being prepared in accordance with the guidelines issued by the Directors the guidelines issued by the Directors themselves. themselves.
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Clause 24 Clause 24
1. In order for Board resolutions to be 1. In order for Board resolutions to be valid, the presence of the majority of valid, the presence of the majority of Directors in office at the time is required. Directors in office at the time is required.
2. The resolutions of the Board are 2. The resolutions of the Board are adopted with the majority of the votes of adopted with the majority of the votes of those who have expressed their votes, with those who have expressed their votes, with the exclusion of those who abstained and, the exclusion of those who abstained and, save for the resolutions referred to in the save for the resolutions referred to in the following paragraph 3, in case of equality following paragraph 3, in case of equality of votes the Chairman will have a casting of votes the Chairman will have a casting vote. vote.
3. Resolutions concerning the adoption of, 3. Resolutions concerning the adoption of, and amendments to, the rules of and amendments to, the rules of procedure, as well as those for which such procedure, as well as those for which such qualified majority is required by the rules qualified majority is required by the rules of procedure, shall be adopted with the of procedure, shall be adopted with the favourable vote of 79% of the directors favourable vote of 79% of the directors holding office with the exclusion of those holding office with the exclusion of those who abstained. Any board resolution who abstained. Any board resolution adopted in breach of the quorum provided adopted in breach of the quorum provided for under this paragraph 3 and of the for under this paragraph 3 and of the provisions of the Rules of Procedure provisions of the Rules of Procedure pursuant to which certain decisions fall pursuant to which certain decisions fall within the exclusive responsibility of the within the exclusive responsibility of the Board of Directors can be challenged Board of Directors can be challenged pursuant to article 2388 of the Civil Code. pursuant to article 2388 of the Civil Code.
4. Voting takes place by way of an open 4. Voting takes place by way of an open vote, except where one third of the vote, except where one third of the Directors present asks for voting to take Directors present asks for voting to take place by way of a secret ballot. place by way of a secret ballot.
5. Voting for the election of persons to 5. Voting for the election of persons to executive positions is always carried out by executive positions is always carried out by using secret voting forms, except where using secret voting forms, except where votes are carried by unanimous votes are carried by unanimous acclamation. acclamation.
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Clause 25 Clause 25
1. Resolutions carried by the Board of 1. Resolutions carried by the Board of Directors are verified by way of minutes Directors are verified by way of minutes recorded in the register provided for this recorded in the register provided for this specific purpose, which are signed by the specific purpose, which are signed by the Chairman of the meeting and the Chairman of the meeting and the Secretary. Secretary.
2. Copies of the minutes, signed and 2. Copies of the minutes, signed and certified as valid and in conformity to certified as valid and in conformity to requirements by the Chairman of the requirements by the Chairman of the Board or by whoever deputises for him, Board or by whoever deputises for him, constitute full evidence. constitute full evidence.
Clause 26 Clause 26
1. The Directors are entitled to a 1. The Directors are entitled to a reimbursement of those expenses incurred reimbursement of those expenses incurred when performing their duties. The Board is when performing their duties. The Board is also entitled to an annual fee, which shall also entitled to an annual fee, which shall be resolved upon by the Meeting and shall be resolved upon by the Meeting and shall remain unchanged until the Meeting remain unchanged until the Meeting subsequently decides otherwise. subsequently decides otherwise.
2. The way in which the emoluments 2. The way in which the emoluments payable to the Board of Directors (as payable to the Board of Directors (as resolved upon by the Meeting) are resolved upon by the Meeting) are distributed is established by way of a distributed is established by way of a Board resolution. The Board of Directors Board resolution. The Board of Directors may also, after hearing the opinions of the may also, after hearing the opinions of the Statutory Board of Auditors, establish the Statutory Board of Auditors, establish the remuneration of the Chairman, Deputy remuneration of the Chairman, Deputy Chairmen and Managing Directors provided Chairmen and Managing Directors provided for by Clause 2389, third paragraph, of the for by Clause 2389, third paragraph, of the Italian Civil Code. Italian Civil Code.
3. The Meeting resolves upon the annual 3. The Meeting resolves upon the annual fee payable to the Executive Committee, fee payable to the Executive Committee, said fee remaining unchanged until said fee remaining unchanged until subsequently decided upon otherwise by subsequently decided upon otherwise by the Meeting, The way in which this fee is the Meeting, The way in which this fee is established by way of a resolution carried established by way of a resolution carried by the Committee itself. by the Committee itself.
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SECTION VI Regarding the Executive Committee
Clause 27* Clause 27*
1. The Board of Directors may appoints, for 1. The Board of Directors may appoints, for three operating years ending on the date of three operating years ending on the date the meeting convened for the approval of the of the meeting convened for the approval accounts relating to the last year in which of the accounts relating to the last year in they were in office, unless a different term in which they were in office, unless a office is established for the Board of Directors different term in office is established for by the Meeting pursuant to the provisions of the Board of Directors by the Meeting Clause 20 above, an Executive Committee, pursuant to the provisions of Clause 20 determining in advance the number of its above, an Executive Committee, members, which shall not however be less determining in advance the number of its than five. members, which shall not however be less than five.
2. The number of Committee members 2. The number of Committee members appointed includes, as members by right, the includes, as members by right, the Chairman, Deputy Chairmen and Managing Chairman of the Board of Directors, Directors. The Committee Secretary is the the Deputy Chairman of the same and same person as the Board Secretary, unless the Managing Directors. The Executive this is resolved upon otherwise by the Committee elects, among its members, Committee itself. the Chairman. The Committee Secretary is the same person as the Board Secretary, unless the Committee resolves otherwise.
3. The Chairman and Managing Directors 3. The Chairman of the Executive may invite the Deputy General Managers, Committee and the Managing Executive Managers, Assistant Executive Directors may invite the Deputy Managers and other Managers within the General Managers, Executive Central Management Unit, or a number of Managers, Assistant Executive them, to attend Committee meetings, Managers and other managers within without being granted voting rights. the Central Management Unit, or a number of them, to attend Committee meetings, without being granted voting rights.
*The amendment of this clause shall be effective as of the date of registration of the shareholders’ meeting resolution with the competent Company’s Register.
Clause 28* Clause 28*
1. The Executive Committee is convened 1. The Executive Committee is by the Chairman, or by whoever deputises convened by its Chairman or by for him in his absence. A Committee whoever substitutes him in his meeting may also be convened on the absence. A Committee meeting may initiative of at least two members of the also be convened on the initiative of at Statutory Board of Auditors. least two members of the Statutory Board of Auditors.
2. The Committee usually meets once a 2. The Committee usually meets once 34
month and whenever the Chairman feels it a month and whenever its Chairman necessary or a meeting is requested by feels it necessary or a meeting is two Committee members. requested by two Committee members.
3. Whenever the Chairman of the Board of 3. Whenever the Chairman of the Directors deems it opportune, meetings of Executive Committee deems it the Executive Committee may be held by appropriate, the meetings of the using means of telecommunication, Committee may be held by using providing that each of the attendees may means of telecommunication, provided be identified by all the others and that that each of the attendees may be each of the attendees is in a position to identified by all the others and that intervene real time during the discussion of each of the attendees is in a position the topics being examined, as well as to intervene real time during the receive, transmit and view documents. discussion of the topics being Once the fulfilment of these prerequisites examined, as well as to receive, send has been verified, the Executive and view documents. Once the Committee meeting is considered held in fulfilment of such requirements has the place where the Chairman is located been verified, the Executive and where the secretary of the meeting is Committee is considered held in the also located. place where the Chairman is located and where the secretary of the meeting is also located.
*The amendment of this clause shall be effective as of the date of registration of the shareholders’ meeting resolution with the competent Company’s Register.
Clause 29 Clause 29
1. In order for resolutions carried by the 1. In order for resolutions carried by the Executive Committee to be valid, the Executive Committee to be valid, the presence of the majority of its members is presence of the majority of its members is required. Committee resolutions are required. Committee resolutions are carried as per the majority of votes cast by carried as per the majority of votes cast by those voting, excluding abstainers, In the those voting, excluding abstainers, In the event of a split vote, the vote of the event of a split vote, the vote of the person chairing the meeting shall prevail. person chairing the meeting shall prevail.
Clause 30 Clause 30
1. The Committee is vested with all the 1. The Committee is vested with all the duties, powers and authorities assigned to duties, powers and authorities assigned to them by the Board of Directors; as part of them by the Board of Directors; as part of this set-up, the Committee determines the this set-up, the Committee determines the criteria for the administration of business criteria for the administration of business operations and oversees the running of the operations and oversees the running of the Bank. Bank.
2. The Executive Committee may, in 2. The Executive Committee may, in situations of substantiated urgency, carry situations of substantiated urgency, carry 35
resolutions relating to any business matter resolutions relating to any business matter or transaction, notifying the Board in this or transaction, notifying the Board in this regard at the first meeting to be held regard at the first meeting to be held thereafter. thereafter.
3. The Executive Committee reports to the 3. The Executive Committee reports to the Board of Directors, as per the procedures Board of Directors, as per the procedures and deadlines established by the latter, on and deadlines established by the latter, on the activities undertaken by themselves, in the activities undertaken by themselves, in conformity to legal requirements. conformity to legal requirements.
Clause 31 Clause 31
1. The Executive Committee may delegate 1. The Executive Committee may delegate to the Central Management Unit the to the Central Management Unit the powers and authorities conferred to it by powers and authorities conferred to it by the Articles of Association and by the the Articles of Association and by the Board of Directors, determining the Board of Directors, determining the procedures by which they are to be procedures by which they are to be exercised. exercised.
2. Resolutions carried in this regard must 2. Resolutions carried in this regard must be disclosed to the Board of Directors at be disclosed to the Board of Directors at the first meeting to be held thereafter. the first meeting to be held thereafter.
Clause 32* Clause 32*
1. The minutes of Executive Committee 1. The minutes of Executive meetings are signed by the Chairman of Committee meetings are signed by its the meeting and the Secretary: copies, Chairman of the meeting and by the signed by the Chairman of the Committee Secretary: copies, signed by the or by whoever deputises for him, Chairman of the Committee or by constitute full evidence. whoever substitutes him in his absence, constitute full evidence.
*The amendment of this clause shall be effective as of the date of registration of the shareholders’ meeting resolution with the competent Company’s Register.
SECTION VII Regarding Management
Clause 33 Clause 33
1. The Board of Directors appoints a 1. The Board of Directors appoints a Central Management Unit composed of Central Management Unit composed of Executive Managers, Assistant Executive Executive Managers, Assistant Executive Managers and other Managers assigned to Managers and other Managers assigned to
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the Unit, for the number deemed the Unit, for the number deemed appropriate, The Managing Directors or – appropriate, The Managing Directors or – where appointed – the General Manager where appointed – the General Manager oversees the Central Management Unit, oversees the Central Management Unit,
2. The Central Management Unit 2. The Central Management Unit guarantees, in accordance with the guarantees, in accordance with the guidelines established by the Managing guidelines established by the Managing Directors or – where appointed – by the Directors or – where appointed – by the General Manager, the smooth running of General Manager, the smooth running of the business and the correct execution of the business and the correct execution of resolutions carried by the Board of resolutions carried by the Board of Directors and Executive Committee. Directors and Executive Committee.
3. The Central Management Unit, in 3. The Central Management Unit, in performing the duties assigned to it, avails performing the duties assigned to it, avails itself of the Executive Staff assigned to the itself of the Executive Staff assigned to the Unit itself. Unit itself.
4. The workplace of Central Management 4. The workplace of Central Management Unit executives, where different from that Unit executives, where different from that of the Central Management Unit itself, is of the Central Management Unit itself, is established by the Executive Committee. established by the Executive Committee.
5. The Managing Directors or – where 5. The Managing Directors or – where appointed – the General Manager appointed – the General Manager determine the duties, powers and determine the duties, powers and authorities assigned to other members of authorities assigned to other members of the Central Management Unit and of the the Central Management Unit and of the Executive Staff assigned to the Unit itself. Executive Staff assigned to the Unit itself.
6. The Central Management Unit is vested, 6. The Central Management Unit is vested, as indicated in Clause 35 below, with all as indicated in Clause 35 below, with all the powers needed to effect the Bank’s the powers needed to effect the Bank’s ordinary transactions, including, without ordinary transactions, including, without any specific powers needing to be any specific powers needing to be delegated, the following abilities: delegated, the following abilities: a) to promote and support legal and a) to promote and support legal and administrative actions at any level of administrative actions at any level of the law, including the exercising, the law, including the exercising, remission and waiver of the right to remission and waiver of the right to proceed with a lawsuit, and to proceed with a lawsuit, and to represent the Bank within every place represent the Bank within every place of judicial, administrative and of judicial, administrative and arbitration proceedings, including arbitration proceedings, including therefore in cassation and revocation therefore in cassation and revocation proceedings and before the State proceedings and before the State
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Council, with the ability to reach Council, with the ability to reach agreements and to settle by agreements and to settle by compromise in arbitration proceedings, compromise in arbitration proceedings, which may include friendly settlement which may include friendly settlement arrangements; arrangements; b) to enable, possibly through the use of b) to enable, possibly through the use of special agents, mortgages and liens to special agents, mortgages and liens to be registered, subrogated, reduced, be registered, subrogated, reduced, postponed and cancelled, as well as to postponed and cancelled, as well as to effect and cancel registrations and effect and cancel registrations and records of any kind, regardless of records of any kind, regardless of whether or not the loans to which whether or not the loans to which these registrations, records and entries these registrations, records and entries refer have been paid; refer have been paid; c) to effect any transaction whatsoever, c) to effect any transaction whatsoever, including the collection and withdrawal including the collection and withdrawal of securities and other instruments, of securities and other instruments, with the Bank of Italy, Bank for with the Bank of Italy, Bank for Deposits and Loans, the Public Debt Deposits and Loans, the Public Debt Agency, and, in any event, any office Agency, and, in any event, any office of the Public Administration, with no of the Public Administration, with no exclusion, State-owned organisations, exclusion, State-owned organisations, enterprises and companies or public enterprises and companies or public bodies, and, furthermore, to carry out bodies, and, furthermore, to carry out every measure pertaining to these every measure pertaining to these transactions; transactions; d) to issue special mandates for the d) to issue special mandates for the execution of specific ordinary execution of specific ordinary transactions and powers of attorney transactions and powers of attorney for litigation proceedings; for litigation proceedings; e) to vest employees or third parties, e) to vest employees or third parties, including individually, with the ability including individually, with the ability to represent the Bank, as shareholder to represent the Bank, as shareholder or as the delegatee of minority or as the delegatee of minority interests, at the General or Special interests, at the General or Special Meetings of Shareholders of Italian or Meetings of Shareholders of Italian or foreign companies, in conformity to foreign companies, in conformity to prevailing laws. prevailing laws.
7. The Board of Directors has the ability to 7. The Board of Directors has the ability to establish organisational structures and/or establish organisational structures and/or decision-making units, such as regional decision-making units, such as regional management offices, situated locally, to management offices, situated locally, to which the Managing Directors or – where which the Managing Directors or – where appointed – the General Manager may appointed – the General Manager may delegate (availing itself of the Central delegate (availing itself of the Central Management Unit if necessary) duties, Management Unit if necessary) duties, powers and authorities, in addition to those powers and authorities, in addition to those indicated in Clause 34, for the indicated in Clause 34, for the management of Branches, determining the management of Branches, determining the procedures by which they are to be procedures by which they are to be exercised. exercised.
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8. The Managing Directors or – where 8. The Managing Directors or – where appointed – the General Manager may appointed – the General Manager may delegate to the Management Teams of delegate to the Management Teams of Branches (availing themselves of the Branches (availing themselves of the Central Management Unit and the Central Management Unit and the structures referred to in the previous structures referred to in the previous paragraph if necessary) duties, powers and paragraph if necessary) duties, powers and authorities, in addition to those indicated in authorities, in addition to those indicated in Clause 34, for the management of Clause 34, for the management of Branches, determining the procedures by Branches, determining the procedures by which they are to be exercised. which they are to be exercised.
Clause 34 Clause 34
1. The management of each Branch is 1. The management of each Branch is entrusted to a Management Team, entrusted to a Management Team, composed of the Executive Staff assigned composed of the Executive Staff assigned to it. The Management Team, solely for the to it. The Management Team, solely for the management of the Branch, is vested with management of the Branch, is vested with the all the powers needed in order for the all the powers needed in order for ordinary transactions to be effected, said ordinary transactions to be effected, said powers including the abilities referred to in powers including the abilities referred to in points a) b) c) and d) of Clause 33 above points a) b) c) and d) of Clause 33 above and to be exercised by adopting the and to be exercised by adopting the procedures set out in Clause 35 below. procedures set out in Clause 35 below.
SECTION VIII Regarding representation and signing powers
Clause 35 Clause 35
1. Representation of the Bank (including 1. Representation of the Bank (including procedural representation) and signing on procedural representation) and signing on behalf of the Bank are responsibilities behalf of the Bank are responsibilities assumed separately by the Chairman of assumed separately by the Chairman of the Board of Directors, the Deputy the Board of Directors, the Deputy Chairmen, the Managing Directors, the Chairmen, the Managing Directors, the General Manager, and the Deputy General General Manager, and the Deputy General Managers, with said individuals vested with Managers, with said individuals vested with the ability to designate, be it a continuous the ability to designate, be it a continuous basis or otherwise, employees of the Bank basis or otherwise, employees of the Bank and persons on attachment to the Bank, as and persons on attachment to the Bank, as well as outside third parties, as well as outside third parties, as representatives and special agents for the representatives and special agents for the undertaking of single actions and undertaking of single actions and operations or specific types of actions and operations or specific types of actions and operations and to appoint lawyers, operations and to appoint lawyers, technical consultants and arbiters, technical consultants and arbiters, assigning to them the appropriate powers assigning to them the appropriate powers and authorities. and authorities.
2. Procedural representation comprises the 2. Procedural representation comprises the 39
ability to initiate any action and measure ability to initiate any action and measure to protect the Bank’s rights and interests, to protect the Bank’s rights and interests, which may involve applying for warnings, which may involve applying for warnings, precautionary measures and emergency precautionary measures and emergency actions, and exercising enforceable actions, and exercising enforceable actions, within every place of judicial, actions, within every place of judicial, administrative and arbitration proceedings, administrative and arbitration proceedings, before any authority and in any state, and before any authority and in any state, and at any level of the law, with all the powers at any level of the law, with all the powers needed for such purposes, including the needed for such purposes, including the power to confer the necessary relative power to confer the necessary relative powers of attorney for litigation powers of attorney for litigation proceedings, including general ones, and proceedings, including general ones, and with every ability foreseen by law to waive with every ability foreseen by law to waive acts and actions. acts and actions.
3. The following persons also have the 3. The following persons also have the ability to sign in the name of UniCredito ability to sign in the name of UniCredito Italiano: Italiano:
a) for the Central Management Unit a) for the Central Management Unit and and for all sub-offices, agencies, for all sub-offices, agencies, outlets outlets and representative offices: and representative offices: Executive Executive Managers, Assistant Managers, Assistant Executive Executive Managers and the Managers and the relevant Executive relevant Executive Staff vested with Staff vested with this ability; this ability; b) for the Central Management Unit b) for the Central Management Unit alone: also Senior Managers, alone: also Senior Managers, Managers, and grade 2, 3 and 4 Managers, and grade 2, 3 and 4 Assistant Managers assigned to the Assistant Managers assigned to the Unit, as well as other Executive Staff Unit, as well as other Executive members vested with this ability; Staff members vested with this ability; c) for individual sub-offices, agencies, branches and representative offices: c) for individual sub-offices, agencies, also Senior Managers, Managers, and branches and representative offices: grade 2, 3 and 4 Assistant Managers also Senior Managers, Managers, assigned to the Unit, as well as other and grade 2, 3 and 4 Assistant Executive Staff members vested with Managers assigned to the Unit, as this ability. well as other Executive Staff members vested with this ability. In order to be binding, documents issued for the Bank by representatives who have In order to be binding, documents issued been authorised pursuant to the provisions for the Bank by representatives who have of this paragraph must be signed jointly by been authorised pursuant to the provisions two of the persons indicated, with the of this paragraph must be signed jointly by restriction however that grade 2 and 3 two of the persons indicated, with the Assistant Managers may only sign with a restriction however that grade 2 and 3 grade 4 Assistant Manager or a Manager. Assistant Managers may only sign with a grade 4 Assistant Manager or a Manager.
4. In order to facilitate the smooth running 4. In order to facilitate the smooth running of operations, the Board of Directors may of operations, the Board of Directors may however authorise the joint signature of however authorise the joint signature of grade 2 and/or 3 Assistant Managers, as grade 2 and/or 3 Assistant Managers, as well as the sole signature of Managers, well as the sole signature of Managers,
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Assistant Managers and employees Assistant Managers and employees belonging to the third professional area, belonging to the third professional area, for documents concerning ordinary for documents concerning ordinary business operations that shall be business operations that shall be determined by the Board itself. determined by the Board itself.
SECTION IX Regarding the Statutory Board of Auditors
Clause 36 Clause 36
1. The General Meeting of Shareholders 1. The General Meeting of Shareholders appoints five permanent Statutory appoints five permanent Statutory Auditors, from whom it also elects the Auditors, from whom it also elects the Chairman and two stand-in members. Chairman and two stand-in members.
2. Permanent and stand-in Statutory 2. Permanent and stand-in Statutory Auditors may be re-elected. Auditors may be re-elected.
3. Pursuant to the provisions of prevailing 3. Pursuant to the provisions of prevailing legislation, at least two permanent auditors legislation, at least two permanent auditors and one stand-in auditor must have been and one stand-in auditor must have been listed for at least three years in the Rolls of listed for at least three years in the Rolls of Accountants and have undertaken the legal Accountants and have undertaken the legal auditing of accounts for a period of no less auditing of accounts for a period of no less than three years. Any auditors who are not than three years. Any auditors who are not listed in the Rolls of Accountants must listed in the Rolls of Accountants must have gained at least three years’ total have gained at least three years’ total experience: experience:
a) undertaking professional activities a) undertaking professional activities as as a business accountant or lawyer, a business accountant or lawyer, undertaken primarily in the undertaken primarily in the banking, banking, insurance and financial insurance and financial sectors; sectors; b) teaching, at University level, subjects b) teaching, at University level, concerning - in the field of law – subjects concerning - in the field of banking, commercial and/or fiscal law – banking, commercial and/or law, as well as the running of fiscal law, as well as the running of financial markets and – in the field of financial markets and – in the field business/finance – banking of business/finance – banking operations, business economics, operations, business economics, accountancy, the running of the accountancy, the running of the securities markets, the running of the securities markets, the running of financial and international markets the financial and international and corporate finance; markets and corporate finance; c) performing managerial/executive c) performing managerial/executive duties within public organisations or duties within public organisations or offices of the Public Administration, offices of the Public Administration, as well as in the credit, financial or as well as in the credit, financial or insurance sector, and the investment insurance sector, and the services sector and collective investment services sector and investment-management sector, both collective investment-management of which are defined in the sector, both of which are defined in Consolidation Act for Financial
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the Consolidation Act for Financial Intermediation no. 58 /1998. Intermediation no. 58 /1998.
4. Permanent and stand-in members of the 4. Permanent and stand-in members of the Statutory Board of Auditors are appointed Statutory Board of Auditors are appointed in keeping with lists in which candidates in keeping with lists in which candidates are listed by being given a progressive are listed by being given a progressive number. number.
5. The lists, bearing the names of one or 5. The lists, bearing the names of one or more candidates and who are to be listed more candidates and who are to be listed with a progressive number, must be with a progressive number, must be presented by being submitted to the presented by being submitted to the Registered Office at least fifteen days prior Registered Office at least fifteen days prior to the date set for the first session of the to the date set for the first session of the Meeting, by sufficient shareholders to Meeting, by sufficient shareholders to represent, at the time the lists are represent, at the time the lists are presented, at least 0.5% of shares bearing presented, at least 0.5% of shares bearing voting rights for the General Meeting of voting rights for the General Meeting of Shareholders. The lists must be published Shareholders. The lists must be published in two national newspapers, one of which in two national newspapers, one of which is to be a business newspaper, by the is to be a business newspaper, by the same deadline set for the submission of same deadline set for the submission of the lists. the lists.
Minority shareholders who have no Minority shareholders who have no connecting relationship with the connecting relationship with the shareholders concerned shall continue to shareholders concerned shall continue to have the option to take advantage of an have the option to take advantage of an extension in the deadline to present lists in extension in the deadline to present lists in those instances and using those those instances and using those procedures specified by current regulatory procedures specified by current regulatory and other provisions. and other provisions.
6. In order to substantiate the ownership 6. In order to substantiate the ownership of the number of shares necessary for the of the number of shares necessary for the presentation of lists, shareholders must presentation of lists, shareholders must present and/or deliver to the registered present and/or deliver to the registered office, at the time the lists are filed, a copy office, at the time the lists are filed, a copy of the notice of Meeting issued by the of the notice of Meeting issued by the broker holding the related accounts. broker holding the related accounts.
7. Along with the lists presented by 7. Along with the lists presented by shareholders, the latter must also submit shareholders, the latter must also submit the following within the deadline indicated the following within the deadline indicated in paragraph 5 above: in paragraph 5 above:
- the information regarding the - the information regarding the shareholders that presented the list, shareholders that presented the list, indicating the percentage of the total indicating the percentage of the total equity investment held; equity investment held;
- complete information on the personal - complete information on the personal and professional characteristics of the and professional characteristics of the candidates indicated on the list; candidates indicated on the list;
- statements whereby the individual - statements whereby the individual candidates irrevocably accept the candidates irrevocably accept the
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position (subject to their appointment) position (subject to their appointment) and attest, under their responsibility, and attest, under their responsibility, that there are no reasons for their that there are no reasons for their ineligibility and incompatibility, and ineligibility and incompatibility, and that they meet the experience, that they meet the experience, integrity and independence integrity and independence requirements provided for by current requirements provided for by current regulatory and other provisions and by regulatory and other provisions and by these Articles of Association. these Articles of Association.
Any list that does not meet the above Any list that does not meet the above requirements shall be deemed to have not requirements shall be deemed to have not been filed. been filed.
8. The lists for the appointment of 8. The lists for the appointment of members of the Statutory Board of members of the Statutory Board of Auditors are split into two sub-lists, which Auditors are split into two sub-lists, which contain respectively five candidates for the contain respectively five candidates for the position of permanent auditor and two position of permanent auditor and two candidates for the position of stand-in candidates for the position of stand-in auditor; at least the first two candidates auditor; at least the first two candidates from each list for the position of from each list for the position of permanent auditor and at least the first permanent auditor and at least the first candidate from each list for the position of candidate from each list for the position of stand-in auditor must be listed in the Rolls stand-in auditor must be listed in the Rolls of Accountants, No candidate may appear of Accountants, No candidate may appear in more than one list, or shall otherwise be in more than one list, or shall otherwise be disqualified. disqualified.
9. Every person entitled to vote may vote 9. Every person entitled to vote may vote in respect of one list only. in respect of one list only.
10. With regard to the appointment of 10. With regard to the appointment of permanent auditors, the votes obtained by permanent auditors, the votes obtained by each list are subsequently divided by one, each list are subsequently divided by one, two, three, four and five. The ratios thus two, three, four and five. The ratios thus obtained are allocated progressively to the obtained are allocated progressively to the candidates in the first sub-list of each list candidates in the first sub-list of each list in the order foreseen by the list concerned, in the order foreseen by the list concerned, and are arranged in just the one schedule and are arranged in just the one schedule in descending order. Except where in descending order. Except where provided for otherwise in the next provided for otherwise in the next paragraph, those obtaining the highest paragraph, those obtaining the highest ratios are elected as permanent auditors. ratios are elected as permanent auditors.
11. Given the above, whenever four or 11. Given the above, whenever four or more candidates obtaining the highest more candidates obtaining the highest ratios belong to the same list, the first ratios belong to the same list, the first three shall be elected, while the fourth and three shall be elected, while the fourth and fifth shall be those who obtain the highest fifth shall be those who obtain the highest ratios out of those belonging to the lists of ratios out of those belonging to the lists of minority. minority.
12. The candidate who has obtained the 12. The candidate who has obtained the highest share of votes among the highest share of votes among the candidates belonging to the list that candidates belonging to the list that obtained the highest number of votes obtained the highest number of votes among the minority lists, as defined by the among the minority lists, as defined by the
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current provisions (also regulatory) in current provisions (also regulatory) in force, shall be elected by the Shareholders’ force, shall be elected by the Shareholders’ Meeting as Chairman of the Board of Meeting as Chairman of the Board of Statutory Auditors. In case of a tie Statutory Auditors. In case of a tie between lists, the candidate from the list between lists, the candidate from the list presented by the shareholders with a presented by the shareholders with a larger stake or, subordinately, by the larger stake or, subordinately, by the higher number of shareholders, shall be higher number of shareholders, shall be elected Chairman of the Board of Statutory elected Chairman of the Board of Statutory Auditors. In case of a further tie, the more Auditors. In case of a further tie, the more senior candidate in terms of age shall be senior candidate in terms of age shall be appointed Chairman. If the Chairman has appointed Chairman. If the Chairman has not been elected on the basis of the above not been elected on the basis of the above mentioned criteria, the Shareholders’ mentioned criteria, the Shareholders’ meeting shall appoint directly with relative meeting shall appoint directly with relative majority. majority.
13. With regard to the appointment of 13. With regard to the appointment of stand-in auditors, the votes obtained by stand-in auditors, the votes obtained by each list are subsequently divided by one each list are subsequently divided by one and two, The ratios thus obtained are and two, The ratios thus obtained are allocated progressively to the candidates in allocated progressively to the candidates in the first sub-list of each list in the order the first sub-list of each list in the order foreseen by the list concerned, and are foreseen by the list concerned, and are arranged in just the one schedule in arranged in just the one schedule in descending order. Except where provided descending order. Except where provided for otherwise in the next paragraph, those for otherwise in the next paragraph, those obtaining the highest ratios are elected. obtaining the highest ratios are elected.
14. Whenever the two candidates to obtain 14. Whenever the two candidates to obtain the highest ratios belong to the same list, the highest ratios belong to the same list, the one with the highest ratio shall be the one with the highest ratio shall be elected, while the second one shall the elected, while the second one shall the candidate who obtains the highest ratio out candidate who obtains the highest ratio out of those belonging to the other lists. of those belonging to the other lists.
15. In the event of two or more ratios 15. In the event of two or more ratios being level for the position of the last being level for the position of the last permanent auditor and/or the last stand-in permanent auditor and/or the last stand-in auditor, the candidate from the list that auditor, the candidate from the list that has obtained the highest number of votes has obtained the highest number of votes shall take priority – and if the number shall take priority – and if the number votes are equal, the oldest candidate shall votes are equal, the oldest candidate shall then take priority – unless this list has then take priority – unless this list has already indicated three permanent auditors already indicated three permanent auditors or the other stand-in auditor; in the event or the other stand-in auditor; in the event of this happening, the candidate from the of this happening, the candidate from the list bearing the next lowest number of list bearing the next lowest number of votes shall take priority. votes shall take priority.
16. If in accordance with the deadlines and 16. If in accordance with the deadlines and procedures set forth in the previous procedures set forth in the previous paragraphs only one list, or no list, has paragraphs only one list, or no list, has been presented, the Meeting shall pass a been presented, the Meeting shall pass a resolution by the necessary majority of the resolution by the necessary majority of the shareholders present. If there is a tie vote shareholders present. If there is a tie vote between several candidates, a run-off between several candidates, a run-off election shall be held between them with a election shall be held between them with a
44
further vote of the Meeting. further vote of the Meeting.
17. In the event of a permanent auditor 17. In the event of a permanent auditor dying or leaving office or where his term in dying or leaving office or where his term in office is lapsed or he is not available for office is lapsed or he is not available for any other reason, he shall be replaced by any other reason, he shall be replaced by the stand-in auditor on the same list the stand-in auditor on the same list indicated by the outgoing auditor. indicated by the outgoing auditor.
If this is not possible, the departing auditor If this is not possible, the departing auditor shall be replaced by the candidate who shall be replaced by the candidate who eventually obtains the highest ratio of eventually obtains the highest ratio of those not elected from the list indicated by those not elected from the list indicated by the outgoing auditor or, in the event of an the outgoing auditor or, in the event of an auditor appointed by the minorities auditor appointed by the minorities departing, from the minority lists receiving departing, from the minority lists receiving the highest votes. the highest votes.
Where auditors are not appointed by the Where auditors are not appointed by the list-based system, the stand-in auditor list-based system, the stand-in auditor provided for by legal provisions shall take provided for by legal provisions shall take over. Where the appointment of this over. Where the appointment of this auditor to the position of permanent auditor to the position of permanent auditor is not confirmed by the next auditor is not confirmed by the next Meeting, he shall return to his position of Meeting, he shall return to his position of stand-in auditor. stand-in auditor.
18. For issues relating to the duties, 18. For issues relating to the duties, powers and authorities assigned to powers and authorities assigned to Statutory Auditors, the determination of Statutory Auditors, the determination of their remuneration and the length of their their remuneration and the length of their term in office, the norms laid down by term in office, the norms laid down by prevailing laws shall apply, prevailing laws shall apply,
19. Statutory Auditors may assume 19. Statutory Auditors may assume administration and control positions within administration and control positions within other companies within the limits other companies within the limits established by regulatory and other established by regulatory and other provisions. provisions.
20. The Statutory Board of Auditors is 20. The Statutory Board of Auditors is properly formed when the majority of properly formed when the majority of Statutory Auditors are present, with Statutory Auditors are present, with resolutions being carried as per the resolutions being carried as per the outright majority of votes cast by those outright majority of votes cast by those present, In the event of a tie, the vote of present, In the event of a tie, the vote of the Chairman shall prevail. the Chairman shall prevail.
21. Whenever the Chairman of Statutory 21. Whenever the Chairman of Statutory Board of Auditors deems it opportune, Board of Auditors deems it opportune, meetings of the Statutory Board of meetings of the Statutory Board of Auditors may be held by using means of Auditors may be held by using means of telecommunication, providing that each of telecommunication, providing that each of the attendees may be identified by all the the attendees may be identified by all the others and that each of the attendees is in others and that each of the attendees is in a position to intervene real time during the a position to intervene real time during the discussion of the topics being examined, as discussion of the topics being examined, as well as receive, transmit and view well as receive, transmit and view
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documents. Once the fulfilment of these documents. Once the fulfilment of these prerequisites has been verified, the prerequisites has been verified, the meeting of the Statutory Board of Auditors meeting of the Statutory Board of Auditors is considered held in the place where the is considered held in the place where the Chairman is located. Chairman is located.
SECTION X Regarding the accounts, dividend and reserve fund
Clause 37 Clause 37
1. The Bank’s operating year ends on 31 1. The Bank’s operating year ends on 31 December of every year. December of every year.
2. At the end of every operating year, the 2. At the end of every operating year, the Board of Directors sees to the formation of Board of Directors sees to the formation of the Bank’s accounts. the Bank’s accounts.
Clause 38 Clause 38
1. The net profit reported in the accounts 1. The net profit reported in the accounts is allocated as follows: is allocated as follows:
a) no less than 10% to the reserve; a) no less than 10% to the reserve; when the reserve is at the when the reserve is at the maximum maximum level foreseen by legal level foreseen by legal provisions, provisions, said profit is allocated said profit is allocated with priority to with priority to the savings shares, the savings shares, at the level set at the level set out in point b) out in point b) below; below; b) the savings shares are allocated up b) the savings shares are allocated up to five per cent of their nominal to five per cent of their nominal value; when, in any given operating value; when, in any given operating year, the savings shares are allocated year, the savings shares are a dividend of less than five per cent allocated a dividend of less than five of their nominal value, the difference per cent of their nominal value, the is added to the preferential dividend difference is added to the for the next two years; any earnings preferential dividend for the next that remain after allocating the above two years; any earnings that remain dividend to the savings shares are after allocating the above dividend distributed among all shares, in such to the savings shares are a way that the savings shares are distributed among all shares, in assigned a higher global dividend such a way that the savings shares that due to ordinary shares, at a level are assigned a higher global equal to three per cent of the share’s dividend that due to ordinary nominal value; shares, at a level equal to three per cent of the share’s nominal value; c) whilst the above provisions regarding the higher overall dividend due to c) whilst the above provisions savings shares shall continue to be regarding the higher overall observed, the ordinary shares are dividend due to savings shares shall allocated up to five per cent of their
46
continue to be observed, the nominal value; ordinary shares are allocated up to five per cent of their nominal value; d) any earnings that remain, and in respect of whose distribution the d) any earnings that remain, and in Meeting of Shareholders carries a respect of whose distribution the resolution, are distributed among Meeting of Shareholders carries a shares in addition to the allocations resolution, are distributed among referred to in points b) and c) above; shares in addition to the allocations referred to in points b) and c) e) the Meeting of Shareholders resolves above; upon the distribution of any undistributed earnings, further to a e) the Meeting of Shareholders proposal from the Board of Directors. resolves upon the distribution of any undistributed earnings, further to a proposal from the Board of Directors.
2. The Meeting of Shareholders, further to 2. The Meeting of Shareholders, further to a proposal from the Board of Directors, a proposal from the Board of Directors, may also resolve upon the formation and may also resolve upon the formation and increase of reserves of an extraordinary increase of reserves of an extraordinary and special nature, which are to be and special nature, which are to be sourced from net profit before or after the sourced from net profit before or after the allocations referred to in points c), d) and allocations referred to in points c), d) and e) above. e) above.
3. The Meeting of Shareholders, further to 3. The Meeting of Shareholders, further to a proposal from the Board of Directors, a proposal from the Board of Directors, may establish a global annual amount – of may establish a global annual amount – of no more than 1% of net profit, and in any no more than 1% of net profit, and in any event of no more then Euro 10 million – event of no more then Euro 10 million – that is to be allocated to projects of a that is to be allocated to projects of a social, welfare and/or cultural nature, with social, welfare and/or cultural nature, with any such donations to be made as per the any such donations to be made as per the judgement of the Board of Directors. judgement of the Board of Directors.
4. The Bank may resolve upon the 4. The Bank may resolve upon the distribution of advance dividend payments distribution of advance dividend payments in those situations, by those procedures in those situations, by those procedures and within those limits permitted by and within those limits permitted by prevailing laws. prevailing laws.
SECTION XI Regarding withdrawal
Clause 39 Clause 39
1. The right of withdrawal is regulated by 1. The right of withdrawal is regulated by the law, on the understanding that the law, on the understanding that shareholders that have not been involved shareholders that have not been involved in the approval of resolutions regarding the in the approval of resolutions regarding the extension of the Bank’s duration or the extension of the Bank’s duration or the introduction or removal of restrictions introduction or removal of restrictions imposed upon the circulation of shares imposed upon the circulation of shares may not exercise the right of withdrawal. may not exercise the right of withdrawal.
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SECTION XII Regarding Manager charged with preparing a company's financial reports
Clause 40 Clause 40
1. The Board of Directors shall, subject to 1. The Board of Directors shall, subject to the mandatory opinion of the Board of the mandatory opinion of the Board of Statutory Auditors, appoint a manager, for Statutory Auditors, appoint a manager, for a period of up to three years, in charge of a period of up to three years, in charge of preparing company's financial reports for preparing company's financial reports for the performance of the duties assigned to the performance of the duties assigned to such manager under current laws, and such manager under current laws, and shall establish his powers, qualifications shall establish his powers, qualifications and compensation. and compensation.
2. The manager in charge of preparing the 2. The manager in charge of preparing the company's financial reports shall be company's financial reports shall be selected by the Board of Directors from the selected by the Board of Directors from the Bank’s managers who meet all the Bank’s managers who meet all the following qualifications: following qualifications:
a) a degree (or equivalent) in business a) a degree (or equivalent) in business or finance obtained in Italy or or finance obtained in Italy or abroad; abroad;
b) at least three years experience as a b) at least three years experience as a manager of an in-house area manager of an in-house area dedicated to the preparation of dedicated to the preparation of accounts or as a Chief Financial accounts or as a Chief Financial Officer in an Italian or foreign listed Officer in an Italian or foreign listed limited company (or equivalent) limited company (or equivalent) including UniCredit and its including UniCredit and its subsidiaries; subsidiaries;
c) assignment at the time of the c) assignment at the time of the appointment in a management or appointment in a management or more senior position. more senior position.
3. The board of directors shall ensure that 3. The board of directors shall ensure that the manager in charge of the preparation the manager in charge of the preparation of company's financial reports has the of company's financial reports has the appropriate powers and means to carry out appropriate powers and means to carry out the duties assigned to him under current the duties assigned to him under current laws and to properly comply with laws and to properly comply with administrative and accounting procedures. administrative and accounting procedures.
4. In the performance of his duties, the 4. In the performance of his duties, the manager in charge of preparing company's manager in charge of preparing company's financial reports may avail himself of financial reports may avail himself of collaboration provided by all areas of the collaboration provided by all areas of the UniCredit Group. UniCredit Group.
5. The manager in charge shall make all 5. The manager in charge shall make all attestations and declarations that he is attestations and declarations that he is required to make in accordance with required to make in accordance with 48
current laws including in conjunction with current laws including in conjunction with delegated bodies as required. delegated bodies as required.
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Financial statements pursuant to art. 2501-quater of the Italian Civil Code relative to Capitalia S.p.A. Financial statements pursuant to art. 2501-quater of the Italian Civil Code relative to UnCredit S.p.A.
The reference financial statements are represented by the annual accounts as at 31 December 2006 approved by the relevant Ordinary Shareholders’ Meetings on 10 May 2007 and on 19 April 2007 and are made available to Shareholders at the Companies’ Head Office as well as at Borsa Italiana S.p.A.
Report on the adequacy of the exchange ratio pursuant to art. 2501-sexies of the Italian Civil Code prepared for UniCredit S.p.A.
Report on the adequacy of the exchange ratio pursuant to art. 2501-sexies of the Italian Civil Code prepared for Capitalia S.p.A.
A Joint Stock Company - Registered Office in Genoa - Via Dante, 1 - Head Office in Milan – Piazza Cordusio; CAPITALIA - Registered Office in Via Marco Registered with the Genoa Courts in the Minghetti, 17, Rome – Share Capital € Companies Register, fiscal code and 3,123,792,732 – Rome Register of Companies, Tax VAT number 00348170101; Registered in Registration Number 00644990582 – Member of the Register of Banking Groups and the Interbank Guarantee Fund – The Company is a Parent Company of the UniCredito Registered Bank and is the Parent Company of Italiano Banking Group registered with the CAPITALIA Group, a Registered Banking Group code 3135.1 - Member of the Interbank Fund for Deposit Protection Capital: € 5,222,465,096.50 fully paid up.
IIINNNFFFOOORRRMMMAAATTTIIIOOONNN DDDOOOCCCUUUMMMEEENNNTTT
MERGER
INTO UNICREDIT S.P.A.
OF CAPITALIA S.P.A.
Annexes (2/2)
DRAWN UP PURSUANT TO SECTION 70, PARAGRAPH 4, OF THE REGULATIONS CONCERNING ISSUERS - CONSOB REGULATION NO. 11971/99, AS AMENDED
Fairness opinion on the estimate of the exchange ratio prepared by Citigroup Global Markets Limited for the Board of Directors of Capitalia S.p.A.
TRANSLATIONFROMTHE ORIGINALDOCUMENTISSUEDINITALIAN PREPAREDEXCLUSIVELY FORINFORMATIVEPURPOSES.THEORIGINAL DOCUMENTINITALIAN PREVAILSOVERANYTRANSLATION.
Report to the Board of Directors of Capitalia S.p.A.
REPORTONTHECALCULATIONOFTHE SHAREEXCHANGERATIO FORTHE PURPOSESOFTHEMERGERBETWEEN CAPITALIA S.P.A.AND UNICREDIT S.P.A.
Rome, 20 May 2007 FORINFORMATIVEPURPOSES. THEORIGINALDOCUMENTINITALIANPREVAILSOVERANYTRANSLATION
Table of Contents
1 Introduction ...... 2
1.1 Preface ...... 2
1.2 Companies Involved in the Merger ...... 3
1.3 Purpose of the Report ...... 3
1.4 Summary Description of the Transaction ...... 4
1.5 Reference Date ...... 4
1.6 Activities Conducted By Citi and Documentation Used ...... 5
1.7 Certain Limitations...... 6
2 Evaluation Methodologies...... 8
2.1 Principles ...... 8
2.2 Evaluation Methodologies Adopted ...... 8
3 Description and Application of the Methodologies...... 10
3.1 Market Price Methodology...... 10 3.1.1 Description and application ...... 10
3.2 Market Multiples Methodology...... 11 3.2.1 Description and application ...... 11
3.3 Discounted Cash-Flow Methodology (Dividend Discount Model or DDM) ...... 12 3.3.1 Description and application ...... 12
3.4 Target Price Methodology ...... 15 3.4.1 Description and application ...... 15
3.5 Contribution Analysis Methodology ...... 15 3.5.1 Description and application ...... 15
3.6 Control Premium: Analysis of Premiums Paid in Precedent Transactions...... 16 3.6.1 Description and application ...... 16 3.6.2 Identified Range of Control Premium ...... 16
4 Summary of Evaluations and Conclusion ...... 17
1 FORINFORMATIVEPURPOSES. THEORIGINALDOCUMENTINITALIANPREVAILSOVERANYTRANSLATION
1 Introduction
1.1 Preface
The Board of Directors (the “Board”) of Capitalia S.p.A. (“Capitalia”) engaged (the “Engagement”) Citigroup Global Markets Limited (“Citi”) to provide its opinion on the fairness from a financial point of view to the shareholders of Capitalia of the share exchange ratio (the “Share Exchange Ratio”) relating to the planned merger transaction (the “Transaction”) between Capitalia and UniCredit S.p.A. (“UniCredit”) by way of absorption of Capitalia by UniCredit (Capitalia and UniCredit hereinafter defined, together, the “Banks”). The services rendered by Citi to Capitalia are governed by the engagement letter executed on 19 May 2007. In accordance with the instructions received, Citi reviewed, from a financial point of view, the Share Exchange Ratio on the basis of the methodologies explained below and reached the conclusions presented in Section 4 of this report (the “Report”). The Report was prepared, for the exclusive use of the Board as the only and sole addressee, to support the Board’s determinations and to provide indications and references for the purpose of approving the Share Exchange Ratio in the context of the Transaction. Any decision on how to use Citi’s Report is at the complete discretion of the Board. As a result, any decision made in determining the Share Exchange Ratio remains the sole responsibility of the Board. No one other than the members of the Board is authorized to have access to the Report and its contents. In particular, the Report is not intended for the shareholders of Capitalia nor does it intend to provide them with any assistance or recommendations on the decisions to be made during the general meeting that will be called to decide upon the approval of the Transaction. The Board is fully responsible for any use of the Report. The Report and any other document or work prepared by Citi in connection with the Report cannot be divulged and in any way mentioned, in whole or in part, to any third party, without prior written agreement and consent by Citi, except that the Report may be published as an attachment to the Information Document regarding the Transaction or in any other documents to be published as required by competent authorities or applicable laws. In preparing the Report, Citi has relied solely on publicly available information and information supplied by the management of Capitalia. With Capitalia’s consent, Citi has not had access to UniCredit’s management. Citi has assumed the truth, accuracy, and completeness of all the information publicly available and all of the information that it received, both written and oral, from Capitalia, without conducting any independent verification of the information; in particular, Citi did not conduct any independent verification of the quality of the assets, the liquidity, the existence of any contingent liability or other undeclared liability, the adequacy of the capitalisation, the correct application of the accounting principles and the compliance with any regulatory requirement. The Board acknowledges that the accuracy of the evaluations contained in the Report depends completely on the truth, accuracy and completeness of the information on which such evaluations are based. In connection with the Engagement, Citi will receive a remuneration. It is acknowledged that Citi and / or any companies affiliated with Citi may have rendered in the past, may be rendering and may render to the Banks other services unrelated to the Engagement for Capitalia and UniCredit, including lending activities, for which Citi has received or expects to receive remuneration. In the ordinary course of Citi’s business, Citi and its affiliates may actively trade or hold the
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securities of Capitalia and UniCredit for its own account or for the account of its customers and may therefore hold long or short position in such securities at any time. In this Report Citi expresses no view and opinion as to the relative merits of the Transaction as compared to any alternative business strategies that might exist for Capitalia or the effect of any other transaction in which Capitalia might engage. Citi was not requested to, and Citi did not, solicit third party indications of interest in the possible acquisition of all or a part of Capitalia. In addition, Citi was not requested to, and Citi did not, conduct any independent evaluations or estimates on the value of the assets or liabilities of the Banks. Finally it has to be pointed out that the purpose of this Report is to opine on the fairness of the Share Exchange Ratio and not to give any opinion on the absolute value of Capitalia and/or UniCredit shares.
1.2 Companies Involved in the Merger
The companies involved in the Transaction, as incorporated and incorporating companies, are respectively: ► Capitalia S.p.A., entered in the Italian register of banks under no. 3207.8, with its registered office in Via Minghetti 17 Rome, Italy, and fully paid-up share capital of € 3,115,790,352 composed of 2,596,491,960 ordinary shares with a nominal value of €1.20 each; and ► UniCredit S.p.A., entered in the Italian register of banks under no. 3135.1, with its registered office in Via Dante 1 Genova, Italy, and fully paid-up share capital of €5,222,465,096.50, composed of 10,423,223,641 ordinary shares and 21,706,552 savings non convertible shares with a nominal value of €0.50 each.
1.3 Purpose of the Report
As indicated in the Preface, the purpose of the Report is to provide the Board with useful information in relation to the Share Exchange Ratio for the purposes of the Transaction. No representation or evaluation is provided, nor indirectly suggested or implied, in relation to the fairness of the Share Exchange Ratio to UniCredit and its shareholders. The considerations and estimates of value presented below have been made with the purpose of providing an estimate of the relative values of the Banks, with an emphasis on the consistency and the comparability of the criteria adopted. The considerations and the estimates contained in the Report are to be used solely in relative terms and only with reference to the Transaction. The conclusions expressed in the Report are based on all of the information and evaluations contained herein, and no part of the Report may be used in any way separately from the Report as a whole. In addition, Citi does not assume any responsibility, direct or indirect, for damages which may derive from any incorrect use of the Report or any of the information contained herein. Nothing contained in the Report may be considered as a guarantee or an indication of the future performance of Capitalia, UniCredit or any other company resulting from the Transaction, or of any company which is controlled by the Banks or in which the Banks have shares, or any forecasts as to how the shares of any of Capitalia, UniCredit, or any other company resulting from the Transaction, might be traded on the market at any time, nor should anything contained in the Report be considered as representative of a stand-alone evaluation of the Banks.
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1.4 Summary Description of the Transaction
The Transaction is further described in the Merger Plan and in the Directors’ Report (as defined below) which shall be submitted for approval to the Board of Capitalia, and to which reference is made. Certain essential points of the Transaction are outlined below: ► merger by way of incorporation of Capitalia into UniCredit; ► Share Exchange Ratio shall be equal to 1,12 UniCredit ordinary shares in exchange for each Capitalia ordinary share on which basis the current shareholders of Capitalia will have a shareholding of 21,81% of the ordinary share capital of the post Transaction entity, equal to 21,78% of the total share capital; ► issue of new ordinary shares of UniCredit in exchange for all of the ordinary shares of Capitalia; ► maintenance of the class of savings shares of UniCredit; ► maintenance of the governance model currently adopted by both Capitalia and UniCredit based on the so called “traditional model”; ► appointment of four current directors of Capitalia to the Board of UniCredit, including the Chairman of Capitalia who will be the new deputy chairman of the group resulting from the Transaction; and ► transfer of UniCredit’s corporate headquarters from Genoa to Rome. None of the Banks have conducted accounting, financial, legal, tax or other due diligence on each other nor are any such due diligence activities expected to be conducted by either of the Banks after the approval of the Transaction by the respective Boards of Directors. The timing of the Transaction envisages that the deed of merger will be entered into by 31 December 2007. Citi has assumed, in accordance with what has been represented and confirmed by Capitalia, that the Transaction shall be conducted and consummated according to the terms and conditions contained in the draft documentation delivered to Citi (see 1.6 below) and without any material changes to the terms and conditions or the main provisions contained therein. In addition, Citi has assumed that all of the necessary authorizations (including regulatory approval) shall be obtained without delay, limitations, restrictions or conditions that may have negative or harmful effects on Capitalia or UniCredit or on the potential benefits of the Transaction. Citi has also assumed, on the basis of the information provided by Capitalia, UniCredit and their respective advisors, that the Transaction has a neutral tax effect for the Banks and their respective shareholders.
1.5 Reference Date
Except for what is indicated below, this Report is based on the economic, financial and market information that is available and may be considered in the evaluation at the date of this Report (the “Reference Date”). The economic and accounting profile of each the Banks in the Report is presented as of 31 December 2006. Significant facts that arose subsequently, in the public domain and/or
4 FORINFORMATIVEPURPOSES. THEORIGINALDOCUMENTINITALIANPREVAILSOVERANYTRANSLATION
communicated to Citi by the Banks, were also taken into consideration, as described in Section 1 It has been assumed - as represented by Capitalia and assumed for UniCredit, that in the period between the last financial statements available for each of the Banks (as indicated in Section 1.6 below) and the Reference Date, no events have occurred that could materially affect the asset, operating economic or financial profile of either of the Banks. Market data used for the purpose of the valuation methodologies discussed below are as of 17 May 2007 included.
1.6 Activities Conducted By Citi and Documentation Used
In carrying out the Engagement and in preparing the Report, Citi has examined the draft Merger Plan and the draft Directors’ Report(as defined below) and has also had discussions and meetings with Capitalia’s management regarding the Transaction. As agreed with Capitalia, Citi has not had direct access to UniCredit’s management. Citi used publicly available information relating to the Banks and other information made available, including orally, by the management of Capitalia, including, among other items, information relating to the strategic impact and the potential financial benefits of the Transaction and assumed, with Capitalia’s consent, that such potential financial benefits anticipated to result from the Transaction will be realized in the amounts and at the times projected. Citi examined the financial terms of the Transaction, as described in the draft of the Merger Plan (as defined below), assuming, in accordance with what has been represented and confirmed by Capitalia, that, as specified above, the Transaction will be conducted according to the terms and conditions contained in the draft of the Merger Plan, without any material changes to the terms and conditions or the main provisions contained therein. Citi has also examined further financial data, such as historical market prices and trading volumes for ordinary Capitalia shares and ordinary UniCredit shares over the last two years, the principal historical financial data and forecasts, in addition to the capitalization and financial condition (obtained from public information, including the Consensus Estimates, as defined below) of Capitalia and UniCredit. As indicated above, with Capitalia’s consent, Citi has carried out its analysis for the purposes of this Report without having direct access to UniCredit’s management. On the basis of the publicly available information, Citi has considered the financial terms of other transactions considered comparable for the purpose of an evaluation of the financial terms of the Transaction, in addition to analyzing other financial, market or other publicly available information relating to the activities of other companies which Citi considered relevant in evaluating the information from Capitalia and UniCredit. Finally, Citi conducted further analyses and evaluations and took into account other information and financial, economic, and market criteria available which were considered relevant in the context of the Transaction and for the purposes of the Report. In particular, the documentation reviewed by Citi included: ► the certified stand-alone and consolidated annual reports approved by the competent corporate bodies, for the financial years 2004, 2005 and 2006 for Capitalia and UniCredit; ► the consolidated half-year reports for 30 June 2005 and 2006 for Capitalia and UniCredit; ► the consolidated quarterly financial statements at 31 March 2007 for Capitalia and UniCredit;
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► the prices of the Banks’ shares over the last 24 months; ► the business plans presented to the financial community (the “Business Plans”), in particular: •for Capitalia, the Business Plan for the period 2005 –2007 initially presented on 5 July 2005; and • for UniCredit, the Business Plan for the period 2006 –2008 initially presented on 5 July 2006; ► the estimates published by some research analysts of financial brokerage companies in relation to the future profitability prospects of Capitalia and UniCredit for the period 2007- 2009. For the purpose of the Report, the average data publicly available as of the date hereof are defined as “Consensus Estimates”; ► the publicly available financial data and the market evaluations of certain Italian and European banks available as of the date of the Report which, in Citi’s opinion, are to be considered relevant for the purposes of the analysis; ► the terms of certain recent listed companies acquisition transactions, both in Italy and in Europe, which, in Citi’s opinion, are comparable to the Transaction; ► the draft plan for the Transaction (the “Merger Plan”) prepared for the Board’s meeting on 20 May 2007 and circulated on 18 May 2007; ► the draft Report (the “Directors’ Report”) prepared for the Board’s meeting on 20 May 2007 and circulated on 18 May 2007; ► the draft presentation of the Transaction to the financial community prepared by UniCredit and received on 18 May 2007 (the “Market Presentation”); and ► the draft joint press release with respect to the announcement of the Transaction (the “Press Release”). As agreed with the management of Capitalia, for the purposes of this Report, Citi has based its own evaluations on the Consensus Estimates as the most reliable data regarding future profitability prospects of the Banks on a stand-alone basis.
1.7 Certain Limitations
Citi has relied on the documentation discussed in Section 1.6 in the form in which it was received as a true, accurate and complete reflection of any risks relating to the Banks, including those deriving from the rights of third parties, current or potential disputes, or controls by any authority, and assumed that there are no facts or actions prior or subsequent to the last date of reference for the aforementioned accounting documentation, which may give rise to rights for third parties, disputes or other consequences which might have a negative effect on the financial situation of the Banks. The evaluations and conclusions which Citi has arrived at must also be interpreted in light of certain limitations encountered during the course of its analyses, which include, among others, those indicated in other sections of this Report and those listed below:
► limitations inherent in each of the evaluation methodologies adopted, which is partially mitigated by the use of multiple methodologies;
► the potential inconsistency of assumptions used in the Consensus Estimates;
► the limited comparability of other banks used as comparable listed companies;
► the lack of consistency and comparability and the difference in time between the Target
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Prices (as defined below);
► the limited comparability of the Transaction to other similar transactions selected for the purpose of Section 3.6;
► limited access to non public information;
► the lack of access to UniCredit’s management.
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2 Evaluation Methodologies
2.1 Principles
The evaluations presented in this Report provide a comparative estimate of the economic capital of Capitalia and UniCredit, in accordance with the following principles: 1. Control premium to Capitalia’s shareholders. The Transaction structure is such (looking at factors such as the relative size of the two banks, the relative weight of the former Capitalia’s shareholders in the voting capital of the newly created group, the representation of former Capitalia’s shareholders in the corporate governance of the newly created group) that –to current Capitalia’s shareholders –it is correspondent to a transfer of control to UniCredit. For valuation purposes, in line with both evaluation theory and practice in transactions where there is a change of control, the payment by UniCredit of a control premium is recognised in favour of current Capitalia’s shareholders (the “Control Premium”). 2. Stand-alone perspective. On the basis of previous indications and for the purposes of this Report, Citi has adopted the methodologies discussed below on the assumption that the operations of each of the Banks are autonomous (the so-called stand-alone perspective), and separately considered the application of the Control Premium in favour of Capitalia’s shareholders. 3. Relative, not absolute estimates of value. As consideration for the Transaction will be entirely in shares, according to a principle established by evaluation practice, the relative homogeneity and comparability of the evaluation criteria are prioritised. The evaluations presented are significant only in their relative profile and cannot be considered as a representation in itself of an absolute value of any of the companies under analysis. 4. Significance of market prices. In general, the Capitalia and UniCredit shares are characterized by a large free float, high liquidity and extensive research coverage.
2.2 Evaluation Methodologies Adopted
In accordance with the objectives of this Report and consistent with international evaluation practice for the banking sector, in determining the comparative estimates of the economic capital of the Banks, Citi used numerous evaluation methodologies, both market-based and analytical, in accordance with the principles discussed in Section 2.1. On the basis of these considerations and taking into account the characteristics of the Banks themselves, their activities and the reference markets in which they operate, Citi has chosen to use the following evaluation methods in the preparation of the Report:
► the Market Price Methodology;
► the Market Multiples Methodology;
► the Discounted Cash-Flow Methodology (Dividend Discount Model or DDM);
► the Target Price Methodology;
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► the Contribution Analysis Methodology.
In applying the aforementioned methodologies, Citi considered the characteristics and the inherent limitations of each of them, on the basis of professional evaluation practice generally followed in the banking sector. In connection with the application of the principles discussed in Section 2.1 and of the methodologies presented, the valuation analysis followed these steps: 1. determine an estimate of the economic capital of the Banks as stand-alone entities, applying the aforementioned methodologies; 2 determine the Share Exchange Ratios on a stand-alone basis, i.e. resulting comparing the economic capital of the Banks on a stand-alone basis; 3. determined the Control Premium to be recognised to Capitalia’s shareholders in the context of the Transaction. In particular, Citi has:
► based its estimates of the Banks’ stand-alone economic capital on the Market Price, Market Multiples and DDM methodologies; and
► used the Contribution Analysis and the Target Price methodologies as control methods. The evaluations have been performed using ex dividend market prices. With reference to the calculation of economic capital per share of UniCredit, it is worth indicating that only ordinary shares have been considered. In connection with the determination of the Control Premium to be applied in favour of Capitalia’s shareholders, Citi has made reference primarily to the Analysis of Premiums Paid in Precedent Transactions as reported in Section 3.6.
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3 Description and Application of the Methodologies
3.1 Market Price Methodology
3.1.1 DESCRIPTION AND APPLICATION The Market Price Methodology consists of valuing a company in line with the value given to such company by the stock market on which the shares of the company are traded. According to this methodology, the prices of the shares of significant listed companies represent the most reliable indicator of the value of a company, because this value incorporates all the publicly available information relating to the company itself, since the price expressed on the market is the result of a systematic process of arbitrage by market operators that reflects their opinion of the profitability, asset value, risk and forecasted growth of the company under evaluation. In this context, the trends in the price of a company’s shares are considered significant when:
► The markets in which the shares are traded are characterized by a high level of efficiency;
► The liquidity of the shares is high; and
► The evaluation time frame is such that it neutralizes events of an exceptional nature that may have caused fluctuations in the short term and / or speculative tensions. With regards to Capitalia and UniCredit, in general their ordinary shares have characteristics that make their price trends (and thus the resulting exchange ratios) significant, for the reasons explained below:
► Efficient markets: both shares are listed on the Italian Stock Market, the sixth largest European market in terms of market capitalization and the fourth largest in terms of volumes traded;
► Large free float: as of 8 May 2007 (assumed for the aim of this Report as the last trading day with prices unaffected by merger rumours), the free float1 for Capitalia and UniCredit had a market value of approximately €10 billion and €57 billion, representing an ordinary share capital of approximately 72% and 57%;
► High liquidity: Capitalia and UniCredit shares recorded, over the course of the 12 months prior to 8 May 2007, a daily exchange value higher than €140 million for Capitalia and €530 million for UniCredit;
► Extensive research coverage: there is a wide number of financial brokerage companies, primarily international, that regularly publish research documents on the Banks (over 20 for Capitalia, over 30 for UniCredit). For the purposes of this analysis, the prices of the two shares after 8 May 2007 were not considered as relevant as on that date Capitalia’s Board of Directors decided to appoint a financial advisor to explore strategic options. It is assumed that such share prices post 8 May
1 Defined as total share capital excluding the shareholders with stakes greater than 2% and/or tied to the shareholders’ agreement.
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2007 are (i) no longer representative of the stand-alone values of the Banks and (ii) potentially influenced by speculative pressures. For the aforementioned reasons, in proceeding with the analysis of the market performances Citi has considered both simple arithmetic averages of the closing prices of the Capitalia and UniCredit shares and observations related to the minimum and maximum values in predetermined time periods.
3.2 Market Multiples Methodology
3.2.1 DESCRIPTION AND APPLICATION According to the so-called comparable listed companies methods, commonly adopted within international evaluation practice, the value of a company is ascertained using market evaluation parameters in relation to other listed companies deemed comparable to the company being evaluated. The Market Multiples Methodology is based on analysis of the market quotations of a sample of companies comparable to the one being valued. This methodology is based on the general assumption that in an efficient market and in the absence of speculative movements, the market price of the shares of a company reflect the market’s expectations about the growth rate of future earnings and the degree of risk associated with that company. The application of the Market Multiples Method is divided into the following phases: A. Selection of the reference sample; B. Determination of the time frame to be used as a reference; C. Identification of the fundamental ratios (the so-called “multiples”) deemed to be significant for each company to be evaluated; D. Determination of the significant parameters of the companies represented in the sample and computation of multiples; and E. Identification of the range of multiples and its application to the company being evaluated, determining a range of values for that company. The degree of reliability of this evaluation method depends upon an appropriate adaptation of the method to the specific evaluation concerned. The most important aspects of the analysis for the purposes of the Report are illustrated below. A. Selection of the reference sample Given the nature of this methodology, the critical factor is the comparability, from an operational and financial point of view, between the companies included in the reference sample and those being evaluated. Indeed, the significance of the results is dependent upon such comparability. However, the practical impossibility of identifying homogeneous companies under each profile means it is necessary to determine the elements deemed most significant in identifying the reference sample and consequently to select those companies that are comparable in relation to the predetermined criteria. The shares of the selected companies must also show a high degree of liquidity and must not be influenced by particular contingencies. For the purposes of this analysis, considering the different business mix of the Banks,
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different samples were selected: (i) For Capitalia, a sample was selected comprising Italian banks having a mid or large size, with a national or multi-regional presence, whose stock prices share characteristics that were considered highly significant, but not currently involved in merger projects; (ii) For UniCredit, also the largest European banks were included, with comparable size and business model and currently not involved in merger projects. B. Determination of the reference time frame For the purposes of computing the value of the companies contained in the sample, the average closing price of the month prior to 17 May 2007 has been utilised. C. Identification of the fundamental ratios considered significant For each company of the selected sample, a series of relationships, or multiples, considered significant for the analysis according to this criterion were derived. The choice of these multiples was made on the basis of the characteristics inherent in the banking sector and the general market practices according to which particular importance is attributed to the following relationships:
► relationship between Price and Expected Future Earnings ("P/E"); and
► relationship between Price and Net Assets Value as of 31 December 2006 (“P/NAV”); The multiples were derived on the basis of ex-dividends prices. D. Determination of the level of expected earnings of the companies represented in the sample With reference to the data on future earnings for 2007, 2008 and 2009 used in this analysis in relation to the companies considered in the Italian and European sample, the estimates supplied by IBES that expressed the consensus of the financial analysts were used. With regards to both Capitalia and UniCredit, Consensus Estimates were utilised. E. Determination of the range of application of the ratios calculated The relevance of the fundamental ratios calculated and the choice of the range to be applied to the companies analysed in this Report are defined on the basis of qualitative considerations about the significance of the multiples obtained and the financial and balance sheet characteristics of the company being evaluated.
3.3 Discounted Cash-Flow Methodology (Dividend Discount Model or DDM)
3.3.1 DESCRIPTION AND APPLICATION The discounted dividend flow methodology (the Dividend Discount Model or “DDM") is based on the principle that the economic value of a company is equal to the sum of: 1. the net present value of cash flows available in the future for shareholders, equal to the flow of dividends potentially distributable, in a time frame that can be analytically determined and consistent with a level of capitalization considered adequate; and
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2. the net present value of the terminal value (“TV”) or the economic value of the company after the analytically derived time frame (assuming the perpetual, constant growth of dividend flows). Therefore, this methodology does not take into consideration profit distribution policies actually planned or adopted by the companies under analysis. The economic value of a company according to the DDM methodology is estimated by applying the following formula:
t n Div TV EV t t n t1 (1 ke ) (1 ke ) with Div (1g) TV n (ke g) Where: EV = Economic Value of the company; TV = Terminal Value, equal to the value of the company in the year following the last year that dividend flow was analytically projected;
Divt = dividend flow potentially distributable in year t of the period of analytical projection;
Divn = dividend flow potentially distributable at the end of the period of analytical projection (year n); n = number of years of analytical forecasting of dividend flows;
ke = discount rate, equal to the cost of equity of the company; g = growth rate of dividend flows after the period of analytical forecasting. In the application of the DDM, the following phases can be identified: A. Analytical forecasting of dividend flows potentially distributable over an identifiable time frame;
B. Determination of the discount rate ke and the growth rate g; C. Calculation of the net present value of dividend flows in the analytical forecasting period and calculation of Terminal Value; and D. Development of alternative scenarios, such as a stress test of the evaluation model (sensitivity analysis).
A. Analytical projection of dividend flows potentially distributable over a pre-defined time frame For the purposes of this evaluation, the time frame for the analytical determination of dividend flows was 2007–2010, beyond which the value of the Banks was calculated using the Terminal Value. The analytical estimate of income and balance sheet projections for the 2007–2009 period is based on Consensus Estimates. For the year 2010, on the other hand, inertial growth assumptions were adopted, in line with the financial and operational profile of the Banks and with the market’s growth expectations.
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The estimate of dividend flows potentially distributable in the 2007–2010 period was made on the assumption that both Banks would maintain a level of capitalization considered adequate to support their future development and consistent with the medium-term objectives contained in the respective Business Plans, identified in a core capital ratio on weighted assets equal to 6.5% (core Tier I ratio).
B. Determination of discount rate ke and growth rate g The discount rate of dividend flows corresponds to the required yield that rational investors would expect of alternative investments having a comparable risk profile. It therefore represents the yield expected of the Bank's own risk capital (cost of capital or cost of equity). In accordance with evaluation practice, this rate was calculated using the Capital Asset Pricing Model (“CAPM”). According to the CAPM, the cost of capital is determined by the following formula:
Ke = rf + x (rm –rf)
Where: rf = rate of return on a risk-free investment. Taking into account the reference time frame, the benchmark return of Italian government 10-year bonds was taken as a risk-free rate; (rm –rf) = the so called premium that a rational investor would expect of an investment on the stock market with regard to the risk premium return rate. This risk premium was estimated - on the basis of the long-term historical series - as 5.0%; = coefficient of correlation between the actual yield of the share of the company being analysed and the total market yield of reference (beta or ). The beta measures the volatility of a share with respect to a representative market portfolio.
C. Calculation of the present value of dividend flows in the analytical forecasting period and calculation of Terminal Value The analytically determined dividend flows in the 2007–2010 period were updated using as a discount rate the cost of the capital of the Banks. The Terminal Value was calculated by applying to the dividend flow potentially distributable at the end of the analytical forecasting period the formula of perpetual income growing according to growth factor g.
D. Sensitivity Analysis The exchange ratio determined by applying the DDM was stress-tested with numerous sensitivity analyses in order to evaluate the impact on it of, among other things: variations in assumptions relating to the cost of capital ke and growth rate g; variations of development scenarios and hypotheses of homogenization of asset risk levels. This methodology provides an estimate of the dividend flow after the analytically determined time frame, which can be derived from research analysts’ reports. It should be noted that such exercise, which is necessary in order to determine the Terminal Value, encompasses a certain degree of subjectivity.
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3.4 Target Price Methodology
3.4.1 DESCRIPTION AND APPLICATION In general, financial brokerage houses that publish research reports on listed companies summarize their recommendations concerning the share price of the companies analysed by determining a target price (the “Target Price”). The purpose of the Target Prices is to give a quantitative indication of the economic value of the company and therefore an estimate of its potential for appreciation on the market in the medium term (which by general practice is calculated as the difference between the target price and the current market value). The application of this methodology therefore implies an analysis and a comparison of the relationship between the Target Prices published for Capitalia and UniCredit by financial brokerage houses who issue research on both Banks (the “Brokerage Houses”). For the purposes of this analysis, Citi has utilised the Target Prices published within research documents issued after the initial presentation of FY2006 results by the two Banks. It is understood that, where possible, Target Prices that include the potential impact of the Transaction were excluded from the analysis. This methodology is utilised solely as a control methodology.
3.5 Contribution Analysis Methodology
3.5.1 DESCRIPTION AND APPLICATION The Contribution Analysis Methodology consists of determining, by means of comparison between business metrics, the relative weight of the merging banks with respect to the values resulting from the merger. This methodology does not determine absolute values but ratios which represent the contribution of each Bank on a stand-alone basis to the combined entity. This methodology is to be considered solely as control methodology. The relevance of the Contribution Analysis Methodology depends on the identification of meaningful metrics with respect to the companies involved in the merger. The choice of the relevant metrics is primarily driven by their strategic importance for the companies, both in terms of size and expected cash-flows impact. In terms of application, Citi has calculated for each of the identified metrics the contribution in percentage of each Bank to the aggregated total. Moreover, the relative weight of UniCredit has been adjusted to take into account the existence of savings shares. The analysis is based on data as of 31 December 2006.
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3.6 Control Premium: Analysis of Premiums Paid in Precedent Transactions
3.6.1 DESCRIPTION AND APPLICATION The recognition of a Control Premium in the acquisition of equity interests resulting in the transfer of control of the company acquired to the acquirer is common market price and depends on a number of subjective factors including the acquirer’s strategies and the potential synergies that the acquirer may extract as a result of the acquisition. In line with the commonly accepted evaluation practice, the Analysis of Premiums Paid in Precedent Transactions methodology is based on the empirical analysis of the prices paid in the context of acquisitions of listed comparable companies. According to this methodology, the premium paid in exchange for the transfer of control can be estimated as the difference between the price offered by the acquirer and the average market price of the target, calculated with reference to relevant time horizons before the announcement of the transaction to the market or a before a leakage of information on the transaction that have a had a clearly identifiable effect on the target share price before any official announcement. For the purposes of this analysis, Citi has analysed a sample of M&A comparable transactions within the European banking sector over the last few years.
3.6.2 IDENTIFIED RANGE OF CONTROL PREMIUM With reference to the aforementioned sample of transactions, the range of Control Premium identified is between +15% and +20%, calculated on 1, 3 and 6-month average prices.
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4 Summary of Evaluations and Conclusion
Subject to the considerations and the limitations set forth in this Report and on the basis of the analyses carried out according to the methodologies described in Section 3 of the Report, we have reached the following conclusions regarding the Share Exchange Ratio, expressed in terms of newly issued ordinary UniCredit shares for each ordinary Capitalia share.
Summary of Results
Share Exchange Ratio Capitalia / UniCredit
Min Max
Market Price Methodology 0,94 1,00
Market Multiples Methodology 0,83 0,97
DDM 0,86 0,95
Average values 0,87 0,97
Control Methods:
Target Price Methodology 0,77 1,01
Contribution Analysis Methodology 0,67 1,02
Within the framework and the limitations set forth above, and taking into consideration a range of Control Premium between 15% and 20% on the basis of our experience, we consider the following Share Exchange Ratio as determined by the Board fair, from a financial perspective, to the shareholders of Capitalia, as of the date hereof: ► 1,12 newly issued ordinary UniCredit shares for every ordinary share of Capitalia.
Rome, 20 May 2007
CITIGROUP GLOBAL MARKETS LTD
17
Fairness opinion on the estimate of the exchange ratio prepared by Citigroup Credit Suisse Securities Limited for the Board of Directors of Capitalia S.p.A.
Pag 1/16
Strictly private and confidential
Fairness opinion on the exchange ratio for the merger by incorporation of Capitalia S.p.A. in UniCredito Italiano S.p.A.
Fairness Opinion to the Board of Directors of Capitalia S.p.A.
CREDIT SUISSE SECURITIES (EUROPE) LIMITED
May 20 th , 2007
Pag 2/16
Table of contents
1. Introduction 3
2. Structure of the Merger 10
3. Valuation Methodologies 11
4. Results and Conclusions 16
Pag 3/16
1. INTRODUCTION
1.1 Introduction Pursuant to, and subject to the terms of, CREDIT SUISSE SECURITIES (EUROPE) LIMITED-s (the . Financial Advisor / or / We / or / Us /) engagement (the . Engagement /) by CAPITALIA S.p.A. (. CAPITALIA /) effective as of May 14 th , 2007, the Board of Directors of CAPITALIA (the . Board /) has asked the Financial Advisor to provide, through this opinion (the . Opinion /), an evaluation with respect to the fairness for CAPITALIA shareholders, from a financial point of view, of the Exchange Ratio (as defined below) to be submitted to the shareholders during the Extraordinary Shareholders- Meeting (the . Meeting/), within the context of the envisaged merger by incorporation of CAPITALIA in UNICREDITO ITALIANO S.p.A. (. UNICREDIT /), (the .Merger /). This Opinion is provided by the Financial Advisor for the exclusive use of the Board of CAPITALIA and the results and conclusions contained herein are to considered as of May 20 th , 2007, on the basis of the information made available to the Financial Advisor until such date. In connection with the terms of the Merger, CAPITALIA-s shareholders will receive 1.12 UNICREDIT-s newly issued ordinary shares in exchange for each CAPITALIA-s share (the . Ex- change Ratio /). This Opinion is subject to the terms and conditions set forth in the engagement letter entered into by CAPITALIA and the Financial Advisor on 20 th May 2007 and has to be red in conjunc- tion with with the . fairness letter /, prepared in English and released to the Board today. In case of conflicts on the interpretation of the two documents, the fairness letter will prevail on this Opinion. In this regards, We do not assume any joint liability with any other advisor and/or ex- pert and/or consultant appointed by CAPITALIA in relation to the Merger.
1.2 Recipient of the Opinion The Opinion has been prepared for the exclusive use of the Board of CAPITALIA, which is the only recipient thereof, to support it in taking the decision for which it is exclusively responsible and for the only purpose of providing it with financial evaluations and analysis for its resolutions on the fairness, from a financial point of view, of the Exchange Ratio. Therefore, the Opinion ; and any other back-up document which might be made available to the Board of CAPITALIA ; shall not be used for any other purposes and no individuals or entities other than the Board of CAPITALIA are entitled to use this Opinion. In particular, but without limitation, none of the par- ties between CAPITALIA and UNICREDIT, no third party (including employees and/or creditors and/or guarantors and/or contractual parties of CAPITALIA and/or UNICREDITO, none of the experts (the . Experts /) appointed according to applicable laws in order to prepare a fairness opinion on the Exchange Ratio according to the applicable laws, no shareholder (current or fu- ture), bond-holder (holding either convertible or non convertible bonds) or holders of any other financial instruments of CAPITALIA or UNICREDIT, may rely on the present Opinion and/or may base any decision or assumption on this Opinion, including the approval of the Merger at the Meeting, and may not derive any rights from this Opinion, although this Opinion might be published and/or included in the documents or information disclosed in connection with the Merger. This Opinion is not a solicitation to buy shares or any other securities or financial in- struments issued by CAPITALIA or UNICREDIT and it cannot be construed as such. Pag 4/16
The purpose of this report is to provide the Board with an opinion regarding the fairness to CAPITALIA-s shareholders, from a financial point of view, of the Exchange Ratio which will be submitted to the Meeting within the context of the Merger. The Board will independently decide how to use and disclose the conclusions reached by the Financial Advisor and contained in this Opinion. The Board is solely responsible for any decision regarding the Exchange Ratio and/or in general the Merger, the analysis of the strategic, com- mercial, accounting, fiscal, legal and regulatory consequences of the Merger. This Opinion can- not be considered as an advise or recommendation to enter into the Merger or as a solicitation to buy shares or any other securities issued by CAPITALIA or UNICREDIT. If required by law, the Board may disclose the Opinion to the relevant competent authorities, it being understood that the Financial Advisor shall be informed immediately and in advance, to the maximum extent possible, and has to approve in writing the modalities, formalities and limits of the disclosure of the Opinion to the authorities. The Board shall use this Opinion only for information purposes and in view of the preparation of the information documents to be submitted to the Meeting called to approve the Merger. The Board will be entirely responsible for the use of the Opinion. Any other use or disclosure of the Opinion and/or the information provided therein, in whole or in part, shall be agreed and author- ized in writing by the Financial Advisor.
1.3 Scope of the Opinion The values of CAPITALIA and UNICREDIT included in this Opinion are only for the purpose of identifying the fairness of the Exchange Ratio, from a financial point of view, to CAPITALIA-s shareholders. Therefore, the values of CAPITALIA and UNICREDIT contained in the Opinion must be consid- ered only for the valuation, from a financial point of view, of the fairness of the Exchange Ratio to CAPITALIA-s shareholders. In particular, the values contained in the Opinion relate only to the relative values of CAPITALIA and UNICREDIT as of today, as reported to the Financial Ad- visor, and shall be exclusively used in relative terms and only with reference to the Merger. For these reasons, the values obtained cannot in any way be compared with future market values or considered as indications of standalone values of the evaluated companies. The Financial Advisor does not provide any opinions referred to the value of UNICREDIT- shares which will be issued to CAPITALIA-s shareholders within the context of the Merger nor to the market price of these shares after the Merger. Nothing contained in this Opinion may or shall be considered as a guarantee or an indication of future performance of CAPITALIA and/or UNICREDIT, or of any company which is controlled or participated by CAPITALIA and/or UNICREDIT. As such, as mentioned above, the values included in this Opinion cannot be considered for purposes different from the objective of identi- fying the fairness, from a financial point of view, of the Exchange Ratio to CAPITALIA-s share- holders and can be used only by the Board. This Opinion has specific objectives, a reference date and could be based on financial evalua- tions and valuation methodologies which may differ from those adopted by the Experts who will provide a fairness opinion on the Exchange Ratio according to applicable laws. Therefore, the Opinion has contents and may reach substantially different conclusions. Pag 5/16
The conclusions contained in this Opinion are based on the financial indications and evaluations expressed herein and on all the information and documentation available to the Financial Advi- sor as of today. The conclusions are subject to the terms of the Engagement. Moreover, this Opinion does not provide any valuation regarding the benefits arising from the Merger with reference to alternative actions or strategies which may be considered and it does not take into account the reasons of the competent CAPITALIA-s bodies for the acceptance or the refusal of the Merger.
1.4 Other roles of the Financial Advisor The Financial Advisor is providing CAPITALIA with financial services within the context of the Merger and, therefore, it will receive a fee in connection thereto. Furthermore, CAPITALIA agreed to keep the Financial Advisor harmless and indemnified from any liabilities in connection with the Engagement. The Financial Advisor is part of a group engaged in securities trading as well as providing investment banking and other financial services, also through its subsidiaries, holding companies and affiliates (the .Group Companies/). From time to time, We and our Group Companies are providing, and in the future we may provide, investment banking and other financial services to CAPITALIA and/or UNICREDIT, for which we have received and we would expect to receive, compensation pursuant to existing or future agreements. In this re- spect, the Financial Advisor is currently providing financial advisory services to UNICREDIT on some transactions not related to the Merger. As a financial advisory company, We carry out trading and brokerage activities over financial instruments and We provide investment and financial services. In the course of our ordinary business, the Financial Advisor and its Group Companies may acquire, hold or sell, also on be- half of third parties, equity, debt and other securities and financial instruments (including bank loans and other bonds/obligations) of CAPITALIA, UNICREDIT or of any other company directly or indirectly involved in the Merger and provide investment services or other financial services to these companies.
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1.5 Assumptions and limitations of the analysis The reference date of our analysis is the same as the one of the Opinion and has been con- structed on the basis of the following assumptions. The valuation analysis have been carried out on a ex-dividend basis. The Financial Advisor has assumed that, for both CAPITALIA and UNICREDIT, no material ad- verse events in connection with the economic, accounting and financial situations of the two companies have occurred in the period between the publication of the latest available annual reports (see paragraph 1.6 herebelow) and the date of the Opinion. No update of this Opinion is due by the Financial Advisor. The evaluations and conclusions reached by the Financial Advisor are to be interpreted in light of the following assumptions and limitations: A The conclusions exposed in the Opinion are based on the valuation consideratrions herein. Therefore, the sections of this Opinion cannot be used separately from the document as a whole. The Financial Advisor does not assume any direct or indirect liability for damages aris- ing from an improper use of the information herein; A Since a three-year business plan with medium term forecasts has not been made avail- able to CAPITALIA, the Financial Advisor has used financial analysts- consensus as forecasts. It must be noted that such forecasts are by definition uncertain and built on potentially non homo- geneous data; A The results contained in this Opinion must be interpreted only in conjunction with the scope of the Opinion, as reported under point 1.3 above, and cannot be deemed as represent- ing: o A .stand-alone/ valuation of the companies involved in the Merger and of the market prices at which UNICREDIT and CAPITALIA stocks are or will be traded; o The price attributed by the market to the companies involved in the Merger or which could be attributed if such companies were listed; o The value that should be attributed to the companies involved in the Merger within the context of a sale regarding one of the activities or the companies in- dividually considered. For the purpose of the valuation, the Financial Advisor has made the following assumptions: A CAPITALIA and UNICREDIT will not distribute any reserves nor net profits, except for 2006 UNICREDIT dividend of Euro 0.24 per share, before completion of the Merger; A Before completion of the merger, CAPITALIA and UNICREDIT will not implement any share capital increase or distribution, also pursuant to already resolved and outstanding capital increases or as a consequence of the potential conversion of convertible bonds, stock options or exercise of warrants; A Moreover, We did not take into account the potential effects that possible capital in- creases, even as a consequence of the conversion of convertible loans and/or buy-back pro- grammes and /or stock option plans and any other capital management activity made by CAPI- TALIA and/or UNICREDIT, could have on the price, the value of financial instruments and/or on the number of shares of CAPITALIA and/or UNICREDIT currently outstanding and/or on the credit worthiness of CAPITALIA and/or UNICREDIT; Pag 7/16
A With reference to the financial projections of UNICREDIT and CAPITALIA and the es- timates of synergies and cost savings that may derive from the Merger (as reported in the Merger Project, as defined below, received from CAPITALIA), We have assumed that (i) such financial projections and estimates have been reasonably prepared and reflect the best projec- tions and judgements that the CAPITALIA-s management can express in relation to the results of the integration between the businesses of the two companies, the synergies and the ex- pected savings, and (ii) that those projections and estimates will be achieved in the period and in the amount forecasted; A In the processes to request the necessary approvals to the Merger from the relevant Regulatory Authorities and from third-parties, (i) no changes, delays, limitations, restrictions or conditions which can have a negative impact on CAPITALIA and UNICREDIT or on the ex- pected benefits of the Merger will take place and (ii) the Merger will be completed according with the terms and conditions already set forth, without any renounce, change or modification of any relevant term, condition or agreement. The considerations included in the Opinion and the valuations herein are based on the fact that the Financial Advisor has not performed any due diligence nor any investigation nor any inde- pendent estimate on neither assets and liabilities for CAPITALIA and UNICREDIT nor on pub- licly available information of CAPITALIA and UNICREDIT. Therefore, the Financial Advisor does not assume any liability neither regarding the information on which the valuations in the Opinion are based nor regarding their accuracy or completeness or the possible damages due to sub- jects having relied on any claim or conclusion included in this Opinion. Finally, nothing con- tained in this document may or shall be considered as a guarantee or an indication of future economic, accounting and financial results of CAPITALIA, UNICREDIT or their subsidiaries. Regarding the financial projections of CAPITALIA and UNICREDIT made available to the public, the Financial Advisor has not discussed these projections with CAPITALIA-s or UNICREDIT-s management and it has assumed that those projections were prepared properly in relation to future financial returns of UNICREDIT and CAPITALIA. In this regard, We specify that the Fi- nancial Advisor has not provided any independent valuation or estimate of assets and liabilities (even potential) of CAPITALIA and UNICREDIT. The analysis and the considerations included in this Opinion are referred to the current organ- izational and functional structure of UNICREDIT and CAPITALIA, as well as to the economic, monetary, market conditions and in general to all the information available at the reference date of this Opinion. Events occurred after the reference date could have significant effects on the hypothesis, the considerations, the valuations and the conclusions pf the Opinion. The Financial Advisor does not have any duty to update, modify or confirm the present Opinion.
1.6 Utilized Documentation In preparing this Opinion, the Financial Advisor has merely used public information regarding UNICREDIT and CAPITALIA. Except for the Exchange Ratio and other limited information re- garding the estimates of possible cost savings and revenue synergies deriving from the Merger (as reported in the draft Merger Project, as defined below, received from CAPITALIA), We have not received any other confidential information on CAPITALIA and/or UNICREDIT. We did not implement any due diligence neither on CAPITALIA and/or UNICREDIT and/or their relative assets and/or investments, nor on any possible risk or obligation which may derive from legal litigations, actions, procedures or investigations. We have not taken part to any meeting with the management of CAPITALIA and/or UNICREDIT to discuss activities and prospects of CAPITALIA and/or UNICREDIT. The Financial Advisor has completely relied on the accuracy Pag 8/16
and completeness of the publicly available information and of all the information received and/or made available and/or discussed, both in writing and orally (the . Utilized Documentation /), without carrying out any independent verification regarding the accuracy and completeness of the Documentation Utilized, as provided by the Engagement. The Board of Directors agrees that the valuations included in our Opinion entirely rely on the information provided to Us and used by Us as being true, accurate, updated and complete. The Utilized Documentation includes: A For CAPITALIA: o Company and consolidated annual reports for fiscal years 2004, 2005 and 2006; o Consolidated semi-annual reports as of June 2005 and 2006; o Consolidated quarterly report as of March 31 st , 2007 (unaudited); o 2007-2009 financial projections estimated by financial analysts covering CAPITALIA; o Stock prices of the last 24 months.
A For UNICREDIT: o Company and consolidated annual reports for fiscal years 2004, 2005 and 2006; o Consolidated semi-annual reports as of June 2005 and 2006; o Consolidated quarterly report of March, 31st, 2007 (not audited); o 2007-2009 financial projections estimated by financial analysts covering UNICREDIT; o Stock prices of the last 24 months.
The Utilized Documentation also includes: o Available financial analysts- reports and researches on CAPITALIA and UNICREDIT; o The draft of the merger project and the attached directors report (the . Merger Project /); o The draft of the joint press release regarding the Merger announcement; o The draft of the presentation to the Board of CAPITALIA in relation to the Merger, prepared by CAPITALIA itself; o The draft of the presentation to the financial community prepared by CAPI- TALIA and UNICREDIT in relation to the details of the Merger (the . Presenta- tion /) The Financial Advisor has not been requested to make, and has not made, any independent evaluation or appraisal of the assets and/or liabilities, contingent and/or off-balance sheet of CAPITALIA and /or UNICREDIT, with reference to the single items as well as to the whole bal- Pag 9/16
ance sheets, nor independent analysis and assessment of the Utilized Documentation have been done. The Financial Advisor has not conducted any independent due diligence on CAPITALIA and/or UNICREDIT and/or the respective businesses and/or the subsidiaries of each company, includ- ing any potential issue and/or write-offs, deriving from third-party rights, litigations, claims and or proceedings and/or investigations by the relevant authorities. The Financial Advisor has relied on the Utilized Documentation being true, accurate, updated and complete in all material re- spects. We have further assumed that there are no circumstances, proceeding or deeds follow- ing the date of the Opinion, which could determine claims and other consequences with mate- rial negative effects on the economic and/or financial situation of UNICREDIT and/or CAPI- TALIA. With regards to potential synergies and cost savings stemming from the Merger, the Financial Advisor has completely relied on information and data included in the draft of the Merger Project received from CAPITALIA, without verifying the relative accuracy and complete- ness. In preparing the Opinion, the Financial Advisor has used public available information on CAPI- TALIA and/or UNICREDIT and on companies deemed to be comparable and ; according to the Engagement ; has performed no independent due diligence on the truth, accuracy, update and completeness of this information. The Financial Advisor has also used public available informa- tion relative to other recent similar transactions deemed as significant for the purpose of the analysis. This Opinion is based on economic, financial and market information available at the date of the Opinion. Our Opinion is based on financial analysis and valuation methodologies which may differ form those utilized by the independent Experts who will assess the fairness of the Exchange Ratio according to applicable laws. In this respect, We specify that We have not received the draft of the .relazione sulla congruit¿ del rapporto di cambio/ (report on the fairness of the exchange ratio), which shall be prepared by the independent Experts according to the applicable laws.
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2. STRUCTURE OF THE MERGER
On May 20 th , 2007, CAPITALIA-s and UNICREDIT-s Boards of Directors will convene to exam- ine and preliminarily approve the Merger by incorporation of CAPITALIA in UNICREDIT with an Exchange Ratio of 1.12 ordinary UNICREDIT shares per each CAPITALIA ordinary share. The organizational structure of UNICREDIT, based on divisions specialized by clients- segments an product factories, has been identified as the future structure for the group resulting from the Merger. CAPITALIA-s current organizational structure presents several similarities to that of UNICREDIT. Indeed, even if some differences exist because of the lower scale of some busi- ness lines and the almost exclusive CAPITALIA-s geographic focus on the Italian market, its structure can be easily integrated with UNICREDIT-s one. In the context of the Merger, CAPITALIA-s and UNICREDIT-s Boards will convene to examine and approve, inter alia , UNICREDIT-s corporate governance. On the basis of such agreement, as reported in the Merger Project, the day after the approval by the two Shareholders- Meetings of the Merger Project, four members of CAPITALIA-s Board will be appointed by means of co- optation within the UNICREDIT-s Board. Within this context, the CAPITALIA-s Chairman will be entrusted with the role as Vice Chairman of UNICREDIT-s Board of Directors with specific powers and substitutive functions on non-strategic investments. UNICREDIT-s registered office will be moved from Genova to Roma, while its headquarter will remain in Milano. CAPITALIA-s strong positioning in the Center and in the South of Italy will be preserved in the new group also through the use of Banca di Roma and Banco di Sicilia brands.
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3. VALUATION METHODOLOGIES
The methodologies used for the valuation of UNICREDIT and CAPITALIA, on a standalone ba- sis, are in accordance with national and international standards for the banking/financial sector. In the application of these methodologies, the Financial Advisor has considered the characteris- tics and the limits of each method. In particular, We have used the following methodologies: A Discounted Cash-Flows; A Multiples of comparable companies; A Market capitalization; In addition, We implemented also the following methodologies as control methodologies: A Target prices; A Contribution Analysis. In addition, taking into account the different dimensional features of CAPITALIA and UNICRE- DIT and the governance proposal which would be born from the Merger, the Financial Advisor considered the implicit premia in stock friendly public offering. Registered in the most recent transactions in the reference markets.
3.1 Discounted Cash Flow The discounted cash flow methodology (. Dividend Disount Model / or . DDM /) assumes that the value of a company is given by the sum of the present value of future cash flows, equal to the flow of dividends potentially distributable to shareholders, consistent with an adequate level of capitalization and without drawing on the assets necessary to sustain future expected devel- opment. These dividends may not match with the dividend policy forecasted by the manage- ment. The .excess cash/ version of the method has been preferred to a pure discounted cash-flows methodology, which gives the present value of future dividends distributed by the company, as such a methodology is deemed to be more consistent with the valuation of financial companies, and in particular of banks. Such methodology is independent from historical dividend distribution policies adopted by the company and from future ones, the sustainability of which cannot be guaranteed. To calculate the maximum distributable dividends in accordance with the adopted methodology, a capitalization level deemed as adequate in relation to the ordinary operations of CAPITALIA and UNICREDIT has been identified and quantified in a .Core Tier 1/ ratio of 6.8%. The 2007-2011 period has been subsequently identified to determine the dividend stream, of which the temporal horizon 2007-2009 is based on analysts- consensus, while for 2010 and 2011 inertial growth assumptions have been made, taking into consideration the characteristics of CAPITALIA and UNICREDITO and the expectations of market growth. According to this methodology, the value of the company is given by the sum of the present value of future dividends and the terminal value, calculated applying the following formula:
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n TV Ve = Dt + ƒ + t + n t =1 1( Ke ) 1( Ke )
Where: Ve = Value of the company; D = Maximum distributable dividend maintaining adequate capital structure; TV = Terminal value; n = Number of years of analytical forecasting; Ke = Cost of equity. In the application of the DDM, the following phases can be identified: A. Analytical forecasting of future distributable dividends over an identifiable timeframe, whilst keeping an adequate level of assets in compliance with capital requirements for busi- nesses operating in the banking/financial sector, and necessary to sustain future expected de- velopment; B. The terminal value of the company can be determined as the perpetuity of the last ye- ar-s flow, as indicated in phase (A). The calculation of the terminal value can be performed ac- cording to two methodologies: A applying the following formula: 1( + )g TV = Dn Ke( − )g where: Dn = Maximum distributable dividend in the last year that dividend flow is analytically projected; g = Perpetual growth rate of distributable dividend; Ke = Cost of equity. A or applying a multiple to the net income or to the shareholders equity in the last year that dividend flow is analytically projected. C. The terminal Determination of the discount rate for the dividends. There are several methods to calculate the discount rate; however, the cost of equity is estimated on the basis of the Capital Asset Pricing Model: Ke = Rf + β * (Rm Rf) where: Rf = Risk free rate; Beta = coefficient of correlation between the actual yield of the share of a company and the total market share yield, over a certain time horizon Rm = Return of the stock market as a whole; Pag 13/16
(Rm Rf) = Premium that a rational investor would expect of an investment on the stock market compared to the risk free rate. This methodology is based on the assumption that, in an efficient market, investors determine their required rate of return considering only the asset's sensitivity to non-diversifiable risk of the investment (or market risk), expressed by the correlation between the actual yield of the share of a company and the total market share yield (factor β). The specific risk of the investment is not taken into account, as it can be eliminated by the investors through diversification. Given the different features of the two banks, characterized by a strong presence in retail busi- ness and in commercial banking for CAPITALIA, and business and geographic diversification for UNICREDIT, and the different projections for growth for the two banks, We chose to apply dif- ferent β, market risk premia and perpetual growth rates.
CAPITALIA UNICREDITO
Risk-free rate (Rf) 4.51% 4.51% Correlation factor ( β) 1.02 1.16 Market risk premium (Rm) 5.0% 5.0% Perpetual growth rate (%) 2.00% 2.50% Cost of Equity (Ke) 9.60% 10.30%
The difference between the Ke applied to CAPITALIA and UNICREDIT is justified by the differ- ent business mix and geographical coverage.
3.2 Multiples of comparable companies According to the multiples of comparable companies- method, the value of a company is calcu- lated by using market evaluation parameters in relation to other listed companies considered comparable to the company being valuated. The multiples of comparable companies- method is based on the calculation of ratios deemed to be significant between the market capitalization of a peer and the relative earnings, assets and financial values. These ratios are applied, after the necessary adjustments, with the purpose to identify a range of value. In the application of the multiples of comparable companies- method, the following phases can be identified: A Selection of comparable companies; A Identification of fundamental ratios for the sector and for the selected comparable companies, and identification of the reference timeframe; A Identification of the range of multiples to be applied in the valuation A Application of the multiples to the appropriate earnings, assets or financial items of the company to be valuated, identifying a range of value for the company.
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A. Selection of comparable companies The adequate selection of a sample of comparable companies represents one of the main steps of this method. The significance of results is strictly linked to the uniformity of the sample. However, the practical impossibility of identifying homogeneous companies under each profile, means it necessary to determine the elements deemed most significant in identifying the refer- ence sample and consequently to select those companies that are comparable in relation to the predetermined criteria. The shares of selected companies must also show a high degree of liquidity and must not be influenced by particular contingencies. B. Identification of fundamental ratios considered significant For each comparable, a series of relationships, or multiples, considered significant for the analysis according to this method was calculated. The choice of these multiples was made on the basis of the characteristics inherent in the banking sector and the general market practices according to which particular importance is attributed to the following relationships: A Price/Earnings; A Price/Shareholders Equity. C. Identification of the range of multiples to be applied in the valuation The relevance of the fundamental ratios calculated and the choice of the range to be applied to the companies are decided on the basis of qualitative considerations about the significance of the multiples obtained and the income and capital characteristics of the company being evalu- ated D. Application of multiples to the appropriate earnings, assets or financial items of the company to be valuated The multiples are applied to the appropriate figures of the company, to calculate a range of va- lue. The peer of comparable companies, used by the Financial Advisor to identify ; on the basis of quantitative and qualitative considerations ; the relevant multiples includes national and Europeans banks which present dimensional and operational features similar to CAPITALIA and UNICREDIT. As the calculation of the market multiples of comparable companies is based on the estimates of sell side analysts, the market multiples have been applied to CAPITALIA and UNICREDIT-s standalone consensus for consistency reasons. Furthermore, since CAPITALIA-s stock price reported an anomalous growth rate due to the market expectation of an extraordinary transaction regarding the bank itself, We considered CAPITALIA-s share price up to May 8 th , 2007, when we assume speculation trades began.
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3.3 Market capitalization This method consists in attributing a value to a company which is equivalent to that attributed by the market on which its shares are traded. The application of this method requires the verifica- tion of the following conditions: A prices expressed by the market are significant for the shares of the companies to be valuated; A the evaluation timeframe is such that neutralizes events of an exceptional nature that may have caused fluctuations in the short term and/or speculative tensions. For the purpose of this analysis, the prices of both CAPITALIA and UNICREDIT have been considered over a long timeframe to smooth short term speculative fluctuations. In particular, there have been taken into account the averages share prices of CAPITALIA and UNICREDIT for various time intervals up to May 8 th , 2007: 1 month, 3 months and 6 months.
3.4 Target prices In general, the financial intermediaries that publish research documents on listed companies summarize their recommendations by defining a target price of the share in question, which provides a quantitative indication of the value of the company in the medium term. According to this method, which is applicable when there is a sufficiently coverage ; from a quantitative and qualitative point of view - of the businesses to be valued, the value of the com- pany is estimated on the basis of the average target price of the selected research analysts. For CAPITALIA there has been considered the average target price of 16 financial analysts - both national and international ; following the date of the release of 2006 Annual Results (Feb- ruary 23 rd , 2007). For CAPITALIA, the value has been estimated on a stand-alone basis, excluding the benefits from M&A activity. For UNICREDIT, there has been considered the target price of 20 financial analysts released after the publication of 2006 Annual Results (March 22 nd , 2007).
3.5 Contribution Analysis Contribution Analysis sets the relative weights of the companies involved in the transaction. This methodology does not find out absolute values, but it identifies the relative contributions brought by each company to the combined entity. This method is based on the comparison among eco- nomic-financial and operational measures which are considered being significant with respect to the companies involved in the transaction. For each of the measures, the value per share has been computed. The data on which the a- nalysis has been run are those of the 2006 Annual Report. Pag 16 /16
4. Results and Conclusions Given the considerations and the assumption reported above, on the basis of the analysis re- ported above We reached the following conclusions:
Exchange Ratio Minimum Maximum Principal Valuation Methodologies Dividend Discount Model 0.85 0.92 Comparable Trading Multiples 0.92 1.00
Market Capitalization 0.96 0.98 Reference Interval 0.91 0.97
Control Valuation Methodologies Target Price 0.77 1.01 Contribution Analysis 0.67 1.02
An Exchange Ratio fixed at 1.12 new ordinary UNICREDIT shares for each ordinary CAPITALIA share implies a premium between 15.5% and 23.1% with respect to the reference interval identified by the Financial Advisor (0.91 ; 0.97). This premium is justified by the differences in size between CAPITALIA and UNICREDIT and by the envisaged corporate governance model after the Merger. The premium is in line with premia registered in the recent similar public transactions, where an average premium between 14.3% and 18.2% was reported. On the basis on the estimates developed through this Opinion, the Financial Advisor, at the Reference Date, considers the proposed Exchange Ratio of 1.12 ordinary UNICREDIT shares for each CAPITALIA ordinary share to be fair, from a financial point of view, to CAPITALIA-s shareholders.
Fairness opinion on the estimate of the exchange ratio prepared by Rothschild for the Board of Directors of Capitalia S.p.A.
TRANSLATION FROM THE ORIGINAL DO CUMENT ISSUED IN ITALIAN PREPARED EXCLUSIVELY FOR INFORMATIVE PURPOSES. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS OVER ANY TRASLATION.
Strictly private and confidential
F airness opinion on th e Sh are Ex ch ang e Ratio for th e m erg er b y incorporation of C apitalia S.p.A . into U nicredit S.p.A .
2 0 M ay 2 0 0 7
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C ontents
1. INTRODUCTION TO M ETHODOLOGY 3 1.1 FOREWORD 3 1.2 PURPOSE AND SCOPE OF THE WORK CARRIED OUT 3 1.3 ASSUMPTIONS AND LIMITATIONS IN THE VALUATIONS 3 1.4 REFERENCE DATE AND DOCUMENTATION USED 5 2. DESCRIPTION OF THE TRANSACTION AND FINANCIAL CONDITIONS 6
3. IDENTIFICATION OF THE VALUATION M ETHODS 7 3.1 DIVIDEND DISCOUNT MODEL (—DDM“) 7 3.2 MARKET METHODS 9 3.3 CONTROL METHODOLOGIES 11 4. THE EXCHANGE RATIO FOR PURPOSES OF THE M ERGER 13
This document has been prepared solely on the basis of public information. Rothschild accepts no responsibility for the veracity and correctness of such information and the information contained in this document, nor for its accuracy or completeness, nor any consequences deriving to parties who may have relied on any statement, conclusion or opinion contained in this document.
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1. INTRODUCTION TO M ETHODOLOGY
1.1 FOREW ORD
Rothschild S.p.A. (—Rothschild“) has been appointed by the Board of Directors of Capitalia S.p.A. (—Capitalia“) to provide an opinion on the fair value of the share exchange ratio to be proposed to the shareholders at the Extraordinary Shareholders‘ Meeting (the —Meeting“) in relation to the proposed merger by incorporation (the —Merger“) of Capitalia into Unicredit S..p.A. (—Unicredit, or together with Capitalia —the Banks“). On 20 May 2007, the Boards of Directors of Capitalia and Unicredit will carry out a preliminary examination of the Merger on the basis of an exchange ratio that provides for the issue of 1.12 new Unicredit ordinary shares for every Capitalia ordinary share (—Exchange Ratio“).
1.2 PURPOSE AND SCOPE OF THE W ORK CARRIED OUT
The purpose of the work carried out is to provide the Board of Directors of Capitalia with an opinion on the fair value of the Share Exchange Ratio that will be proposed to the Shareholders‘ Meeting for the Merger transaction. This opinion (the —Opinion“) has been prepared solely to support the Capitalia Board in its decision- making, in agreement with the Unicredit Board, regarding the approval of the merger proposal (the —Proposal“). It is one of the factors taken into consideration by the Capitalia Board of Directors when deciding on the submission of the Merger for shareholders‘ approval. The work carried out does not therefore involve other aspects of the merger between Unicredit and Capitalia, apart from that indicated above, and must not be interpreted by any Capitalia shareholder as being a recommendation regarding the exercise of the right to vote in the Meeting. The Opinion and all the information, analyses, circumstances and information contained herein are extremely confidential and for the exclusive use of the Capitalia Board of Directors. It is therefore prohibited to disclose to third parties (in whole or in part), as well as to distribute, in any manner whatsoever, the information, analyses, processes and results contained herein, even in a summarised or partial format, without the prior written authorisation of Rothschild. The Opinion does not constitute, nor may it be interpreted as, or considered similar to, a report as defined under Article 2501-sexies of the Italian Civil Code, an expert opinion as defined in Annex 3A of CONSOB Regulation 11971/99, or a report as defined under the same Regulation.
1.3 ASSUM PTIONS AND LIM ITATIONS IN THE VALUATIONS
The valuations produced by Rothschild are to be interpreted taking into account the main assumptions and limitations indicated below: ° the conclusions set out in this Opinion are based on the entirety of the valuations contained herein; therefore, no part of the Opinion may be used separately, either in complete or summarised format, from the Opinion in its entirety. In addition, Rothschild accepts no
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direct or indirect liability for losses that may arise from the incorrect use of the information contained herein; ° the results obtained in this Opinion must be read solely and exclusively in relation to the determination of the Share Exchange Ratio and may not be considered representative of:
- a —stand alone“ valuation of each company involved in the Merger and prices at which the Unicredit or Capitalia stocks may or may not be traded on public markets;
- the price attributed by the markets to the shares of the companies involved or that would be attributed to them if they were listed;
- the realisable value within a sale transaction involving one of the businesses or companies considered individually. It has been assumed that the Merger will be carried out in accordance with the conditions agreed and that all the authorisations required to complete the transaction have been obtained without any major negative impact on the Banks. Moreover, the comments made in the Opinion and the valuations contained herein are based on the fact that Rothschild has not carried out any full or partial due diligence or other independent audit or estimate of the assets or liabilities of Capitalia and Unicredit. For the purposes of preparing the Opinion, Rothschild has referred solely to public information relating to the Banks. Therefore, Rothschild accepts no liability for the information forming the basis of the valuations contained in this Opinion, or in relation to their accuracy or completeness, any detrimental consequences to parties who have relied on any statement, conclusion or opinion contained in this Opinion. Finally, nothing reported in this document may be considered as a guarantee or indication of the future economic and financial results and equity position of Capitalia, Unicredit or their subsidiaries. The analyses and considerations have been made with reference to the existing organisational and functional configuration of Capitalia and Unicredit, as well as the economic, monetary, market, and regulatory conditions and in general are based on the information available as at 17 May 2007. Events subsequent to the date of this Opinion could impact, even significantly, on the assumptions, considerations, valuations and results thereof. Rothschild accepts no obligation to update, amend or confirm the contents of this Opinion. The main difficulties encountered in the valuation process are summarised below:
¢ since a business plan produced by the company with a time frame after 2007 was not available for Capitalia, it was deemed appropriate to use, as forecast data for both Banks, the consensus view of the financial analysts: it should be emphasised that forecast data, by its very nature, entails a degree of uncertainty and potential inconsistency in relative terms;
¢ valuation criteria: the estimates performed reflect the limitations and particular features of the various valuation methods used, partly compensated by the joint analysis of the results;
¢ the premium implicit in the Exchange Ratio compared to the valuations performed by Rothschild (—Control Premium“) can be justified when considering the Banks‘ different sizes, as well as the governance arrangements proposed for implementing the operation. The fairness of this premium has been verified through an analysis of the premiums recognised on average in the European banking market in friendly all-share bids. The analysis took place on the basis of valuations, estimates and empirical findings which by their very nature may be uncertain and variable.
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1.4 REFERENCE DATE AND DOCUM ENTATION USED
This Opinion has been based on the financial statements of the Banks as at 31 December 2006. No change in the situation of the Banks - of a financial, economic, equity or other nature - subsequent to this date has been taken into account in preparing this Opinion.
The following documentation has been obtained and examined in order to carry out the work:
° For Capitalia: œ the statutory and consolidated financial statements for the fiscal years 2004, 2005 and 2006; œ the consolidated half-yearly report as at 30 June 2005 and 2006; - the consolidated quarterly report (not audited) as at 31 March 2007; œ Capitalia financial projections for 2007 œ 2009 as reported in the brokers‘ reports of the financial analysts tracking the stock; œ Stock Exchange performance of the Capitalia stock in the past 24 months
° For Unicredit: œ the statutory and consolidated financial statements for the fiscal years 2004, 2005 and 2006; œ the consolidated half-yearly report as at 30 June 2005 and 2006; - the consolidated quarterly report (not audited) as at 31 March 2007; œ Unicredit financial projections for 2007 œ 2009 as reported in the brokers‘ reports of the financial analysts tracking the stock; œ Stock Exchange performance of the Unicredit stock in the past 24 months
In addition, the following were examined: ° draft Directors‘ Report; ° draft merger proposal; ° draft market presentation of the Merger.
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2. DESCRIPTION OF THE TRANSACTION AND FINANCIAL CONDITIONS
On 20 May 2007, the Capitalia Board of Directors will be asked to approve Unicredit‘s merger by incorporation into Unicredit. The Merger provides for the issue of 1.12 ordinary Unicredit shares for each Capitalia ordinary share. The Exchange Ratio proposed is to be considered ex-dividend, since it is based on a valuation of the Unicredit share net of the dividend that will be detached on 21 May 2007. The Merger will take legal effect from October 2007, following the approval of the respective shareholders‘ meetings envisaged by the end of July 2007.
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3. IDENTIFICATION OF THE VALUATION M ETHODS
The valuations have been carried out with a view to expressing a comparative estimate of the Capitalia and Unicredit values, placing particular importance on the consistency and comparability of the criteria adopted to determine the absolute value of the entities considered individually. They are to be seen merely in relative terms and with limited reference to the Merger. The same valuation methods have been applied to both companies in order to ensure the consistency of the valuation process, taking into account the specific features of each company and the Banks‘ status as companies with listed shares. For the purpose of the Exchange Ratio valuation, Rothschild has used as its main methodologies the Dividend Discount Model (—DDM“), the market multiples method and the market value method. The results obtained have also been verified through a contribution analysis and the verification of the Capitalia and Unicredit target prices indicated in brokers‘ reports issued after the Banks‘ 2006 results were notified. In order to take account of the different dimensional characteristics of the banks involved in the Merger, as well as the governance arrangements proposed to implement the operation, this Opinion has taken into consideration the premiums implicit in friendly all-share bids which have taken place recently in the European banking market. The average amount of these market premiums was identified in the range 14.3% œ 18.2%.
3.1 DIVIDEND DISCOUNT M ODEL (—DDM “)
The Excess Capital variant of the Dividend Discount Model defines the economic value of a bank as the sum of: a) the present value of future dividend flows generated within a pre-determined time horizon distributable to shareholders whilst maintaining an adequate level of capital adequacy and ii) of the —Terminal Value“, calculated considering the cost of equity and the distributable dividend flow consistent with the presumed long-term growth rate. It was decided to use the Excess Capital variant of the DDM in preference to the pure DDM (which discounts to present value the flows distributable under the dividends policy adopted by the company), since this variant is considered to be more suitable for bank valuation purposes. In fact, this variant disregards the dividend distribution policy announced or pursued historically by the company which could vary given the Proposal in place. To calculate the maximum distributable dividend for application of the method, the minimum level of capitalisation has been defined that ensures the operating effectiveness of the companies, quantified as a Core Tier I ratio of 7.0%. The DDM œ Excess Capital method hence estimates the value of the bank‘s economic capital based on the following formula:
W = DIVa + TVa where: W represents the economic value of the bank being valued;
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DIVa represents the present value of future dividend flows distributable to the shareholders in an identified time horizon, maintaining a satisfactory level of capitalisation;
TVa represents the present value of the bank‘s —Terminal Value“;
The DDM œ Excess Capital method is organised into the following phases: 1. Identification of future economic flows and the reference time frame For the purposes of this valuation, a specific time horizon of 2007-2009 has been assumed for determining the flows; in order to normalise the earnings of the two companies their growth has been assumed to reduce gradually up to 2011 when the assumed long-term rate of growth is reached; after 2011 the value of Capitalia and Unicredit has been determined by discounting the Terminal Value to present value. The cash flows considered for the period 2007-2009 have been determined, for both Banks, on the basis of the consensus view of the financial analysts.
2. Determination of the long-term growth rate and discount rate The discount rate applied to the flows represents the rate of return on equity required by shareholders for investments with similar risk characteristics, and has been calculated on the basis of the Capital Asset Pricing Model (—CAPM“), using the following formula:
Ke = Rf + Beta x (Rm œ Rf) where: Rf —risk-free rate“, namely the rate of return for risk-free investments, assumed equal to the yield of 10 year BTP and identified as 4.5% (Source: Bloomberg). Rm œ Rf —market risk premium“, namely the premium for the risk of investments in shares compared to a risk-free investment, set at 5.5% Beta the correlation coefficient between the effective return on an asset and the total return for the reference market (this measures the volatility of the share compared to the market portfolio). Reference has been made for Capitalia and Unicredit to the average beta for comparable companies included in the sample used in the market multiples method. Based on the variables indicated, the cost of capital estimated for Capitalia is 9.64% whilst for Unicredit it is 10.72%. The different cost of capital for the Banks can be attributed essentially to the difference in their business mix and geographical coverage. 3. Calculation of the Terminal Value The Terminal Value has been calculated on the basis of the Gordon formula: Terminal Value = Sustainable dividend / (Ke œ g) where:
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g indicates the nominal rate of growth sustainable over the long-term in relation to the assumed dividend distribution policy. For Capitalia and Unicredit a —g“ of 2.5% and 3.5% respectively has been considered. The difference can be attributed essentially to the different growth expectations due to the different business mix and geographical coverage;
Ke indicates the discount rate represented by the cost of the risk capital, as calculated in the previous paragraph. Sensitivity analyses have been carried out regarding the most important assumptions made in order to better appreciate the sensitivity of the value obtained in relation to the main valuation parameters used.
3.2 M ARKET M ETHODS
Market multiples method The market multiples method is based on market prices of a sample of companies comparable with those being valued. In an efficient market without speculative tendencies, the market price of the shares reflects, in fact, the market‘s expectations about the rate of growth of the company‘s future earnings and the degree of risk and volatility associated therewith. To apply the method in question a number of ratios (—multiples“) are calculated for the companies making up the sample of comparable companies. These are ratios of market value to a number of significant variables, typically forecast net income and book value. The average ratios thus obtained for the sample are then applied to the same variables of the company being valued, in order to obtain the theoretical value attributed thereto by the market.
Reference has been made to the following multiples for purposes of the Capitalia and Unicredit valuation: ñ market value/expected net income (P/E) ñ market value/book value (P/BV)
The sample used for the application of the market multiples method has been differentiated for the two Banks in order to consider their different features. In particular, for Capitalia reference has been made to average-large size Italian banks with supra- regional coverage and not involved in current negotiations regarding a M&A transaction. For Unicredit reference has been made to a sample of European banks considered to be comparable in terms of business mix and market capitalisation.
The multiples have been calculated ex-dividend by referring to the simple arithmetic mean of the prices in the last month compared to 17 May 2007. The multiples on book value have been
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calculated on the basis of the shareholders‘ equity of the bank as at 31 December 2006, adjusted in the event of capital increases/extraordinary transactions carried out after that date. The P/E multiples for 2007, 2008 and 2009 for the sample of banks considered were calculated on the basis of the estimates of the consensus of the financial analysts (source: I/B/E/S).
Market price method
The market price method defines the value of the company being valued on the basis of the capitalisation expressed on the basis of the prices of the shares traded on public stock markets. In particular, the market price method is considered to be important for valuing listed companies, when the average volumes traded are significant. The ratio between the market prices of the Banks does therefore allow reference to be made to an implicit exchange ratio that can be inferred from the market in relation to different time horizons being examined. For Capitalia and Unicredit, the market capitalisation is deemed to be representative of their economic value since (i) the two stocks are traded in the Blue Chip segment of the MTA (Electronic Stock Market) and (ii) the stocks feature an adequate level of daily liquidity. Ex-dividend market prices have been considered for both Banks in order to develop an analysis on a consistent basis. The market price analysis has been carried out with reference to the period prior to 8 May 2007, the date identified as the start of the speculative moves on the Capitalia stock following the rumours of possible M&A transactions. For the purposes of the analysis, reference has been made to the weighted average for volumes at 1 month, 3 months and 6 months.
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3.3 CONTROL M ETHODOLOGIES
Contribution analysis
The contribution method identifies the respective weight of the companies taking part in the merger. This method does not therefore express absolute values, rather relative contributions made by each company to the new entity resulting from the merger. The criterion in question, in particular, is based on comparing economic-capital-operating variables considered to be significant with regard to the banks involved in the incorporation process.
Value per share (⁄) ⁄m UCI CAP Exchange ratio UCI CAP
Market capitalisation œ 1 month average 78,548 18,665 7.52 7.19 0.96
Loans to customers 441,320 96,012 42.25 36.98 0.88
Direct deposits 495,255 96,753 47.42 37.26 0.79
Shareholders‘ equity 38,468 9,717 3.68 3.74 1.02
Total assets 823,284 137,132 78.82 52.81 0.67
Interest margin 12,155 2,588 1.16 1.00 0.86
Intermediation margin 23,361 5,023 2.24 1.93 0.86
Net income 5,448 1,162 0.52 0.45 0.86
Min 0.67 Max 1.02
Target Price In addition to DDM and market methods, Rothschild has also verified the results through an analysis of the target prices given in the broker reports produced, after the Banks‘ 2006 results were notified to the market, by the financial analysts covering the Capitalia and Unicredit shares.
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Capitalia
Broker Date Recom m endation Target price (⁄)
JP Morgan 17-May-07 Buy 7.61 Goldman Sachs 15-May-07 Hold 7.50 Euromobiliare 15-May-07 Buy 6.76 Credit Suisse 14-May-07 Hold 6.75 Banca Leonardo 14-May-07 Hold 6.70 Merrill Lynch 11-May-07 Hold 6.90 KBW 11-May-07 Buy 7.00 Cazenove 11-May-07 Hold n.d. Rasbank 07-May-07 Hold 6.60 Exane BNP Paribas 03-May-07 Buy 7.90 Morgan Stanley 03-May-07 Hold 7.35 HSBC 21-Mar-07 Hold 7.10 IXIS 20-Mar-07 Buy 7.10 ING 09-Mar-07 Buy 7.28 Caboto 07-Mar-07 Buy 7.40 Centrosim 26-Feb-07 Buy 7.60 FPK 23-Feb-07 Hold 6.80 Deutsche Bank 23-Feb-07 Hold 7.00
Unicredit
Broker Date Recom endation Target price (⁄)
JP Morgan 17-May-07 Buy 8.41 Goldman Sachs 15-May-07 Buy 8.19 Citi 15-May-07 Buy 9.00 Morgan Stanley 14-May-07 Hold 8.00 Societe Generale 14-May-07 Hold 9.10 Dresdner Kleinwort 11-May-07 Buy 9.00 Merrill Lynch 11-May-07 Buy 9.00 Banca Leonardo 11-May-07 Buy 8.20 Exane BNP Paribas 11-May-07 Hold 7.80 UBS 10-May-07 Buy 8.10 KBW 10-May-07 Buy 8.30 Akros 10-May-07 Buy 8.40 Rasbank 07-May-07 Buy 8.40 ABN AMRO 23-Apr-07 Buy 8.70 Centrosim 23-Apr-07 Hold 8.00 HSBC 20-Apr-07 Buy 9.20 Deutsche Bank 20-Apr-07 Buy 7.70 FPK 20-Apr-07 Buy 8.50 Credit Suisse 04-Apr-07 Buy 8.00 Caboto 26-Mar-07 Buy 8.10 Ixis 23-Mar-07 Buy 8.10 Sal. Oppenheim 22-Mar-07 Buy 8.20
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4. THE EXCHANGE RATIO FOR PURPOSES OF THE M ERGER
In order to determine the Exchange Ratio, Rothschild has compared the Capitalia and Unicredit values with reference to the principle of consistency of valuation, which has translated into the comparison of the values obtained using the same methods for both companies.
The graph below summarises the intervals obtained: .
DDM 0.86 0.93
M ain Market multiples method 0.92 1.01 methods
Market price method 0.96 0.98
Range identified by Rothschild w ith 0.91 0.97 the main methods 1
Target price 0.77 1.01 Control methods
Contribution analysis 0.67 1.02
Exchange Ratio: 1.12 1 Interval defined as the average of the minimum and maximum values of the main methods
The Exchange Ratio of 1.12 new Unicredit ordinary shares for each Capitalia ordinary share includes a premium, relative to the reference interval identified by Rothschild on the basis of the stand alone values, falling between 15.5% and 23.1%.
This premium appears justified in view of the different size of Capitalia and Unicredit and the governance system proposed for the resultant group, which actually implies the transfer of Capitalia control to Unicredit.
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The Control Premium is in line with the premiums recognised on average in recent friendly all- share bids, which have taken place recently in the European banking market and have settled on average premium in the interval 14.3% œ 18.2%. Based on the analyses contained in this Opinion, Rothschild considers that the Exchange Ratio, which provides for the issue of 1.12 new Unicredit ordinary shares for each Capitalia ordinary share, is fair for the Capitalia shareholders.
Alessandro Daffina Ilaria Romagnoli Managing Director Director Rothschild S.p.A. Rothschild S.p.A.
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Fairness opinion on the estimate of the exchange ratio prepared by Merrill Lynch International for the Board of Directors of UniCredit S.p.A.
Examination report of KPMG S.p.A. on the pro-forma consolidated balance sheet and pro-forma consolidated income statements as at and for the year ended at 31 December 2006
Examination report of KPMG S.p.A. on prospective financial information
Statement of Income, Balance Sheet and Financial Highlights Pro-Forma of UniCredit: breakdown and reconciliation of reclassified Accounts to Mandatory Reporting Schedule
BREAKDOWN AND RECONCILIATION OF RECLASSIFIED ACCOUNTS TO MANDATORY REPORTING SCHEDULE
CONSOLIDATED BALANCE SHEET (€ million)
PROFORMA Assets Cash and cash balances = item 10 6,672 Financial assets held for trading = item 20 200,207 Loans and receivables with banks = item 60 94,972 Loans and receivables with customers = item 70 537,332 Financial investments 65,331 30. Financial assets at fair value through profit or loss 15,990 40. Available-for-sale financial assets 34,081 50. Held-to-maturity investments 11,692 100. Investments in associates and joint ventures 3,568 Hedging instruments 3,541 80. Hedging derivatives 3,333 90. Changes in fair value of portfolio hedged items 208 Property, plant and equipment = item 120 11,522 Goodwill = item 130 - Intangible assets of which: goodwill 21,027 Other intangible assets = item 130 - Intangible assets net of goodwill 3,659 Tax assets = item 140 11,807 Non-current assets and disposal groups classified as held for sale = item 150 595 Other assets 11,347 110. Insurance reserves attributable to reinsurers - 160. Other assets 11,347 Total assets 968,012
Liabilities and shareholders' equity Deposits from banks = item 10 162,434 Deposits from customers and debt securities in issue 591,719 20. Deposits from customers 353,529 30. Debt securities in issue 238,190 Financial liabilities held for trading = item 40 107,858 Financial liabilities at fair value through profit or loss = item 50 1,731 Hedging instruments 3,884 60. Hedging derivatives 4,247 70. Changes in fair value of portfolio hedged items -363 Provisions for risks and charges = item 120 8,176 Tax liabilities = item 80 6,956 Liabilities included in disposal groups classified as held for sale = item 90 97 Other liabilities 23,165 100. Other liabilities 20,926 110. Provision for employee severance pay 2,077 130. Insurance reserves 162 Minorities = item 210 4,329 Shareholders' equity, of which: 57,663 - Capital and reserves 50,050 140. Revaluation reserves, of which: Special revaluation laws 277 170. Reserves 8,092 180. Share premium 35,499 190. Issued capital 6,677 200. Treasury shares -495 - Available-for-sale assets fair value reserve and cash-flow hedging reserve 2,165 140. Revaluation reserves, of which: Available-for-sale financial assets 2,655 140. Revaluation reserves, of which: Cash-flow hedges -490 - Net profit = item 220 5,448 Total liabilities and shareholders' equity 968,012
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INCOME STATEMENT (€ million)
PROFORMA Net interest = item 30. Net interest margin 14,743 Dividends and other income from equity investments 873 70. Dividend income and similar revenue 949 less: dividends from held for trading equity instruments included in item 70 -385 240. Profit (loss) of associates - of which: Profit (loss) of associates valued at equity 309 Net interest margin 15,616 Net fees and commissions = item 60 10,071 Net trading, hedging and fair value income 2,193 80. Gains (losses) on financial assets and liabilities held for trading 1,697 + dividends from held for trading equity instruments (from item 70) 385 90. Fair value adjustments in hedge accounting 14 Gains (losses) on disposal and repurchase of available-for-sale financial assets - private equity (from item 100 b) 38 100. Gains (losses) on disposal or repurchase of : d) financial liabilities 16 110. Gains (losses) on financial assets and liabilities designated at fair value through profit and loss 43 Net other expenses/income 345 150. Premiums earned (net) 89 160. Other income (net) from insurance activities -68 220. Other net operating income 910 less: Other operating income - of which: recovery of costs -586 Net non-interest income 12,609 OPERATING INCOME 28,225 Payroll costs -9,833 180. Administrative costs - a) staff expenses -9,848 less: integration costs 15 Other administrative expenses -5,520 180. Administrative costs - b) other administrative expenses -5,638 less: integration costs 118 Recovery of expenses = item 220. Other net operating income - of which: Operating income - recovery of costs 587 Amortisation, depreciation and impairment losses on intangible and tangible assets -1,483 200. Impairment/Write-backs on property, plant and equipment -933 less: Impairment losses/write backs on property owned for investment 62 less: integration costs 5 210. Impairment/Write-backs on intangible assets -652 less: integration costs 35 Operating costs -16,249 OPERATING PROFIT 11,976 Impairment of goodwill -9 260. Impairment of goodwill -357 less: impairment of goodwill due to recognition of deferred tax assets arising from losses carried forward of HVB Group 348 Provisions for risks and charges -593 190. Provisions for risks and charges -885 Surplus on release of integration provision 292 Integration costs -465 Net impairment losses on loans and provisions for guarantees and commitments -2,461 100. Gains (losses) on disposal and repurchase of a) loans 23 130. Impairment losses on a) loans -2,384 130. Impairment losses on d) other financial assets -100 Net income from investments 1,562 100. Gains (losses) on disposal and repurchase of b) available-for-sale financial assets 818 less: Gains (losses) on disposal and repurchase of available-for-sale financial assets - private equity -38 100. Gains (losses) on disposal and repurchase of c) held-to-maturity investments 3 130. Impairment losses on: b) available-for-sale financial assets -63 130. Impairment losses on: c) held-to-maturity investments 3 Impairment losses/write backs on property owned for investment (from item 200) -62 240. Profit (loss) of associates -of which: write-backs/impairment losses and gains/losses on disposal of associates valued at equity 52 270. Gains (losses) on disposal of investments 849 PROFIT BEFORE TAX 10,010 Income tax for the period -2,788 290. Tax expence related to profit from continuing operations -2,440 Impairment of goodwill due to recognition of deferred tax assets arising from losses carried forward of HVB Group -348 NET PROFIT 7,222 Gains (losses) on assets classified as held for sale, after tax = item 310 56 PROFIT (LOSS) FOR THE YEAR 7,278 Minorities = item 330 -683 NET PROFIT ATTRIBUTABLE TO THE GROUP 6,595
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