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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