April 2009 Edition Mergers & Acquisitions Quarterly Switzerland First Quarter 2009 Table of Contents Ernst & Young Mergers & Acquisitions Quar terly Switzerland – Q1 2009 Introduction 2 Swiss M&A Market Q1 2009 and Outlook for 2009 3 Deal of the Quarter 6 Industry Overview Chemicals, Construction and Materials 7 Financial Services 9 Healthcare 11 Industrial Goods and Services 13 Media, Technology and Telecommunication 15 Retail and Consumer Products 17 Event Calendar 19 Ernst & Young M&A Opportunities 20 Ernst & Young M&A Contacts Switzerland 21 1 Introduction This M&A market review covers six key industry groups and analyzes current industry valuations, margins, recent announced transactions, and key company developments for the three-month period ended 31 March 2009. The first quarter of 2009 was marked by the close of the transaction between Genentech Inc. and Roche Holding AG. In our chapter Deal of the Quarter within this brochure, we provide a summary of the Roche/Genentech deal, beginning with the announcement of the transaction in July 2008 to the agreement reached in March 2009, including key facts and figures of this transaction. In addition, included towards the end of this bulletin is an event calendar providing an overview of M&A and M&A-related events in the forthcoming months. We hope that this edition of Mergers & Acquisitions Quarterly Switzerland will provide you with valuable insights into the Swiss M&A market. The next edition will be available in July 2009. Sincerely, Your Swiss Ernst & Young M&A Team 2 Swiss M&A Market Q1 2009 and Outlook for 2009 Number of announced deals and transaction volume with target, M&A market summary Q1 2009 buyer or seller in Switzerland Activity on the Swiss M&A market has significantly decreased in the first quarter of 2009 compared to the first quarter of 2008. Number and volume of announced Swiss M&A transactions have both 70 200 decreased by approximately 20% compared to the same period in 2008. The acquisition of 180 60 Genentech Inc. by Roche Holding AG is not included in number and volume of Q1 2009 transactions, as 160 n b the deal was originally announced in July 2008 and was therefore included in the numbers for the third 50 D 140 S s quarter of 2008. l U a 120 e n 40 i d e 100 f o m . u 30 The global recession is also impacting Swiss stock performance. Over the past 12 months all industries l 80 o o N v l performed negatively. Healthcare companies significantly outperformed all other industries, while a 20 60 e D 40 industrial goods and services recorded the worst stock performance. 10 20 0 0 The five largest transactions in calendar year 2009 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Rank Announcement Date Target Acquirer Seller Deal Volume (in USD m) 1 05.02.2009 Swiss Reinsurance Co. Berkshire Hathaway Inc. - 2’576 Volume No. of deals 2 29.01.2009 Prodeco SA Xstrata plc Glencore Holdings AG 2’000 3 16.01.2009 Alpiq Holding AG EDF - 947 4 12.03.2009 Athris Holding AG Shareholders Jelmoli Holding AG 339 Relative stock performance of selected industries over the past 5 03.03.2009 Presse Publications Sr S.a. Tamedia AG Edipresse SA 193 12 months Industrial Media, Chemicals, Retail & The largest M&A transaction of the first quarter of 2009 was the private placement of convertible bonds Goods & Technology & Construction Consumer Financial at Swiss Re by Warren Buffet’s Berkshire Hathaway. Swiss Re is to pay interest of 12% per annum on the Services Telecom & Materials Products Services Healthcare bonds, maturing in 2012. Upon maturity, Berkshire Hathaway has the right to convert the bonds into 0% -10% common shares, which could result in an equity stake of over 20% in Swiss Re. -20% -30% -40% SMI Index -50% -60% Data as of 31 March 2009 3 Source: Capital IQ, Bloomberg and Ernst & Young Research Swiss M&A Market Q1 2009 and Outlook for 2009 Number of Swiss M&A deals split by industry in Q1 2009 M&A market summary Q1 2009 continued Globally, the pharmaceutical industry was among the most active industries, with Pfizer and Merck & Co. 22% 23% announcing acquisitions in the first quarter of 2009 of USD 78.6 bn and USD 50.7 bn, respectively. In Switzerland, Roche came to a friendly agreement regarding the acquisition of Genentech. Although both Roche and Novartis have recently made large acquisitions, it is likely that industry consolidation will continue as competitors react to these deals. In addition, Novartis, Roche and Actelion announced 5% another four small and medium-sized transactions in the first quarter of 2009. 9% 18% In Switzerland, the most active industry in the first quarter of 2009 in terms of number of transactions, was the media, technology and telecommunications industry with 26 transactions. The industry’s largest 11% deal was announced in early March. Tamedia acquired a 49.9% equity stake in Edipresse’s Swiss 12% business Presse Publications in an initial phase. Tamedia is expected to acquire an additional 0.2% in Media, Technology and Telecom Industrial Goods and Services 2011 to gain a controlling interest. In 2013, Presse Publications is expected to be fully acquired and Retail and Consumer Products Financial Services integrated into Tamedia. The least active industry in terms of M&A transactions was chemicals, Healthcare Chemicals, Construction and Materials construction and materials. Other Industries The second chart on the left amplifies the effect of the global downturn on large transactions in Number of Swiss M&A transactions split by deal size Switzerland, as the number of deals above USD 250 m decreased significantly from 11 transactions to 4 compared to the same period of 2008. The number of medium and small deals on the other hand has 100% increased as a percentage of total transactions with disclosed deal value. 90% 80% The first quarter of 2009 was also marked by a significant increase of 28% in companies filing for 70% bankruptcy compared to the first quarter of 2008. March 2009 even recorded an increase of 44% in 60% bankruptcy filings compared to March 2008. This development is underlined by worsening payment 50% behavior, which is an indicator for decreasing liquidity. The automotive industry experienced the largest 40% rise in bankruptcies with 36% in the first quarter of 2009 compared to the first quarter of 2008. 30% 20% 10% 0% Q1 2008 Q1 2009 < USD 50 m USD 50-250 m > USD 250 m Data as of 31 March 2009 4 Source: Bloomberg and Ernst & Young Research Swiss M&A Market Q1 2009 and Outlook for 2009 Change in industry multiples from Q4 2008 to Q1 2009 Outlook 2009 Based on deteriorated economic conditions, Swiss M&A activity in 2009 is expected to be average. The Industry TEV/Revenues TEV/EBITDA impact of the global recession is forecast to lead to an increase of distressed situations and (LTM) (LTM) subsequently expedited M&A transactions. With companies increasingly focusing on their core businesses, M&A deals due to carve-outs and spin-offs are also expected to increase. In addition, M&A Chem. / Constr. / Mat. - é activity is forecast to arise from small and mid-sized companies facing succession issues. Companies in Financial Services* - é these situations are generally less dependent on current market conditions, since the “going concern” aspect of these firms requires prioritization. Healthcare ê ê Industrial Goods ê ê The financing of M&A deals is to remain challenging in the near future. This applies in particular to large transactions. Due to the continuing credit crunch, leveraging capabilities are limited as the risk appetite Retail / Consumer ê ê of banks and financial investors remains low. Consequently, M&A transactions are expected to be Media / Tech. / Tel. ê ê increasingly financed by the use of equity capital. The issuance of new equity is expected to rise and more stock for stock transactions are forecast to be consummated. This reflects a significant change in EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization the financing of M&A deals compared to previous years. Additionally, investors currently prefer TEV = Total Enterprise Value financially sound, rather conservatively managed target companies in this challenging market LTM = Latest Twelve Months environment. * excluding banks The table to the left shows that chemicals, construction and materials as well as financial services firms (excluding banks) experienced an increase in EBITDA multiples (contrary to what one would expect) due to a decrease in EBITDA margins in the first quarter of 2009. The increase in multiples is, hence, to be explained with deteriorating economic expectations about the future that were already priced into the securities by the market participants. As valuation multiples fell considerably in the fourth quarter of 2008 and the first quarter of 2009, attractive opportunities in the form of potentially undervalued firms are presented to investors. In particular, companies with significant cash reserves are well positioned to take advantage of these opportunities. At present, however, companies are still cautious regarding investment decisions, but the continuing low levels of valuation multiples are expected to encourage M&A activity in Switzerland throughout the remainder of the year. Data as of 31 March 2009 5 Source: Bloomberg and Ernst & Young Research Deal of the Quarter Deal Summary This edition’s Deal of the Quarter features the acquisition of California-based biotech company Genentech Inc. by the Swiss pharma giant Roche Holding AG. The acquisition was announced on 21 July 2008 by Roche, aiming to acquire the remaining outstanding Genentech shares totaling 44.2% or USD 46,722 m.