Sense and Non-Cents of Mergers &amp Acquisitions

Sense and Non-cents of
Mergers & Acquisitions
March 28, 2006
Charles H. Troe, Managing Director
0
West Ridge Associates, LLC
Charles H. Troe, Managing Director
Chuck has over 30 years of experience as a senior officer and principal in investment
banking firms and as a partner in large law firms. His Mergers & Acquisition and
Corporate Finance transactional experience is diverse in type, size and industry,
including technology, telecommunications, basic industry, manufacturing, distribution,
banking and finance, insurance, real estate, lodging, and oil and gas. He is a recognized
expert in the medical technology industry in which he has executed many transactions.
He is active in industry organizations, including as Program Chair of the Life Science
Industry Council and as a member of the Board of Directors of the Los Angeles
Biomedical Research Institute at Harbor UCLA Medical Center.
Chuck is the founder of West Ridge Associates, LLC. He has been Managing Director of
Mosaic Capital, Managing Director and Principal of Taurus Capital Group, LLC, and a
Managing Director of Barrington Associates, Southern California investment banking
firms providing merger and acquisition, corporate finance, business valuation, and related
investment banking services to middle market companies. Previously, he was a Partner
in large national law firms, including 14 years with Mayer, Brown, Rowe & Maw.
He has served on the boards of directors of numerous growth stage and middle market
companies in the medical device, technology and oil and gas industries
Chuck received his B.B.A. degree from the University of Iowa and his J.D. from the
University of Chicago.
1
Current M&A Environment - Domestic
M&A Activity
# Deals Value
# Deals Value ($T)

12,000 $1.6T
$1.4T
10,000
$1.2T
8,000
$1.0T
6,000 $0.8T
$0.6T
4,000
$0.4T
2,000
$0.2T
0 $0.0T
92 93 94 95 96 97 98 99 00 01 02 03 04 05
Source: Mergerstat
2
M&A Activity by Sector

(Total 2005)
Communications 316 deals
Oil/Gas 141 deals
Banks/Fin 397 deals
Drugs, Med Supl & Equip 389 deals
Broadcasting 645 deals
Software and Services 1,736 deals
Household Goods 73 deals
Misc Services 1,153 deals
$- $25B $50B $75B $100B $125B
Source: Mergerstat
3
Current M&A Environment – One Day Sample
Lucent Technologies Inc. and France’s Alcatel SA said they were in advanced talks on a
merger . . . With a market value of $33 billion in the rapidly consolidating
telecommunications industry.
Bayer AG’s $19.7 billion takeover offer for Schering AG yesterday was aimed at rescuing the
company from the latest trend in Europe’s heater merger market: a wave of hostile bids.
Three days after [the acquisition of Suez SA was scuttled by political moves] Suez was
merging instead with state-owned Gas de France to create an all French global energy
giant.
General Motors Corp. sold . . . a stake in [a GMAC real estate unit for 8.8 billion to KKR].”
Wall Street Journal, March 24,2006
4
M&A Has Become Globalized
2005 International Transactions

1600 $90,000
1500 $85,000
1400 $80,000
1300 $75,000
1200 $70,000
1100 $65,000
1000 $60,000
Inbound Outbound
Total Number of Transactions Total Value of Reported Transactions ($B)
1,315 Inbound Transactions totaled $71.971B
1,548 Outbound Transactions Totaled $86.320B
5
Current M&A Environment - International
Representative International Transactions in 2005 Included:
Inbound
GlaxoSmithKline PLC acquired Corixa Corp a vaccine and antigen based product developer for $320M
Computershare LTD’s acquired Equiserve LP who services shareholder records for publicly traded
companies for $307M
Access Co., Ltd. Acquired PalmSource, Inc. a develops and licensor of platform software for $312M
Outbound
eBay, Inc. acquired Shopping.com Ltd. a provider of shopping services via the internet for $623M
Madison Dearborn Partners LLC acquired Sirona Dental Systems GmbH a manufacturer and
distributor of dental equipment for $1.03B
Eastman Kodak Co. Acquired Creo, Inc. a developer of imaging software technologies for $954M
6
M&A Multiples by Company Size
12-months ending 12/21/2005
20
x EBIT x EBITDA
18 16.2
16 15.1
14 12.7
12 10.0 9.5 10.1
9.9
10 8.9
7.8
8
5.8
6
4
2
0
<$25 $25-$100 $100-$250 $250-$1000 >$1000
Source: Piper Jaffray
7
M&A EBITDA Multiples
All Sectors
12
10.7 10.6
9.7 9.8 9.5 9.4
10 9.1
8.5
8
6
`
4
0
1998 1999 2000 2001 2002 2003 2004 2005
Average Enterprise Value/EBITDA
Source: Mergerstat
8

Manufacturing Sector
12
10.3 10.6
9.9 9.8 9.9 9.8 9.7
10 8.8
0
1998 1999 2000 2001 2002 2003 2004 2005
Source: Mergerstat
9

Services Sector
12 11.3
10.9
9.6 9.5
10 8.8 9.0
8.2 8.3
8
0
1998 1999 2000 2001 2002 2003 2004 2005
Source: Mergerstat
10

Retail Sector
14
12.1
12
10.2
9.5 9.4
10 9.0 8.7
8.6
7.8
8
0
1998 1999 2000 2001 2002 2003 2004 2005
Source: Mergerstat
11
EBITDA Multiples
EBIT Multiples
16
14
12
10
4
1998 1999 2000 2001 2002 2003 2004 2005
All Sectors Mfg'g Services Retail Med Device
Source: Mergerstat
12
Historical Acquisition Premiums 2001 – 2005

(Acquisition price compared to market price 30 days prior)
500 100
432
Acquisition Prem ium %

400 80
88
282
# of Deals
300 269 270 260 60
200 40
50 46
100 31 33 20
0 0
2001 2002 2003 2004 2005
Total Number of Deals Acquisition Premium %
Source: Mergerstat
13
Conventional Wisdom is that Acquisitions do not Work
The Opinion of the Experts:
“Research indicates that up to 80% of mergers fail”, Robert W. Holthausen, The

Nomura Securities Co. Professor; Professor of Accounting and Finance and
Management Chairperson, Accounting Department, at the Wharton Business School,
University of Pennsylvania
"The truth is mistakes happen. The accepted data say that most mergers and
acquisitions don't work out”, Martin Sikora, Editor, Mergers & Acquisitions: The
Dealmaker’s Journal
14
Conventional Wisdom is that Acquisitions do not Work
Cumulative Adjusted Returns on Equity for 2,805 Transactions

From 1985 to 2005
Best and Worst From 5 Days prior to Announcement to 756 Days After
Source: Profiles of Outlying M&A Transactions, 1985 – 2000 Robert F. Bruner
15
Spectacular Failures – DaimlerChrysler
May 7, 1998 Announcement
The Wall Street Journal named it “the biggest industrial merger of all time.”
Forbes reported, “No, this merger isn't about savings. It isn't about blending German
caution with Yankee freewheeling…It is about taking two splendid companies and
transforming them into a real world-scale, truly multinational business.”
Business Week (1998), emphasized, “The merger of Daimler Benz and Chrysler
Corp. will clearly rock the global auto industry. But the creation of this new
powerhouse is more than an industrial mega deal. It's perhaps the first sign that the
forces of globalization have succeeded in reshaping Europe Inc. companies such as
Daimler Benz now seem to be strong and confident enough to deal on an equal
footing with their American counterparts.”
“Within five years, we’ll be among the Big Three automotive companies in the world”,
Robert Eaton, Chrysler CEO.
16
Integration Problems
Cultural differences were more complicated, if not impossible to solve. The lifestyles
of the German and American managers turned out to be very different. Americans
enjoyed much higher salaries, while the Germans enjoyed larger expense budgets.
“From the outset, the German obsession with planning has kept everyone on edge,”
said one of Chrysler’s executives.
According to Chrysler marketing chief Jim Holden: “We felt like we were marrying up,
and it was clear that they thought they were marrying down.”
17
DaimlerChrysler Average Market Cap ($mm)
18
DaimlerChrysler – Historical Earnings Per Share
3.00
2.00
1.00
(1.00)
(2.00)
(3.00)
19
Spectacular Failures – AOL Time Warner
2000 Announcement
"Together, they represent an unprecedented powerhouse,” said Scott Ehrens, a
media analyst with Bear Stearns. "If their mantra is content, this alliance is
unbeatable. Now they have this great platform they can cross-fertilize with content
and redistribute.”
"I don’t think this is too much to say this really is a historic merger; a time when
we’ve transformed the landscape of media and the Internet,” said Steve Case,
AOL’s chairman and chief executive officer.
Today’s announcement really does change the tectonic plates in this world,” said
Christopher Dixon, media analyst with PaineWebber.
Referring to the deal’s ability to accelerate the combined company’s revenue stream
while generating significant efficiencies on the advertising and marketing end
Gerald Levin stated “I concluded that either we would do something with AOL or we
would build ourselves, but this is infinitely preferable.”
20
2001 – 2004
Market Capitalization Aol Time Warner – Market Capitalization ($mm)

drops 75 percent within
two years of the deal's
completion
250,000.00
There is a vicious purge

of the top executives 200,000.00
responsible for the

merger 150,000.00
Dicey accounting 100,000.00
practices are
investigated 50,000.00
The poisonous -
atmosphere-all this has

resulted in a constant
America Online Time Warner Inc. (NYSE:TWX) - Common Stock - Avg Market Cap ($mm)
barrage of ugly news
headlines and poor
morale at the company
21
2005
Steve Case resigns to “avoid future conflicts with Revolution’s internet activity”
This merger has most definitely qualified as a disaster of belly flop proportions, by any
measure you might care to use, which AOL Time Warner's own magazine, Fortune,
dubbed "one of the greatest train wrecks in corporate history."
AOL Time Warner – Historical Earnings Per Share
2.00
-
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
1999 1999 1999 1999 2000 2000 2000 2000 2001 2001 2001 2001 2002 2002 2002 2002 2003 2003 2003 2003 2004 2004 2004 2004 2005 2005 2005
(2.00)
(4.00)
(6.00)
(8.00)
(10.00)
(12.00)
(14.00)
Time Warner Inc. (NYSE:TWX) - Co mmo n Sto ck - B asic EP S
22
Heisneberg Principle – Or String Theory
What would have happened to Compaq if it had not been Acquired by HP?
LTM2
Key Financials 12 months 12 months 12 months 12 months 12 months 12 months
For the Fiscal Period Ending Dec-31-1997A Dec-31-1998A Dec-31-1999A Dec-31-2000A Dec-31-2001A Mar-31-2002A
In Currency USD USD USD USD USD USD
Total Revenue 24,584.0 31,169.0 38,447.0 42,222.0 33,554.0 32,101.0
Growth Over Prior Year 22.9% 26.8% 23.4% 9.8% (20.5%) (23.4%)
Gross Profit 6,751.0 7,189.0 8,649.0 9,805.0 7,112.0 6,626.0

Margin % 27.5% 23.1% 22.5% 23.2% 21.2% 20.6%
EBITDA 3,532.0 1,751.0 2,050.0 3,699.0 1,856.0 1,661.0

Margin % 14.4% 5.6% 5.3% 8.8% 5.5% 5.2%
EBIT 2,987.0 858.0 648.0 2,292.0 479.0 352.0

Margin % 12.2% 2.8% 1.7% 5.4% 1.4% 1.1%
Earnings from Cont. Ops. 1,855.0 (2,743.0) 569.0 595.0 (563.0) (610.0)
Margin % 7.5% (8.8%) 1.5% 1.4% (1.7%) (1.9%)
Net Income 1,855.0 (2,743.0) 569.0 569.0 (785.0) (610.0)

Margin % 7.5% (8.8%) 1.5% 1.3% (2.3%) (1.9%)
Diluted EPS Excl. Extra Items 3 1.186 (1.706) 0.341 0.342 (0.334) (0.360)
Growth Over Prior Year 36.4% NM NM 0.3% NM NM
Financial Results were deteriorating
23
Heisneberg Principle – Or String Theory
What would have happened to Compaq if it had not been Acquired by HP?
Public Markets Lost Interest (small upswing due to imminent closing of HP deal)
24
Spectacular Failures
BUT WAIT – There’s more!!!
“It was clear pretty soon after the merger that there really wasn’t much synergy.”
Les Moonves commenting on the spin off of CBS from Viacom on CNBC Jan. 4, 2006
“The potential move [to break up Tyco International] comes amid a great dismantling of
conglomerates formed during the 1990’s. Pinched by stagnant stock prices and investors
demanding more focused companies, the likes of Viacom and Cendant Corp. have recently
undone years of empire-building.”
Wall Street Journal, January 9,2006
25
Spectacular Failures
Some bad (i.e. non-strategic) reasons for M&A Transactions
Ego – the edifice complex

Short-term secondary market gain
Buy-side CEO compensation
Investment banking fees
Benefit-benefit analysis
Amnesia – Does anyone remember the ’60’s
Stupidity
One good (i.e. strategic) reason with a bad result
Incorrect analysis of strategic considerations
26
Strategic Reasons for Buying or Selling
Product Extension – merger of firms selling non-competing products to related marketing

channels
Example: Proctor & Gamble Company’s acquisition of The Gillette Company
"This combination of two best-in-class consumer products companies, at a time

when they are both operating from a position of strength, is a unique opportunity,"
said A.G. Lafley, chairman, president and chief executive of Procter & Gamble.
"Gillette and P&G have similar cultures and complementary core strengths in
branding, innovation, scale and go-to-market capabilities, making it a terrific fit.”
"It (the deal) brings together two companies that are complementary in their
strengths, cultures and vision to create the potential for superior sustainable growth,“
said James M. Kilts, Gillette's chairman of the board, chief executive officer, and
president.
"This merger is going to create the greatest consumer products company in the
world," said Warren E. Buffett, chairman and CEO of Berkshire Hathaway Inc.,
Gillette's largest shareholder. "It's a dream deal. To quantify that, I intend to
purchase enough shares so that by the time the deal is closed, we will have 100
million shares of P&G."
27
Economies of Scale – More assets and accounts, lower per dollar overhead = greater
profits. It’s a pretty simple formula, and it usually works.
Example: JPM Chase & Co. merger with Bank One Corporation
This is a strategic business combination designed to create shareholder value

through balanced business mix, Greater Scale, and enhanced competitiveness
The combined company will be a leading global financial services enterprise, with
top-tier positions in consumer banking, investment banking, and other key business
segments
The combined company will have assets of $1.1 trillion, a strong capital base, 2,300
branches in seventeen states and top-tier positions in retail banking and lending,
credit cards, investment banking, asset management, private banking, treasury and
securities services, middle-market, and private equity.
Source jpmorganchase.com
28
Market Share – merger of firms selling competing products in the same markets, or separate
geographic markets
Example: Hewlett-Packard’s acquisition of Compaq Computer Corporation
Upon announcement in September 2001, based on figures reported for the past four
quarters, the combined company would have annual sales of $87.4 billion and an
operating income of $3.9 billion. Just slightly less than IBM’s total sales of $90.1
billion in the same four quarters.
"Without question, the merger improved the product portfolio of the company. We
have better products to sell. We have a broader, stronger sales force. With that,
clearly we'll have increased share," said Jeff Clarke, executive vice president for
merger integration at H-P.
In 2003, while discussing the Compag acquisition, Jim Milton, HP's enterprise
systems group vice-president, said “One of the factors behind HP's success, which
has run contrary to what many analysts had expected, is that the company has
stolen market share from its main rivals.”
29
Cost Savings – merger of firms intended to provide cost savings through the integration of
the two companies’ operations
Example: Hewlett-Packard’s acquisition of Compaq Computer Corporation
A joint press release issued by the two companies stated cost structure
improvements will come as the company cuts product lines, manufacturing systems
and distribution systems made obsolete by the merger. In total, the deal is expected
to create savings of $2 billion in fiscal 2003 and $2.5 billion by mid-fiscal 2004.
Carly Fiorina, chairwoman and CEO of HP, called the acquisition a "decisive move"
and said it will provide "significant cost structure improvements."
30
Brand Equity – because many aspects of brand equity are intangible there is no one cut and
dried way to valuate a brand irrefutably
Example: SBC Global acquired AT&T and adopted the AT&T Name
"The combination of SBC and AT&T companies gives us the local, global, and
wireless network resources and the expertise to set the standard for delivering
meaningful innovations and making the promise of integrated communications and
entertainment a reality for consumers and businesses," said Edward E. Whitacre Jr.,
chairman and CEO of AT&T Inc.
"That name is priceless," said Robert Rosenberg, president of The Insight Research
Corp. in Boonton, N.J.
CoreBrand, a communications firm that studies brand equity, estimated the AT&T
name alone is worth $2.4 billion.
31
R&D Purchases –There are many different practice areas of medicine, each with separate
product lines, therefore it is often cheaper and faster to acquire another company’s
product lines.
Example: Amgen’s acquisition of Immunex
Amgen’s acquisition of Immunex brings together the world’s most successful biotech
companies, significantly accelerating Amgen’s long-term growth
The new Amgen will have an unparalleled, diversified portfolio of 3 blockbuster

drugs with long patent lives, including Amgen’s EPOGEN® and NEUPOGEN® and
Immunex’s ENBREL®, along with Amgen’s potential blockbuster Aranesp™
The new Amgen will have leadership in three targeted therapeutic areas --
nephrology, oncology, and inflammation -- with a rich pipeline and R&D focus in
proteins and antibodies
Acquisition of Immunex will increase Amgen’s long-term product sales growth rate to
the low 30s and cash EPS growth rate to the mid-20s, driven by potential ENBREL®
sales of $3 billion or more by 2005.
Source: Amgen.com
32
Medical Devices - Strategic Reasons for Buying or Selling
Announced Transactions – Medical Device Industry

350 318 321
300 275 278 277 270

267 264
250
200
150
100
50
0
1998 1999 2000 2001 2002 2003 2004 2005
Source: Mergerstat
33
Total Transaction Value – Medical Device Industry

$45B
$40.2
$40B
$35B
$30B
$23.6
$25B $20.9
$20B $18.5
$16.2
$15B $12.4 $11.6
$10B
$4.0
$5B
$0B
1998 1999 2000 2001 2002 2003 2004 2005
Source: Mergerstat
34
M&A Revenue Multiples - Medical Device Industry

4
3 2.8
2.5 2.4
3
1.9 1.9
2 1.7
1.4
2 1.2
1
0
1998 1999 2000 2001 2002 2003 2004 2005
Source: Mergerstat
35
M&A EBITDA Multiples Medical Device Industry

16
13.8
14 13.1 13.0
11.8 11.8
12
9.7
10 8.9 8.8
8
6
4
2
0
1998 1999 2000 2001 2002 2003 2004 2005
Source: Mergerstat
36
Platform Technology - Expertise
Example: Boston Scientific acquisition of Target Therapeutics
“We acquired Target Therapeutics (in 1997) to get a foothold in the neurology business.”
said John Abele, Boston Scientific, Co-chairman.
37
Distribution
Example: Cardinal Healthcare Inc.’s merger with Allegiance
Robert Zollars, Allegiance’s head of distribution said “Customers are interested in a

one-order, one-truck approach.”
‘We are very pleased to have reached this agreement with Allegiance, which
combines Cardinal's leading pharmaceutical services capabilities with the nation's
premier manufacturer and distributor of medical, surgical and laboratory products,’
stated Robert D. Walter, chairman and chief executive officer of Cardinal Health.
“This is a story about growth,” said Lester B. Knight, chairman and chief executive
officer of Allegiance, ‘With Cardinal, we have a powerful partner who shares our
strategic vision of integrating manufacturing, distribution and services to bring
greater quality and efficiency to patient care.”
38
Product Acquisition
Example: Johnson & Johnson proposed acquisition of Guidant Corporation
"The combination of these businesses will enable us to bring innovative new

therapies to patients and their physicians in this very important and fast growing
therapeutic area," said William C. Weldon, Chairman and Chief Executive Officer of
Johnson & Johnson.
"This exciting new partnership opens a dynamic era of innovation and product
development that will benefit millions of patients around the world," said Ronald W.
Dollens, President and Chief Executive Officer of Guidant.
In the interventional cardiology market, this business combination provides the

capability to accelerate development of new technologically advanced products.*
This new business can utilize Cordis' expertise, intellectual property and experience
in drug development, coating technology and polymers.*
Together with Guidant's strength in rapid and innovative development of stent

platforms and delivery systems, the combined company will bring superior products
to the market faster than either company could on its own.*
*Source: www.jnj.com
39
Boston Scientific Corp. Acquisition of Guidant Corp. – Case Study in Process
Boston Scientific Corp.
1979 - Formed to acquire Medi-Tech, former employer of one of the founders

maker of catheters, cell-sampling tools and depilatories. $800,000 cash deal
1992 – IPO – beginning of an acquisition binge
1995 - SciMed Life Systems – $850 million of BSX stock
1995 – 2005 - Acquired 25 companies
2006 – Guidant Corp. - $27 billion

“7.7 times Guidant’s 2005 sales, a price greater than 10 other recent similar mergers,
according to UBS” (WSJ 1/26/06)
Simultaneous sale of vascular intervention and endovascular business to Abbott for

4.3 billion ($500 million subject to certain device approvals) plus a loan of $700 million.
40
Market share leadership strategy
SciMed Life Systems - Became a leading manufacturer of angioplasty balloons
Guidant Corp. – “The combined company, with revenue of about $9 billion, will have the No. 1
position in the US in selling coronary stents . . . and the No. 2 position in selling
implantable defibrillators.” (WSJ 1/26/06)
41
Revenue Growth Strategy
The cardiac rhythm management sector growing at 20% per year

“Broadly, the battle may augur a new driving force for deals during one of the busiest periods
of mergers and acquisitions ever. The bulk of deals during 2004 and 2005 aimed at
reducing expenses by combining similar firms and gutting overlapping costs. Few were
premised on expanding revenue, an argument that investors soured on after some deals
earlier this decade failed to deliver.
Across the board, investors are increasingly focusing on [revenue] growth as opposed to
earnings dilution. . . Boston Scientific really will test how far people are willing to go in
that trade-off. As long as that environment continues, you’ll continue to see important,
dilutive M&A transactions”
“J&J reported soft fourth-quarter sales . . .. weaker sales for the health-care-products titan
underscored its interest in acquiring fast-expanding cardiac-device maker Guidant Corp.
(WSJ 1/18/06)
42
Integration “Strategy”
“We’re kind of like the dog that caught the bus. Now what are we going to do with the bus?
Boston Scientific CEO James Tobin commenting on the integration challenges of the Guidant
acquisition
(WSJ 1/26/06)
43
Value
Concept/ Product Regulatory Initial Sales Market Infrastructure Maturity

Invention Development Approval Penetration
Time
44
Value - Return/Cost of Capital
Concept/ Product Regulatory Initial Sales Market Infrastructure Maturity

Invention Development Approval Penetration
Time
45
Conclusions
M&A Transactions work only if they are driven by strategic considerations
Strategic considerations must be correctly identified and analyzed
An efficient market will take care of the rest
46

Sense and Non-Cents of Mergers &amp Acquisitions

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Sense and Non-Cents of Mergers &amp Acquisitions

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Sense and Non-cents of

Mergers & Acquisitions

March 28, 2006

Charles H. Troe, Managing Director

# Deals Value ($T)

M&A Activity by Sector

$- $25B $50B $75B $100B $125B

Wall Street Journal, March 24,2006

2005 International Transactions

Total Number of Transactions Total Value of Reported Transactions ($B)

1,315 Inbound Transactions totaled $71.971B

1,548 Outbound Transactions Totaled $86.320B

Source: Piper Jaffray

M&A EBITDA Multiples

M&A EBITDA Multiples

M&A EBITDA Multiples

All Sectors Mfg'g Services Retail Med Device

Historical Acquisition Premiums 2001 – 2005

Acquisition Prem ium %

300 269 270 260 60

Total Number of Deals Acquisition Premium %

The Opinion of the Experts:

“Research indicates that up to 80% of mergers fail”, Robert W. Holthausen, The

Cumulative Adjusted Returns on Equity for 2,805 Transactions

Source: Profiles of Outlying M&A Transactions, 1985 – 2000 Robert F. Bruner

May 7, 1998 Announcement

DaimlerChrysler Average Market Cap ($mm)

DaimlerChrysler – Historical Earnings Per Share

Market Capitalization Aol Time Warner – Market Capitalization ($mm)

There is a vicious purge

responsible for the

Dicey accounting 100,000.00

atmosphere-all this has

AOL Time Warner – Historical Earnings Per Share

Time Warner Inc. (NYSE:TWX) - Co mmo n Sto ck - B asic EP S

Gross Profit 6,751.0 7,189.0 8,649.0 9,805.0 7,112.0 6,626.0

EBITDA 3,532.0 1,751.0 2,050.0 3,699.0 1,856.0 1,661.0

EBIT 2,987.0 858.0 648.0 2,292.0 479.0 352.0

Net Income 1,855.0 (2,743.0) 569.0 569.0 (785.0) (610.0)

Financial Results were deteriorating

BUT WAIT – There’s more!!!

Wall Street Journal, January 9,2006

Some bad (i.e. non-strategic) reasons for M&A Transactions

Ego – the edifice complex

One good (i.e. strategic) reason with a bad result

Incorrect analysis of strategic considerations

Product Extension – merger of firms selling non-competing products to related marketing

Example: Proctor & Gamble Company’s acquisition of The Gillette Company

"This combination of two best-in-class consumer products companies, at a time

This is a strategic business combination designed to create shareholder value

Example: Hewlett-Packard’s acquisition of Compaq Computer Corporation

Example: Hewlett-Packard’s acquisition of Compaq Computer Corporation

Example: Amgen’s acquisition of Immunex

The new Amgen will have an unparalleled, diversified portfolio of 3 blockbuster

Announced Transactions – Medical Device Industry

300 275 278 277 270

Total Transaction Value – Medical Device Industry

M&A Revenue Multiples - Medical Device Industry

M&A EBITDA Multiples Medical Device Industry

Platform Technology - Expertise

Example: Boston Scientific acquisition of Target Therapeutics

Example: Cardinal Healthcare Inc.’s merger with Allegiance

Robert Zollars, Allegiance’s head of distribution said “Customers are interested in a