Forging Ahead q4 2009

8/8/2019 Forging Ahead q4 2009

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Forging aheadFourth-quarter 2009 global metals industrymergers and acquisitions analysis

Innovation: A course to recovery


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Welcome to the fourth-quarter 2009 edition ofForging ahead, our analysis of mergers and

acquisitions in the metals sector. The pace ofdeal activity as measured by the number ofannouncements picked up during the mostrecent quarter, though acquirers continued todemonstrate a preference for smaller deals.This can be seen in the paucity ofannouncements for large deals, which wedefine as deals more than $1 billion in value.


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Forging ahead

Special report:Innovation strengthens economic recovery

The many faces of innovation

Many industries have been transformed because ofinnovations involving advances in technology. For examplea steel company is gearing up to start construction on acarbon alloy synthesis facility that will use an innovative waof turning coal into Cokonyx. This product can displacetraditionally manufactured coke, a key ingredient insteelmaking. The Cokonyx carbon alloy material uses atechnology that significantly reduces emissions and energyusage compared with a traditional coke-making facility.Further, the gases created during the process can potentiabe used in a proposed cogeneration facility.2

Metals companies are also looking for ways to make theirproducts last longer and perform more efficiently. When a

company improves product durability and longevity, it canattach a premium to that products sale price and in theprocess gain competitive advantage.

Given the long life cycle of most metal products coupledwith the dynamics of globalization, metals companies feelpressured to incorporate innovations in their productionprocesses and back-office operations to remain competitiv

According to PwCs recently released ManufacturingBarometersurvey, 65 percent of respondents intend toincrease operational spending over the next 12 months.The top areas slated for an increase in spending are new

product or service introductions (37 percent), researchand development (37 percent), geographic expansion(27 percent), business acquisition (23 percent), facilitiesexpansion (22 percent), and information technology(22 percent). The quarterly report interviews seniorexecutives from large, multinational manufacturingcompanies including producers of metals and metalsproducts.

1 American Iron and Steel Institute.

2 PRNewswire-FirstCall, April 18, 2009.

When the world entered the worst recession since the GreatDepression, it forced companies to adopt a back to basicsapproach to business. As the economy recovers, companies

hope to shrug off their hunker down mentality and findnew ways to succeed. The question is: Which metalscompanies will be first to succeed, and how will they do it?

The winners will be those metals companies that optimizetheir recent acquisitions and look inward to achieve theefficiencies necessary to cut and sustain costs, improveperformance, and compete in an increasingly automatedbusiness environment.

The steel industry continues to make technologicaladvances aimed at reducing CO2 emissions. The research,called the CO2 Breakthrough Program, represents significantprogress toward carbon-free iron production. One projectunder way at MIT produces iron by molten oxide electrolysis(MOE) and generates near zero CO2 emissions. A secondproject, called Ironmaking by Hydrogen Flash Smelting, isbeing conducted at the University of Utah and useshydrogen to replace carbon as a blast-furnace fuel.1

In addition, aluminum producers are exploring ways toreduce greenhouse gas emissions through the commercialuse of inert anode technologies.

According to Christopher Wasden, a PricewaterhouseCoopers

(PwC) strategy and innovation specialist, technologicalbreakthroughs in any industry must have economic valuefrom a business perspective. Otherwise, a breakthrough issimply novel, and ultimately useless.

Simply put, that which is creative and new becomesinnovative only when it creates value that is, when peopleare willing to pay for it, Wasden said in the Fall 2009 editionof the PwC publication View. To harness innovation andmake it work, Wasden explains, requires an understandingof what drives and sustains it. Innovators need something tocause them to react something Wasden calls tensions.


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2 PricewaterhouseCoo

Innovation and business operations

Metals companies face the following business strategyissues:

Revenue growth

Commodity risk management

Cost containment

Inventory optimization

Strategic pricing

Companies may want to consider the following innovativesolutions to address business strategy issues:

Expansion of business intelligence software Growth in manufacturing intelligence

Business model integration

Many industrial products companies are interested in waysto save operational costs by automating routine processes.Rather than continue to move routine systems offshore,some companies are starting to automate them. Examplesinclude automation of back-office processes such asprocurement, invoicing, and payroll through theimplementation of enterprise resource planning systems.

Innovation, mergers, and acquisitionsInnovation plays a significant role in the acceleration of themergers and acquisitions (M&A) process. Companies with ahigh level of information technology infrastructure are betterable to integrate customer, product, and business data intoan acquiring or acquired company. It is also possible that acompanys technological innovations will render it moreattractive as a target. If acquired by a global company, thattarget company has an opportunity to market its innovationsto a broader audience and possibly to a wider geographicalarea. Additionally, product innovations can serve as acompetitive differentiator, thus protecting market share andgenerating revenue growth.

M&A also plays a significant role in accelerating innovationat an organization. Because the research and developmentthat could lead to innovation is often difficult, expensive, and

requires specific skills, some companies find it more costefficient to acquire innovation through the M&A process.Other potential M&A motivators include synergies in

competitive strategies and the building of new customersand markets.

As metals prices continue to make gains amid increasingglobal demand, it appears that there could be a jump inM&A activity going forward. While the economic difficultiescontinue, it will likely be strategic investors who drive mostof the deal activity. And although there have recently beenseveral large deals, metals company leaders mightstill choose to focus more on the integration of pastacquisitions, cost containment, and capacity rationalizationin the near term.

Navigating the right path to innovation

What steps should metals companies take to develop aninnovation strategy? For some organizations, acquiringcompetitors is a way to open up new markets, accelerateglobal growth, or improve distribution networks. Valuationsin the industrial products sector are cyclical, and it appearsthey are emerging from a trough and showing signs ofrecovery. Still, valuations are attractive relative to where thewere a couple of years ago. As the global economycontinues to improve, companies that act quickly onacquisition opportunities will secure the most attractivedeals with the most potential to stimulate growth.

Metals companies that embrace and execute on thedecades-old concepts of digital transformation and ITinnovation, along with tried-and-true practices such asstrengthening balance sheets and divesting noncore assetswill be the ones with the greatest opportunities for success

Stanford economist Paul Romer famously said, A crisisis a terrible thing to waste. In a metals industry hit hard byrecessionary struggles, companies will look to innovationas a way to possibly increase productivity, reduce emissionlower the cost of raw materials and energy, and ultimately

drive growth.


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Forging ahead

Perspective:Thoughts on deal activity in the fourth quarter of 2009

trend is likely to persist. However, Chinese entities couldcontinue to play a significant role through consolidation oftheir local steel industry as well as the potential for addition

outbound resource deals.

Conditions are in place for a brighter deal market in 2010.Metals deal activity has tended to increase coincident witheconomic recoveries, and the credit environment continuesto ameliorate with improvements in syndicated lending andcorporate bond issuance. In addition, risk premiums havenarrowed and equity markets are recovering, providingbetter currency for future deals. Based on the probabilityof a sustained, if modest, economic recovery in key regionhigher commodity prices, and the capital marketimprovements, we are cautiously optimistic about theenvironment for metals deals in the new year.

Though the metals deal market is normally driven bystrategic participation, financial investment increased duringthe quarter. In fact, the largest deal announcement was the

$631 million leveraged buyout by a JP Morgan private equityfund of Constantia Packaging. This deal was announcedconcurrent with an $88 million transaction to bring the totalstake in the target company to 75 percent. Another shiftobserved in the quarter is the decline of minority stakepurchases, which had become more prevalent on a relativebasis during the downturn. We attribute this abatement tobuyers improved financial position, which allowed them toseek more controlling interests in target companies.

Despite the high-profile nature of deals involving entitiesfrom emerging and developing economies during 2009,acquirers from advanced economies began to increase their

relative deal activity in the fourth quarter. We believe this


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Commentary

Deal-making pace improves again; values lag

The pace of the number of deal announcements for metalstargets continued to improve during the fourth quarter,with 32 announced deals, 11 more than the third quarter.

On an annualized basis, the number of deals announcedduring the fourth quarter exceeds the number announcedduring all of 2009 and falls only slightly short of the totalannounced in 2008.

The level of announced deal value remains mostly anemic.The $4.9 billion of total deal value announced during thefourth quarter compares with $83.3 billion announced durinall of 2009. However, after adjusting the 2009 deal valuetotal for the $58 billion Rio Tinto-BHP Billiton deal, whichwas financed largely by the contribution of iron ore assets iWestern Australia, deal value in the fourth quarter droppedonly marginally from the average of the first three quarters

of the year.

Deal activity by number of dealsMeasured by number of announced deals worth $50 million or more

Deal activity by total deal valueMeasured by value of announced deals worth $50 million or more

Quarterly metals deal activityMeasured by number and value of deals worth $50 million or more

2007 2008 20091Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Number of deals 38 32 28 43 38 45 34 25 17 17 21 3

Total deal value ($ billions) 22.2 51.2 53.5 24.2 29.3 18.5 21.9 11.5 11.7 63.0 3.7 4.

Average deal value ($ billions) 0.6 1.6 1.9 0.6 0.8 0.4 0.6 0.5 0.7 3.7 0.2 0.2

191

2008 2009 4Q09

Pending or intended

Completed

Withdrawn

Numberofdeals

0

50

100

150

91

3912

19

41

7

38

13

3.4 1.40.1

2008 2009 4Q09

US$billions

0

20

40

60

80

53.1

9.6

64.6

9.1

22.2

5.9

Completed

Pending or intended

Withdrawn


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Minority stake purchasesMeasured by percent of deals worth $50 million ormore for less than 50% ownership

Quarter sees less activity for minority interestsin metals companies

In previous 2009 quarterly reports, the trend of a higherproportion of minority stake purchases was noted. This wadriven, in part, by credit constraints, which made it moredifficult for acquirers to target controlling interest stakes.

Also, a number of strategic owners increased their minoritystockholdings rather than seek new deals. This trendreversed in the fourth quarter, with the percentage of dealsinvolving minority stakes returning to 2008 levels.

It is likely that this past year represented a relative high poifor minority stake activity. Now, the capital markets havebecome somewhat more supportive of deals that involvecontrolling interests.


Percentofdeals

0%

15%

30%

45%

60%

32% 31%

44%

2008 2009 4Q09


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Forging ahead

Large deal activity slowed during 2009, with five such dealsannounced during the year compared with 19 in 2008. Inaddition, none of the large deals in 2009 was announced

during the most recent quarter. When considering that thethree largest deals in 2009 involved related deals by BHPBilliton, Chinalco, and Rio Tinto, it is clear that the dealenvironment has not yet recovered sufficiently such that thepace of large deals has aggrandized.

The two proposed large deals in which Chinalco was theacquirer (listed as Peoples Republic of China in the table onpage 8 targeted a stake in Rio Tinto and its mines throughthe purchase of convertible bonds and direct investments inthe mines. The large deals involving Chinalco were droppedin favor of a joint venture between BHP Billiton and Rio Tintothat the parties expect to close by the second half of 2010.

BHP and Rio are targeting synergies from this joint ventureof approximately $10 billion based on lower overhead andlogistics. Though BHP Billiton and Rio Tinto decided to keeptheir marketing operations separate to improve theprospects for regulatory approval, this joint venture has beena source of continued scrutiny. Steel makers have notedthat, even with separate marketing operations, the jointventure partners could still benefit from an improvedknowledge of overall volume and demand trends for iron ore.

The fourth-largest deal announced during 2009 was thepurchase by the Venezuelan government of a remainingstake in Sidor from Ternium SA, which followed the

governments decision to renationalize the metals sector.During the third quarter, the fifth-largest deal of the year, anincremental stake by Vale in a steel joint venture withThyssenKrupp, was announced. The joint venture isconstructing the first large steel mill that has been built inBrazil since the 1980s. This mill is slated to begin productioin 2010, and Vale will benefit as the exclusive supplier of iroore to the joint venture.

In June 2009, Xstrata announced a hostile merger of equalproposal for Anglo American that was valued at $30 billionbased on stock prices at the time of announcement. Thisannouncement is not included in the 2009 large deals table

because of Anglo Americans heavily diversified miningexposure. The withdrawal of this deal preceded Anglo

Americans announcement of a restructuring that involves anumber of asset divestitures.

The outlook for large deal activity in 2010 is better. Highercommodity prices and stock valuations can provide bettercurrency for large deals. In addition, a modest improvemenin economic activity within developed markets, along withcontinued growth in developing markets, should helpencourage potential acquirers to focus less on cost andliquidity improvements and more on growth opportunities

available from large M&A transactions.

No large deals announced in 4th quarter; 2010 seen as favorable


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Large deals in 2008 (value of $1 billion or more)

Monthannounced Target name Target nation Acquirer name

Acquirernation Status

Value oftransactionin US$ bln Category

Aug OAO GMK Norilsk Nickel Russian Fed Vladimir Potanin Russian Fed Pending 9.65 Nickel

Mar Zinifex Ltd Australia OZ Minerals Ltd Australia Completed 5.73 Other

Mar IPSCO Inc-CanadianTubular Operations

Canada Evraz Group SA Russian Fed Completed 4.03 Steel

Aug John Maneely Co United States NLMK Russian Fed Withdrawn 3.53 Steel

Jan IronX Mineracao SA Brazil Anglo American PLC UnitedKingdom

Completed 3.49 Iron ore

Oct Nacionale Minerios SA Brazil Investor Group Japan Completed 3.12 Iron ore

Jun Eurasian natural ResourcesCorp PLC {ENRC}

UnitedKingdom

Kazakhmys PLC UnitedKingdom

Completed 2.55 Steel

Jan Iron X Mineracao SA Brazil Anglo American PLC UnitedKingdom

Pending 2.01 Iron ore

Feb J Mendes Ltda Brazil Usiminas Brazil Completed 1.90 Iron ore

Jan Iron X Mineracao SA Brazil Shareholders Brazil Completed 1.88 Iron oreJul Century Aluminum Co United States Glencore International AG Switzerland Completed 1.82 Aluminum

Dec Handan Iron & Steel Co Ltd China Peoples Republic of China China Pending 1.69 Steel

Mar Oriel Resources PLC UnitedKingdom

OAO Mechel Russian Fed Completed 1.52 Other

Nov CITIC Pacific Ltd Hong Kong Peoples Republic of China China Completed 1.50 Steel

Mar IPSCO Tubulars Inc United States TMK Russian Fed Completed 1.20 Steel

May Panzhihua Iron & Steel CoLtd-Assets

China Panzhihua New Steel China Pending 1.16 Steel

Jan Tenaris SA-Hydril PressureControl Business

United States GE Italy Completed 1.12 Steel

Jun PNA Group Inc United States Reliance Steel &Aluminum Co

United States Completed 1.10 Other

Dec DHS-Dillinger HuetteSaarstahl AG

Germany SHS-Struktur-Holding-Stahl

Germany Pending 1.07 Steel

Large deals in 2009 (value of $1 billion or more)

Monthannounced Target name Target nation Acquirer name

Acquirernation Status

Value oftransactionin US$ bln Category

Jun Rio Tinto PLC-WesternAustralian Iron Ore Assets

Australia BHP Billiton Ltd Australia Pending 58.00 Iron ore

Feb Hamersley Iron Pty Ltd Australia Peoples Republic of China China Withdrawn 5.15 Iron ore

Feb Rio Tinto Ltd Australia Peoples Republic of China China Withdrawn 2.63 Iron ore

May Ternium Sidor Venezuela Republic of Venezuela Venezuela Completed 1.97 Steel

Jul ThyssenKrupp CSASiderurgica do Atlantico Ltda

Brazil Vale SA Brazil Completed 1.37 Steel



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Forging ahead

US acquirers fuel activity among advanced economies

It has been noted in previous reports that entities inemerging and developing economies such as China haveincreasingly flexed their financial muscle in making metals

acquisitions. However, deals involving acquirers fromadvanced economies accounted for a greater proportion ototal deal volume during the fourth quarter. This was drivenby the resumption of deal activity involving US acquirers,which announced six deals during the fourth quarter after nannouncements during the first three quarters of the year.

The US deals include two announcements from a JP Morgprivate equity fund for a 75 percent interest in ConstantiaPackaging, which derives almost 40 percent of sales from

Austrian aluminum subsidiary AMAG; and a silicon metalacquisition by Dow Corning (a joint venture of Dow Chemicand Corning) in Brazil. One of the JP Morgan transactions f

Constantia was the largest deal announced during thequarter at $631 million, with the goal of benefiting from theinternational growth potential of the target. As the USeconomy and other advanced economies enter a tentativerecovery, it is likely that acquirers from these countries willdisplay continued fortitude by entering into a greater numbof M&A transactions than in recent periods.

Acquirers from advanced versus emergingand developing economiesMeasured by number of announced deals worth $50 million or more

0%

20%

40%

60%

80%

100%

2008 2009 4Q09

58.5%

41.5%

50.6%

49.4%

71.9%

28.1%

Emerging and developing

Advanced


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Regional distribution of deals by target regionMeasured by number of deals worth $50 million or more (4Q09)

Regional distribution of deals by target regionMeasured by value of deals worth $50 million or more (4Q09)

Regional distribution of deals by acquirer regionMeasured by number of deals worth $50 million or more (4Q09)

Regional distribution of deals by acquirer regionMeasured by value of deals worth $50 million or more (4Q09)

3.1%3.1%

3.1%

62.5%

12.5%

15.6%

1.3% 1.2%

3.6%63.5%

7.0%

23.4%

3.1%3.1%

6.3%

62.5%25.0%

1.3%2.5%

3.5%

62.3%

30.4%

North AmericaAsia & Oceania UK & Eurozone Africa/UndisclosedSouth America Europe ex-UK & Eurozone


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Forging ahead

Asia and Oceania region dominates amongtargets, acquirers

The regional distribution of deals by acquirer and targetregion indicates that Asia and Oceania entities accounted forthe majority of deals by both value and number in the fourthquarter. The resurgence in deal interest from US companiesalso contributed substantial deal activity. The two JP Morgantransactions, through private equity firm One EquityPartners, for Constantia Packaging drove the relatively highproportion of deal value and volume targeting UK andEurozone entities.

Asia and Oceania entities are likely to continue to accountfor a large amount of metals deal activity in 2010. This isbecause of interest in outbound resource deals by China, as

well as the importance of Australia as a consolidator in thesector.


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Cross-border vs. local-market dealsMeasured by number of deals worth $50 million or more

More overseas transactions likely in future period

The relative level of cross-border to local-market dealsindicates that acquirers demonstrated a greater preference

for targets within their home nations during 2009. This canbe attributed to a greater sense of risk aversion, which canlead to a desire for deals that are more likely to providesynergies from asset overlap. As the operating environmenimproves, acquirers of all nations can be expected to feelmore comfortable in looking to foreign geographies forpotential deals.

In contrast, Chinese acquirers have already increasinglylooked outside their local markets to secure access tonatural resources, which has led to an interest in miningdeals. While Chinese acquirers will likely continue to target

overseas resource assets, the rationale for local-market steconsolidation is strong. Such M&A would help producersnegotiate from a position of greater strength against aconsolidating base of iron ore suppliers. These local-markedeals should be more prominent in 2010, with Chinaspolicy makers generally supportive of domestic steel M&Atransactions to improve the bargaining power and efficiencof the industry.Cross-border vs. local-market deals by Chinese acquirers

Measured by number of deals worth $50 million or more

0%

20%

40%

60%

80%

100%

2008 2009 4Q09

43.0%

57.0%

37.9%

62.1%

37.5%

62.5%

All local-market

All cross-border

0%

20%

40%

60%

80%

100%

2008 2009 4Q09

25.6%

74.4%

38.2%

61.8%

42.9%

57.1%

Local-market by Chinese acquirers

Cross-border by Chinese acquirers


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Nonaluminum companies see most M&A in 2009

One prediction in previous editions of Forging ahead wasthat deal activity would focus on targets outside the

aluminum category because of the relatively consolidatedstate of the aluminum industry. This held true in both 2008and 2009, with a more diversified range of deal activity bymetals category during the former period and a greaterinterest in iron ore targets during the latter period.

Iron ore deals in 2009 included announced transactionsinvolving BHP Billiton, Rio Tinto, and Chinalco. TheChinalco proposed acquisitions were subsequentlywithdrawn in favor of a pending joint venture betweenBHP Billiton and Rio Tinto.

In 2010, it is likely that deal activity will involve more steelconstituents than in the recent past based on the relativelyhigh fragmentation within this category.

Deals by target metal category - 2008Measured by value of deals worth $50 million or more

Deals by target metal category - 2009Measured by value of deals worth $50 million or more

Forging ahead

2.5 2.5

0.1

0%

20%

40%

60%

80%

100%

Total Completed Pending

or intended

Withdrawn

Aluminum

Steel

Iron ore

Other

%o

fdealvalue(absolutedeal

valueindatalabelsin$billions)

34.0 22.66.7

4.6

1.1

3.2

12.3

15.7

12.3

20.0

24.6

3.1

2.02.9 0

0.2

0.8

1.5

0%

20%

40%

60%

80%

100%

Total Completed Pending

or intended

Withdrawn

Aluminum

Steel

Iron ore

Other

%o

fdealvalue(absolutedea

l

valueindatalabelsin$billion

s)

69.8

8.5

5.3

7.9

1.0

59.3

2.6

1.6


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Values to EBITDA climb for quarter

Deal valuations in the fourth quarter, as measured by deal

value/EBITDA, exceeded the 2009 overall level but remainebelow the multiple of 2008. The publicly available sample odeal value to EBITDA data was limited in each period (36,18, and seven deals for 2008, 2009, and the fourth quarter2009, respectively); thus, the median was selected as ameasure of central tendency to reduce the influence ofoutliers. The reversal in median value/EBITDA indicates thaa bottoming in valuations for metals targets has likelyoccurred, with the upward movement in valuation supporteby higher commodity prices, improved equity markets, andgenerally easier credit conditions.

Deal valuation by median value/EBITDAMeasured by value/EBITDA for deals worth $50 million or morefor which target EBITDA was publicly disclosed

0

3

6

9

12

2008 2009 4Q09

10.4

6.0

8.4

MedianValue/EBITDA


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Forging ahead

Historical metals deal activity and the business cycleMeasured by number and value of all metals deals (19892009;quarterly observations)

0

2

4

6

8

1

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

1989

Deal value (right axis; $ billions)

Number of deals (left axis)

Recessionary periods

0

100

200

300

As recessions end, activity normally sees a boost

The historical pattern of metals M&A activity after the past

two US recessions has been one of general improvement.US recessions are used in this chart as a proxy for globaleconomic downturns. Metals activity as measured by boththe value and number of deals increased following the1990-1991 recession; and activity as measured by thenumber of deals also increased in the quarters after the 2001recession, though deal value remained muted for the nextseveral years. The spike in deal value during the secondquarter of 2009 reflects the $58 billion Rio Tinto-BHP jointventure.

The improvement in demand for metals products shouldprovide an impetus for M&A activity in the sector. However,the depth of the recent recession and overhang related tothe leverage bubble represent limiting factors that couldencumber a more substantial and timely recovery thanoccurred after the past two recessions.


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PricewaterhouseCoopers spotlight

Moving yourcompany forward

with the economy

As the world rapidly changes andbecomes more complex, industrialproducts companies are seizingopportunities to reexamine theirbusinesses. They are looking for waysto squeeze more performance fromtechnology and processes andadvance their strategic goals. Theseare companies actively engaged inchange adjusting to a globalmarketplace, new reporting standards,evolving regulations, expansion,contraction, and foreign operations.

A year ago, the global recession wasdeepening and credit markets werealmost frozen. Struggling companieslooked to carve out and sell portions oftheir operations to generate neededcapital or exit noncore business units.

This environment presentedextraordinary opportunities forcompanies with strong balance sheetsand available capital to expand marketshare and increase profitability.

M&A activity over the past few yearshas been strong as the metals industryconsolidated to improve its financialstrength, increase negotiating powerwith customers and suppliers, andboost capacity utilization. Companiesfocused on rationalizing operations and

building core activities and assetsthrough acquisitions, divestitures,carve-outs, privatizations, and othertransactions. As the industryconsolidates, new opportunities arearising for multinational firms to expandinto global markets.

Change is the answer to a newbeginning, but where to begin?

Capturing the benefits of changerequires insight into its potential toimpact the enterprise as a whole. Thismeans strategy, structure, people,processes, and technology. To move

from strategy to execution, companiesneed to translate strategy into practicalresults while avoiding major disruptionsto ongoing operations.

PwC Advisory professionalsunderstand the fundamentals ofcreating, capturing, and measuringvalue. We know how to addresspeople, processes, strategy, structure,and technology in an integratedfashion, and we can help you execute

your plans across functions and theorganization.

From enterprise-wide processimprovement to sustainable costreduction; from transactions thatcapture and create value to rapid crisisresponse; from strategic IT solutionsthat align with business needs tocost-effective talent management andsourcing, the mission of our Advisorypractice is to help business leadersanticipate, create, and manage change.

How PricewaterhouseCooperscan help with M&A

Whether the business objective is todiversify products or services, enternew markets, or achieve revenue orcost synergies, many difficult choicesare associated with making the right

M&A decision.

The strategy professionals withinPwCs Transaction Services practicehelp clients to align and clarify seniormanagement teams strategic prioritiefor organic and inorganic growth.

Advisory services are offered incommercial due diligence, M&Astrategy, and growth strategy andinnovation.

Once managements priorities aredetermined, PwC can assist byidentifying potentially attractiveindustry and product sectors andworking with top management to refinscreening criteria and produce a shorlist of best-fit acquisition targets thatmatch priorities.

Clients gain the information they needto strengthen their deal pipelines,become more credible and proactivebidders, and potentially avoid bad

deals. Clients also benefit from theconvenience of a single advisor andpoint of contact who has commercialand financial proficiency, as well asdeep experience ranging from strategto deal due diligence to postdealintegration.


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Specialty case study:Effective acquisition integration

Client: A privateequity firm needs

help in integratinga global metalsproduct company

Client issue Before acquiring a division of a multibillion-dollar global mininconglomerate, a leading private equity firm engaged PwC toconduct a due diligence review across all functional areas suc

as finance, human resources, information technology,insurance, and tax. The assessment was critical to the clientsgoal of turning the acquired division into a successful, stand-alone public company. Potential areas of post-acquisition riskrelated to the companys time-consuming, error-prone, andmanual financial reporting processes were exposed during thpre-deal due diligence work. A post-acquisition project waslaunched so the new company would have robust processesand scalable system support for detailed managementreporting capabilities.

Approach The objective of this initiative was to create a plan to addressoperating system issues and provide practical solutions

that could be implemented quickly with limited technologychanges to meet current and future reporting requirements.Recommendations were developed based on interviews anddata requests on the financial close-to-report environment. Tohelp the client improve or change processes, an analysis wasconducted of the key close calendar tasks, financialstatements, finance organization design, internal financialspecialists, internal audit, corporate reporting, and technolog

Close collaboration between the client and PwC helped theclient implement the recommended solutions. To eliminateerrors and streamline closing and reporting processes in one the companys divisions, various electronic workbooks critica

to the close process were remediated and stabilized. Tools alwere developed to create templates, map charts of accountsand structure the close-to-report process to facilitate greaterefficiency. A chart of accounts mapping and the data dictionawas also developed to help the company provide consistentreports across all of its divisions.

Impact As a result of PwCs work, the acquired company can meetreporting requests from the private equity owner, as well ascomply with upcoming external reporting requirements such aSEC filings. Organizational changes also enabled the compato have a greater degree of oversight into its financialorganization, which enhanced accountability during critical

close times.

A close tool kit provides the acquired company with structureand governance around the close-to-report process byhighlighting key deadlines and responsible parties. Theautomation of the close also limits the manual effort requiredto maintain and update the schedule for the monthly closeprocess. Finally, PwC provided the acquired company with away to map its chart of accounts and account definitions toenable accurate and consistent reporting across the entireorganization.

Forging ahead


20/24


PricewaterhouseCoopers metals experience

Deep industry experience

PwC continues to have the leading Fortune Global 500market share in the metals industry. Our Metals practice

serves ferrous and nonferrous primary and secondary metalsproducers through a network of 1,000 professionalsstrategically located around the world. Central to thesuccessful delivery of our services is an in-depthunderstanding of todays industry issues, in addition to awealth of specialized resources and best practices thathelp in solving complex business challenges. Our highlyskilled team encourages dialogue on top-of-mind trends andissues through active participation in industry conferencesand associations, such as the American Iron and SteelInstitute, as well as through industry-focused publicationsand Web forums. To address your industry needs whereverthey arise, our specialists are concentrated in areas wherethe metals industry operates today and in the emergingmarkets where it will operate in the future.

Quality deal professionals

PwCs Transaction Services practice, with more than3,800 dedicated deal specialists worldwide, has the right

industry and functional experience to advise you on allfactors that could affect the transaction, including market,financial accounting, tax, human resources, operating, IT,and supply chain considerations. Teamed with our Metalspractice, our transaction specialists can bring a uniqueperspective to your deal, addressing it from a technicalaspect as well as from an industry point of view.

Local coverage, global connection

In addition to nearly 1,000 professionals who serve themetals industry, our team is a part of an expansive IndustriProducts group that consists of 31,000 professionals,

including approximately 15,800 providing assuranceservices, 9,000 providing tax services, and 6,200 providingadvisory services. This expands our global footprint andenables us to concentrate efforts in bringing clients a greatdepth of talent, resources, and know-how in the mosteffective and timely way.

North America & the Caribbean

5,300 Industrial Products professionals

230 Metals industry professionals

South America



Europe



Australia & Pacific Islands1,500 Industrial Products industry professionals


Asia

6,300 Industrial Products professionals120 Metals industry professionals

Middle East & Africa




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Forging ahead

Contacts

PricewaterhouseCoopers Global TransactionServices practice

PwCs Transaction Services practice offers a full range oftax, financial, business assurance, and advisory capabilitiecovering acquisitions, disposals, private equity, strategicM&A advice, advice on listed company transactions,financing, and public-private partnerships.

Global Transaction Services LeaderColin McKay +1.646.471.5200

[email protected]

US Transaction Services LeaderJohn McCaffrey +1.415.498.6150

[email protected]

Europe Transaction Services LeaderPhillippe Degonzague +33.01.5657.1293

[email protected]

Asia-Pacific Transaction Services LeaderTodson Page +81.03.6266.5767

[email protected]

US Transaction Services, AssuranceBrian Vickrey +1.312.298.2930

[email protected]

US Transaction Services, TaxMichael Kliegman [email protected]

US Transaction Services, Merger IntegrationDavid Limberg [email protected]

PricewaterhouseCoopers National Tax practicePartner, Federal Tax Services GroupGeorge Manousos

+1.202.414.4317

[email protected]

Federal Tax Services Group ManagerJames Liechty

+1.202.414.1694

[email protected]

PricewaterhouseCoopers Global Metals practice

PwCs Metals practice provides industry-focused assurance,tax, and advisory services. Through our global network, we

can draw upon the in-depth industry experience of specialistsin every country in which your company operates. Our peoplecan help you deal with the challenges of today, and theyunderstand the implications for tomorrow.

US Metals Industry LeaderRobert McCutcheon [email protected]

US Metals Transaction Services ManagerJoaquin Oliveras +1.646.471.0926

[email protected]

US Metals Client Service AdvisorKristopher Hagedorn [email protected]

US Industrial Products LeaderDean Simone [email protected]

US and Global Industrial Products Tax LeaderMichael Burak [email protected]

US Industrial Products Advisory LeaderKaren Vitale +1.973.236.5437

[email protected]

US Industrial Products DirectorNeelam Sharma [email protected]

US Industrial Products Marketing ManagerDiana Garsia [email protected]

US Metals Sector AnalystTom Haas [email protected]

US Research AnalystMichael Portnoy +1.813.348.7805

[email protected]

Global Metals LeaderJim Forbes +1.905.972.4105

[email protected]

European Metals LeaderPeter Albrecht +49.0.201.438.1518

[email protected]


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Methodology

Forging ahead is an analysis of merger and acquisitionactivity in the global metals industry. Information wassourced from Thomson Financial and includes deals for

targets with primary SIC codes that fall into one of thefollowing industry groups: iron ores; ferroalloy ores, exceptvanadium; steel works, blast furnaces, rolling mills, andfinishing mills; iron and steel foundries; primary smelting andrefining/nonferrous; secondary smelting and refining/nonferrous; rolling, drawing, and extruding/nonferrous;nonferrous foundries; miscellaneous primary metal products;and metals service centers and offices.

This analysis includes all individual mergers and acquisitionsfor disclosed or undisclosed values, leveraged buyouts,privatizations, minority stake purchases, and acquisitions ofremaining interest announced between January 1, 2007, and

December 31, 2009, with a status of completed, intended,partially completed, pending, pending regulatory approval,unconditional (i.e., initial conditions set forth by the acquirerhave been met but deal has not been completed), orwithdrawn. The term deal, when referenced herein, refers totransactions with a disclosed value of at least $50 millionunless otherwise noted.

Regional categories used in this report approximate UnitedNations (UN) regional groups, as determined by the UNStatistics Division, with the exception of the North America

region (includes Northern America, Latin America, and theCaribbean UN groups), the Asia and Oceania region(includes Asia and Oceania UN groups), and Europe (divideinto United Kingdom and Eurozone and Europe ex-UK andEurozone regions). International Monetary Fundclassifications were used to label economies as advanced developing and emerging. Overseas territories were includein the region of the parent country. China, when referencedseparately, includes Hong Kong.

Competing deals, not just the ultimate successful dealpartner, were included in the data set used throughout thedocument.


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Visit our metals industry website atwww.pwc.com/us/industrialproducts

2010 PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, theP i t h C l b l t k th b fi f th t k h f hi h i t d i d d t l l tit Thi d t i f l i f ti l d h ld

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