2Q10 Metals M a Aug2010

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Forging aheadSecond-quarter 2010 global metals industrymergers and acquisitions analysis

Making better deals in a changing environment: Merger integration

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Welcome to Forging ahead, our quarterlyanalysis of deal activity in the metals sector.

The pace of metals mergers & acquisitions(M&A) activity continues to demonstrateimprovement when measured by the numberand value of announcements, particularlywhen adjustments are made for the impactof the $58 billion BHP Billiton-Rio Tinto ironore joint venture. This transaction, which wasannounced in 2009, remains under regulatory

review as of this writing.

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Forging ahead

Special report:Capturing synergies to maximize deal value

Customer relationships

Raw material self-sufciency

Plant locations and capacity optimization

Supplier relationships

Investor relations

Workforce health and safety

Environmental concerns

Brand and reputation

Social or community relationships

The economic recovery highlights the importance

of cost containmentDuring the economic downturn, metals companies spentconsiderable time and effort right-sizing their cost andorganizational structures. Now that the economy isrecovering, the time is ripe for acquisitions that providegreater access to markets or raw materials or stimulaterevenue growth, keeping in mind that capturing valuedepends on making the most of each companys strengths,consolidating operations, and reducing costs.

During the integration phase, companies must guard againsinadvertently adding unnecessary overhead by failing to

recognize redundant processes. Instead, companies arechallenged to stay lean and hold on to cost benets achieveduring the downturn. To meet that goal requires identifyingand quantifying synergy targets. With a disciplined approachand the right tools, companies can accelerate the integratioprocess and realize savings.

As companies are doing acquisitions, they must be focusedstructured, and fast moving to take out excess overhead anleverage the economies of scale or cost advantages thatbusinesses often obtain as a result of an acquisition. Thevalue driver initiative could be combining the two back-ofcnance functions, or consolidating and implementing best

practices that eliminate redundancy.

Its perhaps the hardest and most important part of atransaction. When done right, it unites two entities andimproves the operating and nancial benets of nearly

everyone involved, from the owners and investors to theemployees. Often, the value of a deal is signicantlyinuenced by the expected synergies to be achieved.But without a vision and a postdeal integration plan tocapture these synergies, a merger integration is in troublefrom the start.

In todays recovering economy, the merger integrationplanning process is critical to success. Metals companiesmust balance a desire to quickly reach the nish line witha need to systematically leverage synergies and containcosts. As the number of announced metals deals growsand as more companies enter this toughest phase of the

deal process, organizations focused on outpacing theircompetitors can lose sight of the deals objectives.

For metals companies, there are usually obvious synergiesbased on production capabilities and raw material supply.However, because most metals deals are cross border,there is an added complexity of not only integrating theoperations, nance, and business processes, but alsoharmonizing or even redening the culture. The integrationof two metals companies also requires careful supply chainanalysis to ensure end-to-end coordination so that the newcompany realizes the benets of the transaction.

Multinational industrial products companies focused onoptimizing core operations during the recession, and as theylook forward over the next three to ve years, acquisitionsare seen as a key enabler for revenue growth. Having doneacquisitions in the past, many of these companies arereecting on how well those deals were executed, andthey see opportunities for improvementopportunitiesto execute a smooth transaction with an early realizationof synergies.

Key issues faced by metals companies as they work towardmerger integration include:

People and change management

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2 PricewaterhouseCoo

Key challenges to a successful integration

Many companies struggle to successfully integrate after amerger, especially in several primary areas. These areas

include people and change, cultural integration, andsuccession planning. Success can depend on howwell a company tackles these challenges.

People and change

Because the industry is cyclical, metals companies facelong-term human capital management challenges, includinga need for new talent and the aging workforce in the Westernworld. At the same time, a turbulent economic situation isbringing people-related costs into sharper focus. Thegenerational gaps, combined with the difculty of attractingand retaining talent, are a potential threat to business growth

that must be addressed during the integration process. Asmetal companies expand their geographic reach by executingdeals, they must also devote time to people issues so that theright people are in place on projects in diverse locations.

Cultural integration

The rising demands for global mobility, as well as theorganizational and cultural issues emerging from thedramatic pace of change in the past 10 years, put aspotlight on cultural integration. As metal companiescontinue their expansion into global markets, both intoand out of countries like Brazil, Russia, India, and China,

there must be an awareness of cultural issues and thepotential risk they pose to deal success.

Succession planning

Metals companies emerging from the economic recessionmay also be in the process of reviewing their core functionswith an eye toward potential targets for outsourcing andshared services centers. As companies take action tooutsource certain functions during the postmerger integrationprocess, it is important to retain oversight of successionplanning and staff evaluation.

Supply chain management

When reviewing core functions, companies also have anopportunity to enhance their supply chains by acquiring

a company with a more efcient supply chain, or one thatprovides greater access to raw materials. In these instancesthe goal of the transaction is not to diversify the companysportfolio, but is focused on enhancing the supply chain as away to manage commodity risk.

Staying on track during the integration phase

During the integration phase, both companies must maintaintheir customer base. They can achieve that goal by makingpreparations during their due diligence process to dene themarketing and sales strategy of the combined company.Once the deal is announced, they educate their sales force

on how the deal will impact each customer segment. Theyalso contact their most loyal customers from both companieto communicate ways the new company will better servethem and quickly provide a unied entity to the customer,particularly in areas of purchasing a complementary productor sharing a similar customer base with the acquired busines

It also is critically important for the nance function to delivea centralized process for monitoring, tracking, and reportingsynergies to ensure the new company stays on task anddelivers measurable results. Companies depend on theirnance function to structure the tracking to measure thecapture of deal value, integrate business operations, maintacommon controls, provide accurate and consistent nancialreporting, ensure tax compliance, and establish interim legastructures and business processes that give new companiesthe exibility they need to grow and thrive.

Strategies for successful M&A integration

Companies that seek to achieve profound organizationalchange through a deal should consider the followingstrategies:

Manage diligence and integration in lockstep In amerger or acquisition, an integrated process for due

diligence and integration can help companies betteridentify issues and opportunities.

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Envision and plan for Day One During the deal process,companies that focus on all of the operational details fortheir new company will be well positioned to hit the ground

running as soon as the deal concludes. Secure leadership commitment When companies

pursue transformation, it is essential to establish executiveleadership both for the deal itself and for the organizationgoing forward. This includes dening the span of control,responsibility, accountability, and reporting relation-ships.It is also important to identify best practices in processand leadership and adopt these without regardto which legacy company owned them.

Aspire to excellence in comprehensive dealcommunication How companies communicateabout a deal, both internally and externally, matters.

This includes the deal announcement, integrationprogress, and people plans.

Prioritize initiatives for maximum impact During a deal,companies that dont try to boil the ocean but rather focuson those projects that either generate revenue or drivedown cost tend to be more successful in their efforts

Establish an integration management ofce Integrationin particular requires rigorous program management andrealistic timelines. Without a central governance structureand a methodology driving the integration, people mightfail to complete important tasks.

Forging ahead

Execute quickly and methodically Companies shouldconsider all areas touched by the transformation andengage the various stakeholders, such as nance,

information technology, human resources, legal,operations, and sales and marketing. They also shouldfocus on speed, particularly during an integration.

Remember to put people issues rst Especiallyduring a transformative deal, its critical that the goals foindividuals align with the goals of the overall company.People should understand where they t, what they arebeing asked to do, and how what they do is associatedwith the value they provide every day.

Closing deals is tough, but capturing deal value is eventougher. In some ways, deciding whether to go forward

with a merger or acquisition is the easy part. The act ofowning after the transaction is complete is the realchallenge. In the end, the market will reward or punishshareholders of the combined company depending on howwell its management succeeds at achieving stated dealobjectives. So, it is imperative that synergies are realized,deal value is captured, and the resulting performance iscommunicated to all those with a stake in the outcome.

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Perspective:Thoughts on deal activity in the second quarter of 2010

Metals deal activity has begun to follow the historical patternof improvement postrecession. We should qualify thisfavorable outlook, however, by noting that some M&A activit

continues to come in the form of entities divesting noncoreassets to raise capital or refocus their operations. In additionthe extent of economic recovery across developed Westernnations remains in doubt, which could serve to attenuatefuture deal activity.

However, it does seems clear that we are entering a period iwhich more buyers are looking to augment organic growthopportunities through a variety of M&A strategies beyondthe backward integration that has driven recent activity. Webelieve that this trend is a positive indication for future dealow, contributing to our relatively optimistic outlook formetals M&A activity over the second half of 2010.

A notable trend this past quarter was the migration in sectorM&A activity away from the small and middle segments ofthe market toward larger transactions. This movement was

exemplied by the ve announced mega-deals (dened asdeals with a disclosed value of at least $1 billion) during thesecond quarter. That quarterly total ranked as the largestsince the rst quarter of 2008.

The second quarters largest deal was the $4.9 billion stakein Vales bauxite mines and related operations by NorskHydro. This transaction secures a long-term supply ofbauxite for Norsk Hydros primary aluminum productionbusiness. In addition, Vale will receive a stake in Norskthrough which Vale may reap the nancial returns of alower-cost aluminum operator. Though this deal targetedaluminum and related assets, we note that, in keeping with

our previous expectation, steel and iron ore deals remain theprimary driver of sector activity. Interest in steel and iron oreis likely to continue and may be supported by the industrymovement toward quarterly iron ore pricing. Such pricingcould enhance the desire of Chinese companies to mitigatesupply risks by engaging in mining deals.


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Forging ahead

Commentary

Metals sector activity strengthens

Deal announcements in the metals sector during the secondquarter continued to demonstrate a semblance of recoveryaccording to measures of quarterly aggregate value. The$16.8 billion value of deals announced in the second quarter

represents the highest total since the second quarter of 2009,and the highest total since the third quarter of 2008 afteradjusting for the $58 billion BHP-Rio Tinto iron ore jointventure that was announced in the second quarter of 2009.This proposed joint venture, which primarily involves thecontribution of assets by the two parties, also signicantlydrove the reduction in deal value for 2010 so far comparedwith 2009. Absent this 2009 deal, the total value in the

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 announced deals worth $50 million or more

2007 2008 2009 20103Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

Number of deals 28 42 38 44 34 26 18 17 23 35 22 2

Total deal value ($ billion) 53.5 24.1 28.3 18.2 21.9 16.0 11.8 63.1 4.7 5.7 5.9 16

Average deal value ($ billion) 1.9 0.6 0.7 0.4 0.6 0.6 0.7 3.7 0.2 0.2 0.3 0.8

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

second quarter and rst half of 2010 far exceeded thatof 2009. The pickup in deal value is the result of the increasein mega deal activity during the quarter.

The pace of the number of announcements during the secon

quarter approximated those of both 2009 and the rst quartof 2010.

Previous editions of Forging ahead have indicated that M&Aactivity in the metals sector likely is showing the early stagesof a recovery. The number and value of deal announcementduring the second quarter support this outlook entering thesecond half of 2010.

1

2

Numberofdeals

0

20

40

60

80

100

6032

16

24

9

2009 1H10 2Q10

Completed

Pending or intended

Withdrawn

8 3

US$

billions

0

20

40

60

80

100

14.218.9 13.5

61.8

9.3

0.6

2009 1H10 2Q10

Completed

Pending or intended

Withdrawn

0.5

3.2 2

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As mega deal numbers recover,so do average values

The aforementioned pickup in mega deal activity contributeto a recovery in average deal values during the secondquarter of 2010 compared with the entire rst half of theyear. This trend in deal interest is also demonstrated in themovement in number and range of deal values. During 200acquirers were more interested, on a relative basis, insmall- and middle-market deals, so the relative shift ininterest toward mega-deals has come at the expense ofactivity in the small- and middle-market categories in therst half and second quarter of 2010.

This trend is a good sign for the M&A market in this sector,as potential acquirers continue to focus less on internal co

and liquidity initiatives associated with the recent downturnInstead, they are beginning to show signs of improvedcondence and are engaging in larger strategic acquisition

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

Deal activity by number and range of deal valueMeasured by number of announced deals


%o

fnumber

ofdeals(absolute

numberofdealsindatalabels)

Deals with undisclosed value

Small deals ($50 million and less)

Middle-market deals (over $50 million up to $250 million)

Large deals (at least $250 million up to $1 bill ion)

Mega deals (at least $1 billion)

0%

20%

40%

60%

80%

100%

410 191 109

395

67

2009 1H10 2Q10

20

5

11 7824

7

186 81

5

US$

billions

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.41.6

0.9

0.2

2.6

2009 1H10 2Q10

Total

Completed

Pending or intended

Withdrawn

1.0

0.5 0.40.6

0.3

0.8 0.9 0.80.5

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Forging ahead

Minority stake purchasesMeasured by percent of deals worth $50 million or morefor less than 50% ownership

As more companies divest of assets,controlling stakes eyed

In conjunction with the general trend toward larger deals,acquirers have increasingly sought controlling-intereststakes, rather than minority interests, in metals targets. Thisshift was consistent with the rise in divestitures, whichinvolve a change in majority control, in the rst half of 2010compared with 2009. The rise in divestitures, many of whichinvolved steel entities, is evidence that metals companiesare continuing to reposition their businesses through assetsales during 2010.

Other trends in acquisition techniques include fewer stockswaps, in which an acquirer exchanges its own equity for amajority or remaining-interest stake in the target, and more

going-private transactions, in which a private entity acquiresa public company and the combined entity remains private.These trends are also likely related to each other, as a resultof a greater relative involvement by private acquirers in thedeal market which, by denition, creates less opportunity touse equity to nance deals.

Acquisition techniquesMeasured by percent of deals worth $50 million or more

Percentofdeals

0%

15%

30%

45%

60%

45%

31% 30%

2009 1H10 2Q10

0%

10%

20%

30%

40%

50%

27%

10%

2009 1H10 2Q10

Divestiture

Going private

Stock swap

Tender offer

8%0% 0% 0%

45% 45%

2% 2%10%5%

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Five mega deal announcements were made duringthe second quarter, which equals the total number ofannouncements for all of 2009 and more than doubles the

two mega-deals announced in the rst quarter of 2010.

The largest announcement of the quarter was Norsk Hydros$4.9 billion acquisition of Vales bauxite, alumina, andaluminum operations in exchange for $1.1 billion in cashand an estimated 22 percent stake in Norsk. This deal willhelp Norsk Hydro vertically integrate its aluminum businessthrough a stake in the Vale-owned Paragominas, the third-largest bauxite mine in the world, as well as ownership ofalumina rening and production facilities. For Vale, thetransaction supports the strategy of focusing on iron ore,exemplied by the companys recent $2.5 billion acquisitionof iron ore concessions in Guinea, which was the second-

largest announcement of the quarter.

The third-largest deal of the quarter was a transactionthrough which Hebei Iron & Steel, the only listed publiclytraded subsidiary of parent Hebei Iron and Steel Group, will

acquire another, nonpublic, subsidiary, Hangang Hanbao Iro& Steel. This transaction will help the parent groupconsolidate assets into the listed subsidiary.

The $1.9 billion Sumitomo minority stake in mining companyMineracao Usiminas was the fourth-largest deal of the quartThis deal will allow Sumitomo to secure iron ore suppliesahead of a possible share offering for this unit by the targetsparent, Usinas Siderurgicas de Minas Gerais SA.

The nal mega deal announcement of the second quarter wthe Gerdau SA acquisition of a remaining public stake in itsNorth American business, Gerdau Ameristeel. The rationalefor this deal was cost reduction and a lower expected costof capital for the combined organization.

Norsk, Vale lead billion-dollar-plus deals


Mega-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-WesternAustralian Iron Ore Assets

Australia Pending 58.00 Iron ore

Feb Hamersley Iron Pty Ltd Australia Aluminum Corp of China{Chinalco}

China Withdrawn 5.15 Iron ore

Feb Rio Tinto Ltd Australia Aluminum Corp of China{Chinalco}

China Withdrawn 2.63 Iron ore

May Ternium Sidor Venezuela Corporation Venezolanade Guayana

Venezuela Completed 1.97 Steel

Jul ThyssenKrupp CSASiderurgica do Atlantico Ltda

Brazil Vale SA Brazil Completed 1.37 Steel

Mega-deals in 1H10 (value of $1 billion or more)

Monthannounced Target name Target nation Acquirer name

Acquirernation Status

Value oftransactionin US$ bln Category

May Vale SA-Aluminum Operations Brazil Norsk Hydro ASA Norway Pending 4.90 Other

Apr BSG Resources Guinea Ltd Guernsey Vale SA Brazil Completed 2.50 Iron ore

Jun Hangang Hanbao Iron &Steel Co Ltd

China Hebei Iron & Steel Co Ltd China Pending 2.35 Steel

Jun Mineracao Usiminas SA Brazil Sumitomo Corp Japan Pending 1.90 Iron ore

Jun Gerdau Ameristeel Corp Canada Gerdau SA Brazil Pending 1.61 Steel

Mar Rio Tinto PLC-SimandouIron Ore Project

Guinea Aluminum Corp of China{Chinalco}

China Pending 1.35 Iron ore

Mar Itaminas Comercio deMinerios SA

Brazil East China Mineral Exploration& Development Bureau

China Pending 1.22 Iron ore

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Regional analysis

China less active but still heavily involved, alongwith Brazil and other emerging areas

The regional distribution of deals for the second quartergenerally indicates a relatively high level of participation byboth acquirers and targets in the Asia and Oceania andSouth America regions. The former has been driven byChinese entities acting as consolidators of the domesticmetals sector, while the latter has been driven by Brazilianentities, several of which have been targeted in efforts topurchase mining assets. The involvement of Chinese andBrazilian parties in second-quarter announcements alsocontributed to the relatively high proportion of deals withacquirers from emerging and developing economies.

Comparisons of the regional distribution of deals announced

in the second quarter with distributions of recent quartersindicate that the market is less dependent upon Chineseacquirers to drive metal M&A transactions. In previousupdates, it has been had noted that Chinese outboundresource deals and local-market consolidation within thatcountry were contributing heavily to deal totals. However,deals totals announced this past quarter indicate thatbroader market participation has become the norm. Thiswas also evident in the fact that four of the ve megadeals announced in the second quarter did not involveChinese entities.

While M&A participation has picked up across various

regions, it should be noted that the need to continue toconsolidate the Chinese domestic steel industry will l ikelyprovide the impetus for incremental deals in 2010 as it willhelp these companies negotiate from a position of greaterstrength against a more consolidated base of iron oresuppliers. In addition, differences in expected economicgrowth rates across regions mean that entities fromemerging and developing economies are likely to remainbest equipped to engage in new deals and are more likelyto consider M&A as a growth avenue through the balanceof the year.

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

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

Forging ahead

0%

20%

40%

60%

80%

100%

51.6%

2009 1H10 2Q10

48.4%64.3% 60.0%

40.0%35.7%

Advanced

Emerging and developing

0%

20%

40%

60%

80%

100%

2009 1H10 2Q10

All cross-border

All local-market

39.8%

60.2%45.2%

30.0%

70.0%54.8%

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Regional distribution of deals by target regionMeasured by number of deals worth $50 million or more

Regional distribution of deals by target regionMeasured by value of deals worth $50 million or more

Regional distribution of deals by acquirer regionMeasured by number of deals worth $50 million or more

Regional distribution of deals by acquirer regionMeasured by value of deals worth $50 million or more

Regional distribution of 2Q 2010 deals


40.0%

15.0%

15.0%

10.0%

15.0%

5.0%

1.3%

34.6%

24.9%

30.9%

5.5% 2.8%

35.0%

15.0%

15.0%

15.0%

20.0%

25.9%

41.0%

10.8%

19.7%

2.6%

North AmericaUK & EurozoneEurope ex-UK & EurozoneAsia & Oceania South America Africa/Undisclosed

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Forging ahead

Need for steel and iron ore materials drives deals

The comparison of 2009 versus rst-half 2010 activity bycategory demonstrates a notable shift in deal interest. During2009, iron ore targets accounted for the greatest level of deal

value, even after adjustment for the impact of the proposed$58 billion BHP-Rio Tinto joint venture. In 2010, deals haveshown more diversity by category, though iron ore and steeltargets have still led sector totals. This trend is in keepingwith previous predictions that most activity would occur incategories outside aluminum given the relatively fragmentedstate of the rest of the industry.

Up to this point, even though the largest deal of 2010involved the acquisition of bauxite and alumina assets (theNorsk Hydro-Vale deal), each of the other 2010 mega-dealstargeted iron ore and steel entities. The Norsk Hydro-Valedeal, however, is consistent in the sense that it is a backward

integration play by Norsk Hydro.

Looking forward, the rationale for M&A activity remainsstrongest among steel and iron ore companies, based on theneed to consolidate the steel industry as well as the pressureto mitigate raw material risks by acquiring iron ore mines.

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

Deals by target metal category 1H10Measured by value of deals worth $50 million or more

Steel

Aluminum

Iron ore

Other

0%

20%

40%

60%

80%

100%

Total Completed Pending orintended

Withdrawn%o

fdealvalue(absolutedeal

valueindatalabelsin$billions)

8.9

71.3

6.7

58.8

4.5

2.0

1.08.0

1.0

3.1 1.1

2.11.8 0

Steel

Aluminum

Iron ore

Other

0%

20%

40%

60%

80%

100%

Total Completed Pending orintended

Withdrawn%o

fdealvalue(absolutedeal

valueindatalabelsin$billions)

7.4

8.4

5.9

0.3

5.7

6.5

5.7

2.7

0.1

0.5

0.1

1.1 1.1

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Early on, post-recessionary period mirrorshistorical trends

Previous reports have noted that metals M&A activity hashistorically tended to improve coincident with economicrecoveries. The nearby chart demonstrates the general risein M&A activity after the past two US recessions, which havebeen used as a proxy for global economic downturns. Metalsactivity as measured by both the value and number of dealsincreased following the 1990-1991 recession; and activityas measured by the number of deals also increased in thequarters after the 2001 recession, though deal value remainedmuted for the next several years. The deal value outlier inthe second quarter of 2009 results from the $58 billion RioTinto-BHP joint venture.

Both deal volume and value have shown improvementin the wake of the recent recession. However, concernsover the potential for a double-dip recession in developedcountries could lower condence and push out a sustainedrecovery in deal activity.

Historical metals deal activity and the business cycleMeasured by number and value of all metals deals(1989 2Q10; quarterly observations; shaded periods indicateUS recessions)


1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

0

25

50

75

100

0

100

200

300

Number of deals (left axis)

Deal value (right axis; $ billions)

Recession

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Forging ahead

PricewaterhouseCoopers spotlight

Capturing deal valuethrough successful

integration

Patience is not a virtue when it comesto integration. Yet in mergers andacquisitions, the chaos surroundingpostdeal activities often impedescompanies ability to simultaneouslyfocus on maintaining currentoperations, realizing valuablesynergies, and achieving timely

operational integration.

Research shows that most mergersand acquisitions fail to meetexpectations. Despite the bestintentions, deals often fall short whenthe time comes to begin translatingcarefully developed strategy into theright mix of people, process, andtechnology. Smart buyers can improvetheir odds by taking steps to executea fast-paced integration that makesearly use of disciplined planning,

a well-coordinated launch, and arelentless focus on the value driversbehind the deal.

Successful acquirers are both quickand thorough in making the transitionto the new entity because they planfor that process well in advance.They use the time between the dealsannouncement and its closing todraw up plans for integrating thetwo companies and implementing

synergies. As a result, their integrationplans and major players are set beforethe transaction closes. These acquirersalso transfer the knowledge gainedfrom their due diligence to theintegration effort. They act quicklyand decisively, prioritizing integration

activities to reduce uncertaintyamong workers. And they limit theintegration time frame, realizing thereis more willingness to change if it isdone quickly.

These companies maximize share-holder value by aligning integration

strategies and priorities with strategicgoals, addressing stakeholder concernsthrough ongoing communications,reducing workers concerns over whowill be responsible for what by assigningmanagers to specic responsibilitiesand accountabilities early, and treatingintegration as they would any otherbusiness processin a highlydisciplined, consistent manner.

How PricewaterhouseCoopers

can helpOver the years, PricewaterhouseCoopers(PwC) has developed a winningapproach to launching and managingenterprise-wide integrations. Oursolution includes a proven integrationmethodology and an expansive set ofprocess tools, templates, and guidesto support the overall integration.

Through a centralized IntegrationManagement Ofce (IMO) staffedby experienced PwC integrationmanagement professionals, weare able to uniformly roll out ourmethodology and facilitate theoverall integration process acrossthe combined organization.

PwCs M&A integration specialists heclients achieve rapid integration tocapture desired synergies and allow fa quick return to business as usual.This helps increase shareholder valueand free up human and nancial capifor reinvestment in core operations.

Our capabilities include both integratiospecialists and functional specialists,to assist in the management andcoordination of overall integrationactivities enterprisewide and to providtactical experience in critical functionaareas as needed.

Our merger integration services andcapabilities include:

Design the integration programand IMO

Plan for Day One and executionreadiness

Conduct robust synergy analysis,implementation, and tracking

Blueprint and execute businessprocess and systems integration

Provide functional integrationassistance and tacticalimplementation support

Help deliver effective communicationpeople, and change management

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Specialty case study:Leveraging integration synergies to drive value and reduce costs

Client: A majorglobal metals

company

Client issue A major global metals company was considering the purchaseof a large steel manufacturer in Eastern Europe. The companyneeded the benet of accurate, actionable due diligence

and analysis on the impact of the integration before decidingto move forward with the deal. To achieve its transactionobjectives, the client also requested help realizing synergies anidentifying and eliminating redundancies between the entities.

Approach PwC specialists from the Transactions Integration and TaxM&A group worked together to meet the clients needs forthis transaction. The PwC team performed a full-scope analyson nancial integration and tax due diligence for the client tohelp identify and focus attention on the factors in the businesthat would be critical to its future success, including theimpact of the integration and the synergies needed toincrease cost savings.

In addition to the integration analysis, PwC also helpedcollect information important to establishing accuratevaluations. PwCs specialists involved in the engagementidentied several issues that led to purchase price decreasesby providing the client with greater certainty over the natureof the target business and the characteristics of its cash owFinally, the engagement team delivered a thorough solution foaccelerating the integration and synergy plan development tocapture greater value.

Impact Backed by the due diligence and integration analysisperformed by the PwC team, the client decided to moveforward with the purchase and acquired a 100 percent stake

in the target company. The ensuing $550 million deal becamethe fth-largest merger of the year, among all sectors, in thecountry where it took place. Further, the engagement teamhelped the company complete its integrations ahead ofschedule while reaching its synergy targets and minimizingbusiness disruptions.

14 PricewaterhouseCoop

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Forging ahead

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 nearly 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 professionals 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 than6,500 dedicated deal professionals worldwide, has the righ

industry and functional experience to advise you on variousfactors that could affect the transaction, including market,nancial accounting, tax, human resources, operating, IT,and supply chain considerations. Teamed with our Metalspractice, our transaction professionals 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 the 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



Middle East & Africa



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Contacts

PricewaterhouseCoopers Global TransactionServices practice

PwCs Transaction Services practice offers a full range oftax, nancial, business assurance, and advisory capabilitiecovering acquisitions, disposals, private equity, strategicM&A advice, advice on listed company transactions,nancing, 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-Pacic 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 DirectorJoaquin 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 Sector AnalystTom Haas [email protected]

US Research AnalystMichael Portnoy [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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Forging ahead

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, andnishing mills; iron and steel foundries; primary smeltingand rening/nonferrous; secondary smelting and rening/nonferrous; rolling, drawing, and extruding/nonferrous;nonferrous foundries; miscellaneous primary metalsproducts; and metals service centers and ofces.

This analysis includes all individual mergers and acquisitionsfor disclosed or undisclosed values, leveraged buyouts,privatizations, minority stake purchases, and acquisitionsof remaining interest announced between January 1, 2008,

and June 30, 2010, 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), or

withdrawn. The term deal, when referenced herein, refersto transactions with a disclosed value of at least $50 millionunless otherwise noted.

Regional categories used in this report approximateUnited Nations (UN) regional groups, as determined bythe UN Statistics Division, with the exception of the North

America region (includes Northern America, Latin America,and the Caribbean UN groups), the Asia and Oceania regio(includes Asia and Oceania UN groups), and Europe (divideinto United Kingdom and Eurozone and Europe ex-UKand Eurozone regions). International Monetary Fundclassications were used to label economies as advancedor developing and emerging. Overseas territories wereincluded in the region of the parent country. China, whenreferenced separately, includes Hong Kong.

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

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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, thePricewaterhouseCoopers global network or other member rms of the network, each of which is a separate and independent legal entity. This document is for general information purposes only, and shouldnot be used as a substitute for consultation with professional advisors MW-11-0006 kd

2Q10 Metals M a Aug2010

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