InternationalEquityListing

Case:NestleandAlcon TheValueofaListing

NeedforRestructuring

Achievegrowthandsurvive

GainBetterCompetitivePosition

Focusoncoreactivities

Achieveeconomiesof

scaleFundsRaising UtilizationofExcesscash

TaxPlanning&Costreduction Bailouttakeover

DiversificationandUndiverisification FamilySeparation

Warding offPredators

ReasonsforCarvingOutAlconMarkettoreflectthefullvalueof

Alcon

OnlyfoodandbeverageanalystsfollowNestlegroup

PharmaceuticalAnalystdonotconsiderAlcon

beingpartofNestle

Tocomeoutconglomerate

discount

PayingofNestlesdebttomaintainstellarcreditrating

Canuseappropriatemarket

multiple

Canusestockoptiontopaycompensation

UnbundlingtheValueofNestle

Company%F&B

IndustryEnterprise

Value EBITDAEBITDA

MultiplesCadbury Schweppes 51% 15,518 1,511 10.3Campbell 91% 16,254 1,475 11.0Danone NA 21,854 2,138 10.2General Mills 100% 28,104 1,484 18.9Heinz 100% 19,855 1,912 10.4Kellog 100% 18,262 1,640 11.1Kraft 100% 33,082 6,608 5.0Nestle 94% 97,500 7,662 12.7Unilever NA 50,038 NA NA

Mean 11.2Median 10.7

Food and Beverage (F&B) Industry

Company% PharmaIndustry

EnterpriseValue EBITDA

EBITDAMultiples

Allergan 63% 9,728 434 22.4Bausch & Lomb** 15% 2,150 222King 86% 10,429 426 24.5Teva 88% 8,345 448 18.6Forest 100% 14,128 449 31.5

Mean 24.2Median 23.4

Pharma Company

** Not included in analy sis because only 15% of its business is in pharmaceuticals

UnbundlingtheValueofNestle

EnterpriseValue EBITDA

EBITDAMultiples

Nestle F&B 78,249.25 6,978.70 11.2L'Oreal 9,100.00 NAAlcon 16,568.09 683.3 24.2 Ex . 9 (EBITDA of 2 000)Nestle 103,917.34 7,662.00 13.6

Valuation of Nestle's Parts

Nestl'sActualmarketmultiple(EBITDAMultiple)=12.7Discountinvalue=103,917.34 (12.7*7662)=US$6609.94Millions

WhatistheParticipationofAlconinGroup?

5%ofsales 12%ofEBIT

twicetheNestlegroupsgrowthrate

Nestles EBITDAmultiple:12.7X(in

linewithcompetitors)

WhyEquityCarveOut?

Restructuring

Spinoffs

EquityCurveOut

Divestitures

TrackingStock

SplitUps

SplitOff

PossibleAlternatives

1 MovetoUS.,becomeaUScorporationandlistinUS

2 ListinZurich

3 StayinSwissanddirectlylistinUS

4 ListinZurichandIssueADR

US

Alcon

Nestle

Switzerland

1

4

32

PossibleAlternatives

US

Alcon

Nestle

Switzerland

1

4

32

Advantages ReincorporateAlconasaUSbasedsubsidiary KeepHQs,topmanagement,andR&Dfacilitiesin

Texas FromUS revenues:53%andoperatingincome:

58% MoveAlcontoUSandincorporateitasaUSfirm ListinNewYork Sensibleoption Alconsoperationsanditsnatural

investorbasearemainlyUSbased

Disadvantages FullysubjecttoUScorporateincometax NotabletoclaimdeductionsinUSforroyalty

paymentspaidtoSwissparentcompany Managementsignaledthatthisisnotanoption NestlewouldnotmoveAlconoutofSwitzerland RenamethefirmAlcon,Inc.ratherthanAlcon.AG., Amendtheincorporationdocumentationtoconform

toUSstandardswhereverpossible Createaboardofdirectors,withprominent

independentUSbusinessfigures;structuretheboardtoresembleotherUSboardswithcharacteristicssuchasstaggeredterms

RegularlyquarterlyreportingofearningsunderUSGAAP

DividendpaymentsinUSDbyestablishingahedgingfacilityconvertingdividendsdeclaredinSwissFrancsintodollardenominatedpayments

PossibleAlternatives

US

Alcon

Nestle

Switzerland

1

4

32

Advantages SimpletoIPOAlconinZurich SwisssubsidiaryofanotherSwiss

company AlreadyoperatedunderSwiss

securitieslaws Wouldsimplifyrelationsbetween

NestleandAlcon Minimizefutureadministrativecosts

ofoutstandingcommonshares WouldlimitNestleandits

underwriterstothepoolofcapitalinSwitzerland

Switzerlandisadevelopedmarketwithfewrestrictions

Disadvantages USinvestorshavetodealinforeign

currencyincurringhighertransactioncostsmakingthesharelessattractive

USpensionandMFsarerestrictedfrombuyingforeignshares

LimitAlconsinvestorsbase

PossibleAlternatives

US

Alcon

Nestle

Switzerland

1

4

32

Advantages Avoidspotentialproblemofflowback

sinceAlconssharestradedonlyinNewYork

AlconwillbeabletofullyenjoythebenefitsofbeingaUSfirmwithaprimarylistinginNewYorkwithoutanyofthedrawbacksofreincorporatingasaUSfirm

Helptargetspecialtypharmaceuticalinvestors

Disadvantages Accountingstandardsanddisclosure

rules Efficiencyofbusinesspractices Governanceconcerns Legalregimes Transactioncosts ForcedtoabidebyUSaswellasSwiss

securitieslaws notalwaysconsistentwitheachother

Tradingnormallyseemedtocenterononemarket,eveniftheshareswereinitiallyintroducedintwoplaces

PossibleAlternatives

US

Alcon

Nestle

Switzerland

1

4

32

Advantages Mostfamiliarinstrument MaybetargetedbyUSpharma funds Maybeseenascandidateforinternationaldiversifications Minimizescrossnationaldifferencesinsecuritiesregulations

andtradingconventions ListedonNYSE,AMEX,andNASDAQ Formofequityownership IssuedagainstsharesrepresentedthroughADS Canbeissuedformorethanoneunderlyingshareorfora

fractionofshare ADRratio Reversibleprocess ConsiderationindecidingADRratio ~matchingofvalueof

sharesofUScompaniesinthesameindustrybybundlingaspecificno.ofsharesintooneADR

Europeancompanies:72% AsianCompanies:21% LatinAmericaandAustralia:7% Top50ADRprogramsrepresented>90%oftradingvolumein

1999 NonUSfirmsraisingequityinUS Programmanagementdoneby Citibank,JPMorgan Othersimilarstructures GDR,EDR,IDR Accessmoreinvestors Broadershareholderbase Increasesliquidityofsharesandmakingitlessrisky Goodcorporategovernance filingUSGAAPaccounts,

meetingcertainstandardsofcorporategovernance Increasedfirmsvaluation Crosslistedfirmshavehigherreturnsandalowercostof

capital MaymakeafirmanditsproductsmorerecognizableinUS Maybeusefulasanacquisitioncurrency Easierforforeignfirmstocompeteformanagerialtalentsince

theycanoffermanagersstockoptionsintheformofADRs Mayalsoincreaseexecutivepay universeofcomparable

companiesbroadenstoUSandglobalfirmswhichusuallyhavehigherlevelsofcompensation

PossibleAlternatives

US

Alcon

Nestle

Switzerland

1

4

32

Disadvantages Donoteliminatecurrencyrisk MaynotretainitsSwissidentity Requiresmoretransparencyin

operationsandresults Maybecomeatakeovercandidate UnderminingNestles corporate

cultureandprotectionitenjoysfromtakeover

Activeinvestors:hedgefundsandspecializedsectorfunds

ListAlconinSwitzerlandandissueADRinUS

StillUSinvestorshaveanunderlyingeconomicexposuretoUSD/CHFexchangerate

ADRMechanics

FactorsConsideredforIssuingADRs

Visibility Broaderinvestorbase

Moresophisticatedinvestorbase

Investorbasewithdifferentpreferences

Accesstoretailinvestors

Acquisitioncurrency

Stockoptionsforemployees

TypesofADRs

Level I Level II Level III Rule 144 A GDR

Description UnlistedListed on a US stock exchange

Shares offered and listed on a US exchange

Private placement to QIB

Global offering of securities outside issuer's home market

Trading OTC market

AMEXNASDAQNYSE

AMEXNASDAQNYSE

US private placement market

US exchangeNon US exchange

SEC Registration

Registered under Form F-6

Registered under Form F-6

Registered under forms F1 and F6 None

Varies depending on structure of US offering

US reporting requirements

Exempt under Rule 12g3-2(b) Form 20-F Form 20-F

Exempt under rule 12g3-2(b)

Varies depending on structure of US offering

Features

Most basic formIssuer cannot raise capitalWide bid-ask spread

No new capital can be issuedFinancial statements need to be prepared as per US GAAP

Can raise new capitalMost eloborate form of ADRHiger liquidty and visibilityIPO type prospectus to be filed

No SEC approval required

No standard structureHeterogeneous in nature

ADRPremiumforIndianStocks

PercentagePremiumsonADRs

MarketDisciplineFails..

Marketexpectationsaboutpriceconvergencearetimeboundedandmarketliquidityis

limited

Marketsegmentationduetodifferentmarket

characteristics

Differentmarketcharacteristics

Differentindexmembership Homebias

Marketdisciplinefailsincase

Marketexpectationsaboutpriceconvergencearetimeboundedandmarketliquidityis

limited

Marketsegmentationduetodifferentmarket

characteristics

Differentmarketcharacteristics

Differentindexmembership Homebias

ConcernsinCrossBorderListing

Accountingstandardsanddisclosurerules

Efficiencyofbusinesspractices

Governanceconcerns

Legalregimes Transactioncosts

KeyCharacteristicsofAlternativeExitandRestructuringStrategies