1. China M&A Conference 2008-P0 The information contained in this document belongs to Value Partners S.p.A and to the recipient of the document. The information is strictly linked to the oral comments which were made at its presentation, and may only be used by attendees of that presentation. Unauthorized copying, disclosure or distribution of the material in this document is strictly forbidden and may be unlawful. Beijing, October 2008 0

2. China M&A Conference 2008-P1 1 Chinese outbound FDI have increased sharply and this process is likely to accelerate in next years,driven by the stronger position of Chinese companies and by the current international scenario 2 Over the past years there have been some remarkable success stories of foreign expansion byChinese companies, while other initiatives have encountered some difficulties. As a matter of fact,Chinese companies are often hesitant to pursue outbound opportunities because of their lack ofinternational experience 3 In order to succeed in their overseas expansion, Chinese companies should go through four key steps:a) Develop a clear international strategy; b) Prepare the organization and resources to succeed; c)Build strong understanding of target markets; d) Manage carefully the post acquisition phase 4 Chinese companies should move quickly in this direction to capture the opportunities offered by thecurrent scenario 1 3. China M&A Conference 2008-P2 1 Chinese outbound FDI have increased sharply and this process is likely to accelerate in next years,driven by the stronger position of Chinese companies and by the current international scenario 2 Over the past years there have been some remarkable success stories of foreign expansion byChinese companies, while other initiatives have encountered some difficulties. As a matter of fact,Chinese companies are often hesitant to pursue outbound opportunities because of their lack ofinternational experience 3 In order to succeed in their overseas expansion, Chinese companies should go through four key steps:a) Develop a clear international strategy; b) Prepare the organization and resources to succeed; c)Build strong understanding of target markets; d) Manage carefully the post acquisition phase 4 Chinese companies should move quickly in this direction to capture the opportunities offered by thecurrent scenario 2 4. China M&A Conference 2008-P3CAGR 2003-2007 USD billion, 2003-2007Key drivers: Chinese companiesstrong demand to gain26.5access to: 75%- Natural resources 21.2- New markets- New technologies Strengtheningcompetitiveness of 12.3Chinese companies Sufficient FX reserves5.5accumulated in the past 2.9 China governmentincentives 2003 2004 2005 2006 2007 Source: Ministry of Commerce, Statistic Bureau, Value Partners analysis3 5. China M&A Conference 2008-P4 %, 2007 Accumulative Outbound FDI as % of GDP by 2007UK 61.5 Compared to developed France54.7countries, China outboundFDI vs. GDP is still verylow Taiwan41.3 The low ODI reflects thatChinese companies stillGermany37.3rely heavily on domesticmarket as well asresources Malaysia31.2 Going forward, along with 20.2 GDP growth and USglobalization of Chinesecompanies, there is a huge12.4potential for increase ofJapanChinese outbound FDIsChina3 Source: United Nations Conference on Trade& Development, Ministry of Commerce, Statistic Bureau, Value Partners analysis 4 6. China M&A Conference 2008-P5 ! quot; ## Analysis based on 46 outbound FDI transactions above USD10mln in 2005-Sep.2008Chinese outbound FDI by industry Chinese outbound FDI by geography 100%=49.5 billion USD (~53% of total ODI) 100%=49.5 billion USD (~53% of total ODI)Machinery:2%Telecom & high-tech: 2%Latin Transportation & Consumer goods: 1%America Shift from Asia to other logistics: 2% Others: 1%Oceania geographies 5% 5%26% NorthAfricaAmerica17% NaturalFinancial resource 51% services 40% Europe23%24% Asia Source: Thomson Financial, Value Partners analysis5 7. China M&A Conference 2008-P6 #$ $ % &Analysis based on 46 outbound FDI transactions above USD10mln in 2005-Sep.2008Reasons for outbound Value of dealsNo. of dealsTop industriesTop target areasinvestment (bln USD)1 Entering new market Banks USA26 29.5 Investment advice Hong Kong Semiconductors UK 2 Financial investment/ Banks Hong Kong diversification 28.9 USA 22 UK 3 Access to natural Oil and gas Kazakhstan resources19 19.9 Iron ores Canada Gold ores Australia Used to be primary4reason in previous years Access to capabilities Banks USA (e.g. risk management,1217.8 Hong Kong product design) 5 Increase manufacturing Semiconductors Japan scale 92.8 Medical apparatus USA Source: Thomson Financial, Value Partners analysis 6 8. China M&A Conference 2008-P7$ Chinese companies among Fortune 500, 2003 vs. 2007 Number of Chinese companiesAverage revenues CAGR 03-07 USD billion CAGR 03-073512%37.6 24%23.9 152003 200720032007 New companies joining the list are mainly in Energy, Financial sector, Telecom & High-tech industries, reflecting strengthening diversification of China economic structure Thanks to quick increasing of revenue size, 6 Chinese companies newly join in top 200 and 3 newly join in top 25 (Sinopec, State Grid, China National Petroleum) Source: Fortune500, Value Partners analysis 7 9. China M&A Conference 2008-P8 Jan 2007 P/E ratio in different countries, Jan.2007 vs. Oct. 2008Oct 2008CountriesIndex P/E change % change 17.4 USA S&P 500-18%14.2 24.5 USA Nasdaq -30% 17.014.0UK FTSE 100 -33%9.4 GermanyDAX14.2-18%11.7 France CAC-40 15.4-36%9.9 SpainIBEX 3521.2 9-58% ItalyMIB 3017.18.3 -51% AustraliaS&P/ASX 20017.3-29%12.3 Singapore Straits Times14.36.7 -53% Average PE for above countries in Oct.2008 is 9 For comparison, PE in Shanghai index is 16Source: Stock exchanges in different countries, Value Partners analysis 8 10. China M&A Conference 2008-P9 '(!#(!# CasesKey consideration to make a M&A case abroadLack of international Possibility to get Difficulty to develop Difficulty to work withexpansion experiencetargets key information Greenfield projects foreign partnersChinese M&A investments abroad As newly emerging The target markets, if in Due to limited Chinese companies mayglobal players, Chinese developed countries, international local marketface significant difficultycompanies are fairlyhave systematicexperiences, it is hard for due to then lack ofweak in international company database for Chinese companies tounderstanding on foreignexpansion experiences M&A referencestart up a new entity inculture foreign environmentForeign M&A investments in China Developed countries China enterprise Foreign companies Foreign players musthave established strong database is still underusually can leverage on develop capability oftrack records inconstruction own experiences and adapting to Chineseinternational expansion Still need to dedicate a local professionalculturelot of efforts to verify the support to set up WOFEinformationin China 9 11. China M&A Conference 2008-P10 1 Chinese outbound FDI have increased sharply and this process is likely to accelerate in next years,driven by the stronger position of Chinese companies and by the current international scenario 2 Over the past years there have been some remarkable success stories of foreign expansion byChinese companies, while other initiatives have encountered some difficulties. As a matter of fact,Chinese companies are often hesitant to pursue outbound opportunities because of their lack ofinternational experience 3 In order to succeed in their overseas expansion, Chinese companies should go through four key steps:a) Develop a clear international strategy; b) Prepare the organization and resources to succeed; c)Build strong understanding of target markets; d) Manage carefully the post acquisition phase 4 Chinese companies should move quickly in this direction to capture the opportunities offered by thecurrent scenario10 12. China M&A Conference 2008-P11 )$% $CompanyIntroductionSome Acquired the whole PC business unit of IBM in May, 2005 remarkable success stories By 2007, Huawei set up more than 100 branches in the world andgets 72% sales revenue from overseas market Zoomlion acquired the Italian company CIFA in September, 2008 some CNOOC bid to buy Unocal in June, 2005 initiatives that encountered difficulties Haier bid to buy Maytag in June, 2005 TCL found a JV (TTE) with Thomson in July, 2004 A Chinese textile Tried to buy assets of an Italian companycompany Source: Industry research, Value Partners analysis11 13. China M&A Conference 2008-P12 *$ +(, -.KSFDescription Rationale Combined The acquisition brings together most valuable Lenovo can quickly access tostrengths ofcompetencies of two companies: target markets and customertwo companies - IBMs strong product design, customers segments thanks to IBMs long services and branding established market position - Lenovos competitive production, supply chain IBM can focus on providing IT management and procurementsolutions by giving up non Successfully Through the acquisition, Lenovo gains access to strategic business to a leading penetrated into target global corporate client computer market playermarkets Gained strong product design and advanced customer serviceRealized the In order to smooth the acquisition impact, little Smooth transition after the competenciesimportance ofchange on organizations and processes in theacquisition helps to retaincultural fit and first year post acquisition customers and talents Effectively generatedmade it top Located the HQ in US and hired foreign Two companies culture mightsynergies after thepriority postmanagement team compensate with each otheracquisitionacquisition Carefully introduced Lenovos key sales model and benefit the new entity in the to overseas markets since the third year afterlong term acquisition Source: Industry research, Value Partners analysis 12 14. China M&A Conference 2008-P13 / $ $ % % &KSFDescription Rationale Started Entered Africa, mid-east, Asia-Pacific, CEE Emerging markets have lowerexpansion from and Latin America since 1995entry barriers and are moreemerging - Emphasize on competitive price strategy sensitive to pricingmarkets Developed countries require Later entered developed countries in Europe stricter qualifications and Successfully and USA longer entry time penetrated into both - Started with partnership with world leading emerging and competitors developedCreated a pool Recruited qualified talents and retained them Chinese sales team not only iscountriesof managerswith competitive salary packagescompetent to win contracts incapable to fierce international competition, Built a strongwork in Deployed key personnel in sales team to but also has strong international salesinternationaldevelop international markets since 2000commitment to company culture teamenvironment- Accounts for ~50% of overseas staff Effectively delivered products and servicesRetained Invited consulting firms who specialized in Effectively identify local customer to meet local clientsadvisors toTelecom industry to conduct detailed localneeds so as to develop rightneedshelp itmarket research products/service to fit with itunderstandcustomerneeds Source: Industry research, Value Partners analysis 13 15. China M&A Conference 2008-P14 01 # %KSFDescriptionRationale Strong CIFA is an Italian manufacturer of concrete Rapidly move production ofrationale formachineries, the only one with a full range of some components to generatethe deal products cost reduction synergies for In several segments CIFA is a recognized CIFA leader, thanks to technology, quality and Leverage CIFAs distribution Successfully reasonable price channels to sell low endcompleted A rigid labour environment in Italy makesproducts manufactured byacquisition changes and efficiencies difficult Zoomlion Zoomlion recently emerged rapidly thanks to Reduce duplicated investments Created global the explosion of construction sector in Chinain several marketsleader in the industry and enjoying the cost advantages of China production Started integrationParticipation of CIFAs ownership, a PE fund was looking forprocess Financial partner could help tofinancialan exitfind the right investor through itspartner It identified Zoomlion as a potential investor strong network both ininvestment and industry areaRecognition of Zoomlion already started to approach some Understanding of differentcultural foreign emerging markets cultures could help to facilitatediversity Both parties had good communication during the negotiation process the process Source: Industry research, Value Partners analysis14 16. China M&A Conference 2008-P15quot;22 /1 $ $ PlayerDescription Why did it stop? In June 2005, CNOOC placed a bid for Unocal, Unable to identify the sensitivity of thethe NO.9 petroleum company in USAbid at early stage CNOOC In July 2005,Chevron emerged as competitor of- US might worried about Chinasthe bid and soon got Unocal shareholdersambition to get its strategic energysupportresources through the bid Both companies launched PR and lobbyingactivities, but in the end USA government decided Lack of experience in communicationto examine CNOOC bid with US media and government As a result, CNOOC withdrew the bid and- Too late to start lobbying and PRChevron won In June 2005, Haier submitted LOI to Maytag and Faced challenges from US people andstarted due diligencegovernment due to CNOOC bidding Haier Ripplewood and Whirlpool joined in the acquisitioncompetition with higher price Lack of experience in communication Haier withdrew the bid and Whirlpool won with US media - Not actively disclosed to media the bidding plan/intention, leading to suspicions from US people Source: Industry research, Value Partners analysis15 17. China M&A Conference 2008-P16 ' * & '$% & $ 3 )Player Description Why did it experience problems? In July 2004,TCL set up TTE, a JV with Lack of understanding of differences Thomson, in which ~9,000 employees of between French and Chinese culture TCL Thomson joined- French might prefer work and life balance, while Chinese might not In 2005, TTE lost ~70 mil EUR care to mix work and life together In Nov 2006, TCL launched restructuring plan Lack of experience in dealing with on TTE, stopping its sales activities in European European Unions market- European Unions strongly protect workers rights, leading to tough By 2006,TTE lost ~250 mil EUR due to business negotiations and high restructuring loss and restructuring cost cost Source: Industry research, Value Partners analysis16 18. China M&A Conference 2008-P17 # &ContextRationale of deal Why did it fail? A world wide textile production By acquiring assets, Chinese The Chinese company saw the shifting from USA/EU to Asia company could havedeal only as an opportunity to (not only China) - Shorter time to marketmake some savings but did not- Faster than long row of realize the value of anticipating An Italian textile company was competitors to win thecompetitions of ~2 years looking for a buyer for some competition assets (machines) Different cultural approach to For Italian company:negotiate: A hot market where buyers had a- Assets has interesting value- Italian company changing 1.5/2y waiting list to buy these - Not necessary to sell the whole opinion very frequently types of machinescompany, which might make - Chinese company not alwaysthe potential buyer afraid of giving clear messagesliability/employee issues Source: Industry research, Value Partners analysis17 19. China M&A Conference 2008-P18 # %& Key weakness of Chinese companies Implications Limited knowledge of international markets, e.g. Chinese companies often - Market situationhesitant to pursue - Regulations outbound opportunities - Customers Approach tends to be Limited availability of managers who can operate in reactive rather than international context, e.g. - Language proficiencyproactive, leading to - Foreign culture understanding suboptimal selection of - Social networkopportunities Lack of systematic process, e.g. - Strategy definition - Roadmap development - Execution process 18 20. China M&A Conference 2008-P19 1 Chinese outbound FDI have increased sharply and this process is likely to accelerate in next years,driven by the stronger position of Chinese companies and by the current international scenario 2 Over the past years there have been some remarkable success stories of foreign expansion byChinese companies, while other initiatives have encountered some difficulties. As a matter of fact,Chinese companies are often hesitant to pursue outbound opportunities because of their lack ofinternational experience 3 In order to succeed in their overseas expansion, Chinese companies should go through four key steps:a) Develop a clear international strategy; b) Prepare the organization and resources to succeed; c)Build strong understanding of target markets; d) Manage carefully the post acquisition phase 4 Chinese companies should move quickly in this direction to capture the opportunities offered by thecurrent scenario19 21. China M&A Conference 2008-P20 &% 1234Develop a clear Prepare the organization Build strong Carefully manage theinternational strategy understanding of targetPost Merger Integration marketsphase Define objectives Define need for resources Build market database Quickly take key strategicdecisions, to define main Understand internal Prepare organization Create networks in target directions to follow strengths/weaknesses responsible for countriesinternational expansion Identify key resources in Analyze global competitive Identify most suitablecharge and involved in the scenarios Recruit/train peopletargets process Define priorities Define process to scout Understand valuation and Define initiatives and their - Countriesand pursue opportunitiesvalue drivers priorities, targets to - Targetsachieve and monitoring Manage negotiations tools Ensure alignment of top management Understand the relevanceof cultural andcommunication issues20 22. China M&A Conference 2008-P211 2 3 445Activities Key success factors Define objectives Objectives need to be clear, both qualitatively and quantitatively Develop specific goals for different timelines (short term, mid term and long term)Understand internal Leverage on both outsiders and insiders observations to formstrengths/weaknesses objective opinions Tailor international strategy to internal capability of companiesAnalyze global competitive Proactively collect and analyze competitors moves to understandscenariosthe full picture of global competition Focus on most similar competitors to gain further understandingDefine priorities Priorities should reflect above considerations/analysis, i.e. - Consistent with objectives - Matched with internal capabilities and help to strengthen competitivenessEnsure alignment of top Make sure all top management are on board to discuss the strategymanagement and express opinions Keep timely sharing of opinions among top management21 23. China M&A Conference 2008-P22 12 3 43& 4 CompanyKey actions Effects China Minmetals Defined a clear mid to long term strategy By now has 21 branches & Decided to shift from trader role to the comprehensive metal companies located in Asia, group, covering full industry value chainEurope, America, Oceania, Carried out series of international investments in order to access and Africa to ore resources (upper stream) and overseas distribution channels (down stream)Haier Group Aims to create an international brand Set up local R&D center, Investments follow importance of regional markets in terms oftrading company and sales revenue: from Southeast Asia to Western market factories in more than 30 In regional markets, priority of investments are first in sales, countries second in setting up factory Design customized products with local R&D center Industrial & Commercial Mainly to follow its clients, e.g. Chinese SOEs Open 9 overseas branches & Bank of China internationalization path: 3 representative office - Focus on nearby economic areas that are strongly related to Acquired 6 foreign banks Chinese business activitiesduring 2000-2007 Provide products/services customized to different countries clients Source: Industry research, Value Partners analysis 22 24. China M&A Conference 2008-P231 2 3 4 -5 . ActivitiesKey success factors Define need for resources Identify suitable talents/experts to focus on international expansion Allocate sufficient funding to support possible expansion Prepare organization Dedicate specific departments/teams to focus on internationalresponsible for expansioninternational expansion Clearly define the roles of all related departments as well as workprocessRecruit/train people Target both Chinese and foreign talents who have solid overseasbusiness experiences Provide practical training, e.g. on site training in foreign marketsDefine process Standardize target market screening criteria Clarify decision making process to speed up possible initiatives23 25. China M&A Conference 2008-P2412 3 43& - CompanyKey actionsEffects Huawei Deployed Chinese sales talents to overseas market, providing: 50% overseas staff are - Competitive salary packageChinese - Promotion based on overseas performance - Intensive training China Mobile Defined needs for HR resources according to international Set up dedicated team for expansion planoverseas expanding Prepared HR resources both from internal training and outside Mainly rely on in-house headhunting expertise but start to attract Strengthened HQ management structure to cope with higheroutside talents risk and cost pressure from international operations Aluminium Corporation Cooperate with foreign universities to develop specific project Build up international talent of Chinadedicated to develop international talentspool covering law, finance Recruit international M&A experts from market channelsand non-ferrous metals, etc. Provide overseas on job training for talents who are going to be sent to overseas market Source: Industry research, Value Partners analysis24 26. China M&A Conference 2008-P251 2 3 46 Build strong understanding of target markets5 ActivitiesKey success factorsBuild market database Build comprehensive fact books of player in target market Collect key data about most interesting players Update information frequently Create network in target Identify insiders who can effectively help to facilitate the process countries Start contacts with local regulators and keep timely communications Leverage local professional firms and business partners to reach important contactsIdentify suitable targets Cleary define the target screening criteria Leverage local networks and professional firms to identify target pool Shortlist targets based on quick verification on their business soundness and interests to discuss investmentsUnderstand valuation and Conduct in-depth due diligence to understand targets financials and value drivers business potential Referring to industry experiences, find out key value drivers and quantify the impact to valuationManage negotiations Approach targets in co-operative manner Pay attention to the undisclosed subtle message of stake holders of the targets and correctly address their real motivations when proposing deal solutions25 27. China M&A Conference 2008-P26 12 3 43&6 CompanyKey actions Effects ShenZhen Mindray Bio- Working closely with many professional firms e.g. investment Acquired Datascope in medical Electronics bank, auditors, lawyers and HR advisors, etc. on due diligence,USA in March, 2008 synergies analysis and negotiation Conducted in-depth market analysis on USA market China Merchants Bank Identified HK as target market, following CMBs strategy to focus China Merchants Bank on nearby marketssucceeded in acquiring Working with international investment bank to developWing Lung Bank in Hong valuation on targets based on due diligenceKong in June, 2008 Cleary understood needs of the shareholders of target, facilitating the negotiation processEurizon Capital Developed in-depth China market understanding with the help of Acquired 49% (maximum consulting firm to define a clear market entry strategyshares a foreign investor Mainly monitored the investment criteria and valuation can get) of a leading process, leaving consulting firm to organize all relative parties to Chinese fund management close the deal (lawyers, auditors, etc.) company(Acquisition of Penghua Fund) Source: Industry research, Value Partners analysis 26 28. China M&A Conference 2008-P271 2 3 47 (Activities Key Success FactorsQuickly take key strategic Quick identification of macro priorities, consistent with the decisionsidentified rationale behind the deal Definition of main objectives to achieve and milestones Clear leadership to orchestrate the entire process Identify key resources Selection of a joint (contribution from both the involved parties)Integration Team in charge of defining guidelines to follow Appointment of a skilled Integration Manager, accountable for theend-to-end process Define initiatives and Detailed function/area analysis with following prioritization of the priorities initiatives to activate (trade-off impact vs. ease of implementation) Clear timing and deadline Frequent progress reviews and interactions Understand cultural and Open communication among team members communication issues taking into account cultural differences No conflicting environment between the entities (we vs. they)27 29. China M&A Conference 2008-P28 12 3 43&7 CompanyKey actions Effects Lenovo / IBM Quick understanding that solution to the potential cultural clash Powerful leader in the PCwith cultural integration was a key factor to succeed industry, with very broad Significant attention paid in recruiting US-educated Chineseportfoliomiddle-managers Global player integrating two Some experienced managers from IBM put in charge of the cultures, languages,international portion of the combined businessprocesses and marketsNissan / Renault Identification of the synergies and of the targets to achieve 5th largest globalthrough the partnership:automaker Brand complementarities: Nissan for US, Renault for EU Global market share of 9% Marketing, design and small cars expertise as contribution from (by volume)Renault, large cars and manufacturing excellence from Nissan 38 industrial sites in 17 Intercultural challenges harmonized through the charismatic marketsleadership of Carlos GoshnArcelor Mittal Identification of the synergies (purchasing, manufacturing and World leader steel company,marketing) as pillars for the entire processwith over 320,000 employees Definition of special governance mechanisms to facilitate in more than 60 countrieseffective integration Industrial presence in Significant effort in managing external relations before, Europe, Asia, Africa andduring and after the deal signature America28 30. China M&A Conference 2008-P29 1 Chinese outbound FDI have increased sharply and this process is likely to accelerate in next years,driven by the stronger position of Chinese companies and by the current international scenario 2 Over the past years there have been some remarkable success stories of foreign expansion byChinese companies, while other initiatives have encountered some difficulties. As a matter of fact,Chinese companies are often hesitant to pursue outbound opportunities because of their lack ofinternational experience 3 In order to succeed in their overseas expansion, Chinese companies should go through four key steps:a) Develop a clear international strategy; b) Prepare the organization and resources to succeed; c)Build strong understanding of target markets; d) Manage carefully the post acquisition phase 4 Chinese companies should move quickly in this direction to capture the opportunities offered by thecurrent scenario29 31. China M&A Conference 2008-P30 '& 1 %Opportunities in current scenario Priorities for Chinese companies Increasing strengths of Chinese companies 1 Develop international strategy Favourable economic context- Attractive valuation of foreign companies2 Prepare organization for- Increasing need for capital in foreign countriesinternational growth- Appreciation of RMB 3 Actively scout for M&A targets Government support through a disciplined process 30