InternationalEquityListing

Case:NestleandAlcon TheValueof
aListing

NeedforRestructuring
Achievegrowth
andsurvive

GainBetter
Competitive
Position

TaxPlanning&
Costreduction

Focusoncore
activities

Bailouttakeover

Achieve
economiesof
scale

Diversificationand
Undiverisification

FundsRaising

Utilizationof
Excesscash

Warding off
Predators

FamilySeparation

ReasonsforCarvingOutAlcon
Markettoreflect
thefullvalueof
Alcon

Onlyfoodand
beverageanalysts
followNestlegroup

PayingofNestles
debttomaintain
stellarcreditrating

Pharmaceutical
Analystdonot
considerAlcon
beingpartofNestle

Canuse
appropriatemarket
multiple

Tocomeout
conglomerate
discount

Canusestock
optiontopay
compensation

UnbundlingtheValueofNestle
Food and Beverage (F&B) Industry
EBITDA
%F&B Enterprise
Company
Industry Value EBITDA Multiples
Cadbury Schweppes
51%
15,518 1,511
10.3
Campbell
91%
16,254 1,475
11.0
Danone
NA
21,854 2,138
10.2
General Mills
100%
28,104 1,484
18.9
Heinz
100%
19,855 1,912
10.4
Kellog
100%
18,262 1,640
11.1
Kraft
100%
33,082 6,608
5.0
Nestle
94%
97,500 7,662
12.7
Unilever
NA
50,038
NA
NA
Mean
11.2
Median
10.7

Pharma Company
% Pharma Enterprise
EBITDA
Company
Industry Value EBITDA Multiples
Allergan
63%
9,728 434
22.4
Bausch & Lomb**
15%
2,150 222
King
86% 10,429 426
24.5
Teva
88%
8,345 448
18.6
Forest
100% 14,128 449
31.5
Mean
24.2
Median
23.4
** Not included in analysis because only 15% of its business is in
pharmaceuticals

UnbundlingtheValueofNestle
Valuation of Nestle's Parts
Enterprise
EBITDA
Value EBITDA Multiples
Nestle F&B 78,249.25 6,978.70
11.2
L'Oreal
9,100.00 NA
Alcon
16,568.09 683.3
24.2 Ex. 9 (EBITDA of 2 000)
Nestle
103,917.34 7,662.00
13.6
Nestl'sActualmarketmultiple(EBITDAMultiple)=12.7
Discountinvalue=103,917.34 (12.7*7662)=US$6609.94Millions

WhatistheParticipationofAlconin
Group?
5%ofsales

12%ofEBIT

twicetheNestle
groupsgrowthrate

Nestles EBITDA
multiple:12.7X(in
linewith
competitors)

WhyEquityCarveOut?
Spinoffs

Equity
CurveOut

SplitOff

Restructuring

SplitUps

Divestitures

Tracking
Stock

PossibleAlternatives
US

Switzerland

3
Nestle

ListinZurich

StayinSwissanddirectly
listinUS

ListinZurichandIssue
ADR

1
Alcon

MovetoUS.,becomeaUS
corporationandlistinUS

PossibleAlternatives

US

Switzerland

3
Nestle

1
Alcon

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;structurethe
boardtoresembleotherUSboardswith
characteristicssuchasstaggeredterms
RegularlyquarterlyreportingofearningsunderUS
GAAP
DividendpaymentsinUSDbyestablishingahedging
facilityconvertingdividendsdeclaredinSwissFrancs
intodollardenominatedpayments

PossibleAlternatives
US

Switzerland

Nestle

1
Alcon

Advantages
SimpletoIPOAlconinZurich
SwisssubsidiaryofanotherSwiss
company
AlreadyoperatedunderSwiss
securitieslaws
Wouldsimplifyrelationsbetween
NestleandAlcon
Minimizefutureadministrativecosts
ofoutstandingcommonshares
WouldlimitNestleandits
underwriterstothepoolofcapitalin
Switzerland
Switzerlandisadevelopedmarket
withfewrestrictions
Disadvantages
USinvestorshavetodealinforeign
currencyincurringhighertransaction
costsmakingthesharelessattractive
USpensionandMFsarerestricted
frombuyingforeignshares
LimitAlconsinvestorsbase

PossibleAlternatives
US

Switzerland

3
Nestle

1
Alcon

Advantages
Avoidspotentialproblemofflowback
sinceAlconssharestradedonlyin
NewYork
Alconwillbeabletofullyenjoythe
benefitsofbeingaUSfirmwitha
primarylistinginNewYorkwithout
anyofthedrawbacksof
reincorporatingasaUSfirm
Helptargetspecialtypharmaceutical
investors
Disadvantages
Accountingstandardsanddisclosure
rules
Efficiencyofbusinesspractices
Governanceconcerns
Legalregimes
Transactioncosts
ForcedtoabidebyUSaswellasSwiss
securitieslaws notalwaysconsistent
witheachother
Tradingnormallyseemedtocenteron
onemarket,eveniftheshareswere
initiallyintroducedintwoplaces

PossibleAlternatives
US

Switzerland

3
Nestle

1
Alcon

Advantages
Mostfamiliarinstrument
MaybetargetedbyUSpharma funds
Maybeseenascandidateforinternationaldiversifications
Minimizescrossnationaldifferencesinsecuritiesregulations
andtradingconventions
ListedonNYSE,AMEX,andNASDAQ
Formofequityownership
IssuedagainstsharesrepresentedthroughADS
Canbeissuedformorethanoneunderlyingshareorfora
fractionofshare ADRratio
Reversibleprocess
ConsiderationindecidingADRratio ~matchingofvalueof
sharesofUScompaniesinthesameindustrybybundlinga
specificno.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
companiesbroadenstoUSandglobalfirmswhichusuallyhave
higherlevelsofcompensation

PossibleAlternatives
US

Switzerland

Nestle

1
Alcon

Disadvantages
Donoteliminatecurrencyrisk
MaynotretainitsSwissidentity
Requiresmoretransparencyin
operationsandresults
Maybecomeatakeovercandidate
UnderminingNestles corporate
cultureandprotectionitenjoysfrom
takeover
Activeinvestors:hedgefundsand
specializedsectorfunds
ListAlconinSwitzerlandandissue
ADRinUS
StillUSinvestorshaveanunderlying
economicexposuretoUSD/CHF
exchangerate

ADRMechanics

FactorsConsideredforIssuingADRs
Visibility

Broader
investorbase

More
sophisticated
investorbase

Investorbase
withdifferent
preferences

Accessto
retailinvestors

Acquisition
currency

Stockoptions
foremployees

TypesofADRs
Level I

Level II

Listed on a US
stock exchange
AMEX
NASDAQ
NYSE

Level III
Shares offered and
listed on a US
exchange
AMEX
NASDAQ
NYSE

Rule 144 A

Private placement to
QIB

Description

Unlisted

Trading

OTC market

SEC
Registration

Registered
Registered
Registered under
under Form F-6 under Form F-6 forms F1 and F6

US reporting
requirements

Exempt under
Rule 12g3-2(b)

Features

Can raise new

capital
No new capital Most eloborate form
of ADR
Most basic form can be issued
Higer liquidty and
Issuer cannot
Financial
raise capital
statements need visibility
Wide bid-ask
to be prepared IPO type prospectus No SEC approval
required
spread
as per US GAAP to be filed

Form 20-F

Form 20-F

GDR
Global offering of
securities outside
issuer's home
market

US private placement US exchange

market
Non US exchange
Varies depending
on structure of US
None
offering
Varies depending
on structure of US
Exempt under rule
offering
12g3-2(b)

No standard
structure
Heterogeneous in
nature

ADRPremiumforIndianStocks

PercentagePremiumsonADRs

MarketDisciplineFails..
Marketexpectations
aboutpriceconvergence
aretimeboundedand
marketliquidityis
limited

Marketsegmentation
duetodifferentmarket
characteristics

Differentindex
membership

Homebias

Differentmarket
characteristics

Marketdisciplinefailsincase
Marketexpectations
aboutpriceconvergence
aretimeboundedand
marketliquidityis
limited

Marketsegmentation
duetodifferentmarket
characteristics

Differentindex
membership

Homebias

Differentmarket
characteristics

ConcernsinCrossBorderListing
Accounting
standardsand
disclosurerules

Efficiencyof
business
practices

Legalregimes

Governance
concerns

Transaction
costs

KeyCharacteristicsofAlternativeExit
andRestructuringStrategies