STRICTLY CONFIDENTIAL
November 9, 2006
!
Table of Contents
SECTION 1
Overview of Investment Banking
2
SECTION 2
Role of Analyst and How to Get the Job
8
I
SECTION 3
UBS: A Leading Global Financial Firm
;7
APPENDIX A
Technical Reference <:iuide
31
I
SECTION 1
I
Overview of Investment Banking
" -+---------'------------------
The ~mencan system of ours, call it Amencarnsrn, call itCaprtalism, call it what you like, gives each and
,,
everyone of usa great opportunity if we only seize It with both hands and make the most out of it.
'*
UBS ~~~~tment
I
Revenue Generators
!
What do lnvestment Bankers do?
•
Client service:
build relationships
pitch Ideas
•
Process:
build models
handle deal flow
tell a company's story
I
•
Provide [udqrnent:
.
know the market; industries, and companies to add value to our clients' decision-makinq process
Investment Bankin~
•
Provide financing, advisory, and investment services to corporanons, institutions, and governments
•
Advise on major corporate decisions, including mergers & acquisitions and corporate restructurings
•
Create and execute p(ans to help clients raise capital, usually by rssumq equity or debt
•
UBS Investment Bankhas opportunities
i
,
In
some of the following Product and Industry Groups:
Consumer Products & Retail
Debt Capital Markets Group
Energy and Power
Equity Capital Markets Group
Financial Institutions
Equrty Corporate Finance Team
Healthcare
Financial Sponsors
Global Industrial Group
Leveraged Finance
Real Estate
Global Syndicated Finance
Technology/MediaJrelecom
Mergers & Acquisitions
Transportation & Services
Private Equity Placement Group
3
i
I
Where Do ypUWant to Be?
Industry Group
*
UBS ~:~tment
4
I
Structure of an Investment Bank
Clients
(... need capital)
Intermediary
InvestorClients
(...have capital)
Finanpal Control
Corporatons
·.~··~i~~~~~I~~e~rtln~O
. ~. Fixed Income 8U'(,
+
~
Governments
•
•
Retail Investors
Individuals
V.
U'dld
t\1ana!)"nl.ent
IBDSLIC ..•..
LOgl~tl~S BUC .
Tax: .'. . '
Instltulionallnvestors
Mutual funds
- Pension funds
Hedge tunds
Finanoal Instltu1Jans
Private Equity
Sponsors
-'investment
Bankers
Advisory
•
.·M~rgers &Acq~i~itfOris .
'~, . Corporate Finance
. Y
.:
:Restruetunrig: '.'
Principal
• Capital .•..
• Risk AsSumptIOn
•. '?rop"ota",Trading
s
Revenue Generators
Sales and Trading
i
•
Salespeople sell and ~arket securities; often research driven
•
Traders take positionsbased on both proprietary ideas and customer order flows
•
Maier product lines include:
I
Industry Groups
CNYSE
NASDAQ
AMEX
Latin America
Foreign Equities
Derivatives
Program Trading
Governments & Aqencies
Murucipals
High-Yield Corporates
Investment Grade Corporates
Foreign Exchange (FX)
Commodities
Asset Management':
,
•
Relatively stable business specializmq in asset allocation optimization
•
Work with large amounts of money for institutional clients across all product categories (EqUities, Fixed Income, FX)
•
Important to the firm~ stability because fees are generated based upon assets under management
,
Private Equity
•
LBO-type funds
I
invest money In companies for management buyout or management" buy-in"
I
provide expansion capital for firms by taking companies private to unlock value not appreciated by the market
generally Invest pension fund or Institutional money
!
•
Hedge funds
take long and short positions, use risk arbitrage, buy and sell undervalued secunties. trade options or bonds, and invest in opportunities
in markets with i~presslve gains at reduced risk
goal is to reduce volatility while preserving capital and deliver pOSitive retllrns in any market condition
I
-
6
Support Services
Research Analysts
•
Specialize In either equity research (stocks), fixed-Income research (bonds), economics or asset allocation
•
Analyze companies' tihancral statements and operations
•
Report on market trends and company performance
•
Offer forecasts and recornrnendations to both institutional and corporate clients
•
Occasionally work with traders to develop propnetary pnonq models for financial products
I
,
,
,
Information Technology/Operations
I
•
Information Technology (IT)
goal is to gain corporate advantage through innovative use of technology
I
provide support service for Sales and Trading, Investment Banking, etc.
assist in risk manaqernent
,
•
•
Operations
back office functi9ns (trade settlement, accounting)
Presentations, copy c~nter, research and information staff
General Corporate Services
I
•
Office of the Chairman/CEO
•
Strategic Planning
•
Corporate Communications
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•
Human Resources - Recruiting, employee benefits, policies, procedures etc.
•
Financial Control - Ensure that a consistent set of global standards, policies and processes are maintained
•
Legal & Compliance -' Monitor activities of the firm
,
I
.
,
.
7
SECTION 2
!
Role of Analyst and How to Get the Job
"
---:-T-"------:------:------:---,--:-----,---:------,-----,-.,------.,----The most Important characteristic of any analyst IS the ability to look at something and just get It, what
everl'it' might be.
i.
.
Associate Director. UBS Investment Ban
'*
DBS ~n;~~tment
k
"
Deal Team Structure
i
Average deal team size at UBS Investment Bank is 3-6 people and always consists
of an Analyst, mid-level banker (AD or D) and a senior level banker (ED or MD)
9
A Typical Day
Anything can hapben, and it has to happen fast
I
•
Analytical/valuation work
financial modelin~
financial statementanalysis and accounting
valuation techniques (comparable company analysis, precedent transaction analysis, etc.)
•
Qualitative work
research industry/companies/markets
i
create presentations
•
Administrative work
set up meetings, type up notes from meetings, answer questions for clients
!,
10
Being an Anhlyst--A Few Tips
Personal Skills
•
Efficiency
•
Ability to anticipate work that needs to be accomplished and be proactive
•
Problem solving
•
Strong work ethic
•
Professional presentation and positive attitude
•
Judgment (what makes sense for the client and the firm)
•
Ability to manage expectations
•
Outstanding cornmumcation skills
•
Flexibility (including apility to manage expectations)
!
!
!
!
Technical Ability
.
•
Accounting (balance
~heet,
•
Finance (capital structure analysis: equity vs. debt)
•
Valuation techniques :(cOmparable company analysis, precedent transactions, discounted cash flow)
,
Income statement, statement of cash flows)
,
As an Analyst, you
rill
have the opportunity to ...
•
Work With talented and reputable senior bankers
•
Gain Insight into finance, business and a career In Investment Banking
•
Work at a top firm with a strong global platform
•
Be a part of an international team, r.e. cross-border deals
•
Work on deals that dlange the face of an industry
!
,
•
Learn the fundament~ls that will make you a good banker
•
Be challenged by a steep learning curve
•
Meet and interact wiih clients at various levels from JUnior executives through CFOs and CEOs
!
11
I
There are Many Routes to Wall Street
There is no "right'! formula, but there are ways to maximize your chances of getting a job
I
C 0 a l k to as many people as you
-
ca~~
find out about their experiences and their views
I
seek out classmates who have interned in Investment Banking
-
focus on how thelvarious banks differentiate themselves In terms of culture, prospects and responsibility given to
Analysts
Positioning yourself...
!
•
It is Important to present yourself as havinq a portfolio of skills and qualities
•
There are several skills and qualities that banks look for
I
a~d a strong
-
technical ability
-
familiarity with Excel
-
strong Interpersonal skills
-
ability to work within teams
Interest In finance
I
relevant work experience
a record of
succe~slachievement
12
I
Qualities that Investment Banks Look for in Candidates
I
A Strong Interest
irl Finance
,
•
Take courses that demonstrate your interest in finance
•
Convey to an mterviewer/contact person that you understand:
!
!
-
what Investment panking is
-
what an analyst does
-
why you would b~ a strong candidate for that particular bank
I
!
!
Coursework or Wo~k Experience
i
•
Where you used Excel, and if possible, built models
•
Where you have learhed to read financial statements
•
That demonstrates th~t you are comfortable with numbers
•
That shows you are cbmfortable In front of people (e.q., sales position, leading a seminar, student government)
•
Any work expenence ,during the summer or while attending school that demonstrates your strong work ethic
!
.
A Team Player
•
Team-driven Job accdnplishments on resume
•
Other obvious team experiences and team successes
•
The objective is to de~onstrate that you work well with others
i
A Record of Succes~ and/or Achievement
I
•
Academic GPA, scholarshipszhonors. test scores
•
Leadership of student organizations or teams
•
A high level of athletic accomplishment
•
Community service with a record of achievement
i
.
i
L
.
13
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What Can Yd>u do to Develop Some of these Qualities?
Do Your Homework
I
•
Understand what lnvestrnent Banking IS and what an Analyst does so you can decide if it really IS for you
- talk to individualsjwho work or have worked within the industry
I
read industry quides such as Vault and Wet Feet
•
Understand the differbnt firms so that you can choose well
each Investment Bank has its own unique culture
!
....
". •
,
-
focus on the places where you fit best and go after those firms
Enroll in APplicable! Courses
,
•
Take as many finance.and accounting courses as possible so that you:
become familiar wrth financial terminology
,
progress further a,long the learning curve
Increase the likelihood of securing a full-time offer
•
Enrolling In these courses further demonstrates your interest and commitment to the Industry
Read the Financial Press
'*
•
Pick an Industryor Industries that are of Interest to you
I
- familiarize yoursel,f With that industry and a few companies Within that sector
•
Understand an industty and be able to talk about It intelligently
•
Suggested readings: Wall Street Journal, Financtal Times, The Economist, Fortune, BUSiness Week, Forbes, etc.
,
DBS ~~~~tment
14
J
What Can Yeu do to Develop Some of these Qualities?
Read Books About ,nvestment Banking
I
•
Auletta, Greed & Gl0o/ on Wall Street
•
Bhatawedekhar, Vault GUide to Finance Interviews
•
Brealey & Myers, PriniiJPles of Corporate Finance
•
Burroughs, Barbanans at the Gate
•
Greenberg, Memos
•
Lott & Prior, Vault.cofn Career GUide to Investment Banking
•
Pratt, Valuing a
•
Reed, The Art of Merfgers and Acoutsitions
•
Rolfe & Troob,
•
Smith, Comeback
!
I'
f~om the Chairman
,
BUSIn~SS
,
Monk~y Business: SWinging Through the Wall StreetJungle
I
,
!
•
Stewart, Den of Thie~es
•
Wall Street Journal Editors,
Who's Who and What's What on Wall Street
I
•
Wasserstein, The Big Deal
1
I
1
Search Industry Related Websites
I
•
www.ubs.com/graduates
•
www.vault.com
1
.www.wetfeet.com
•
www.investmentbanking.net
I
15
.I
What Can Y(j>u do to Develop Some of these Qualities?
,
I
All of This is to Develop "Your Story"
!
•
You are marketing yourself, and you need to explain clearly why you want to be a banker
•
Point to examples tha~ show you will be successful once you become an Analyst
•
You should spend several hours developing your story so that it will be easy for an Interviewer to ascertain why you
would be a good An~lyst
•
A large extent of an investment banking interview IS about testing Judgment
what is the reaso~lng behind the derisions you have made and what have you learned from those experiences
Investment banks.are looking for individuals who can demonstrate that they possess good iudgment
_i
_
_
_
_
Words of Wisdom :
•
As students at one of!the top educational institutions in the world, you will all have great opportunities to achieve
your goals. What are those goals?
•
Find something that
•
Get organized. Bankslare attracted to certain characteristics such as self-motivation and caring about your work
•
It is an Increasingly cdmpetitive environment for lob hunters in Investment banking
~ou love
16
SECTI<DN 3
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!
UBSI,: ALeading Global Financial Firm
I
" -+-------------------------------UBS 'Investment Bank is on the offense qoinq alter new client relationships and new business while our
I
competitors are on the defense.
Vice cheirmanuas Investment Bank
"
DBS-One qf the World's Flagship Financial Firms
UBS is a leading g,lobal wealth manager, a premier investment banking and securities firm, a key
global asset manager and a market leader in Swiss retail and commercial banking.
,*UBS
Investment Bank
Global Wealth!Management
& Business Bankinq
Global Asset f\(ianagement
Note: All figures asat 30 June2006 and from the UBS Ouarterlv Report. The UBS group manages Its business
and reports Its results In SWISS Francs (CHF). USD figures provided for convenience only. All figures tor all
periods have been translated at U5$1 = CHF1.22, the spot rate on 30 June 2006.
Over 72,000 employees in more than 50 countries are dedicated to building
solid, long-term partnerships with clients and leveraging the whole of UBS to help them succeed.
I
18
I
Headline Success
Sllllrp.1l PBrlfllHship
_-
f4
... HiiHiF :J
Press R.lns•
....U<>O(D
_
Pactual's Promise
I
The Banker: Profile of Huw Jenkins
"
I
I
Not quite a year into his leadership, Huw
,
...b
GlIT" ...........
.
_~""to_p"'_
I
_ n»C<
UBS: No.1 in Private Banking
"
UBS AG was the world's biggest money
Jenkins, chairman and ([EO of UBS
manager for the wealthy last year after
Investment Bank, already has a great deal to
expanding into new regions and staying
look back on.
ahead of rivals such as Citigroup Inc.,
THE BANKER. JULY 2006
according to Scorpio Partnership.
SCORPIO PARTNERSHIP. JUNE 2006
,*UBS Investment
Bank
19
Headline Success
UBS: 'The Masters of Z~rich'
Jenkins: The Deal's 'Movers and Shakers'
UBS: The Banker's 'Tower of Strength'
,,---------'-----UBS has quietly become one of the globe's
"--:------:----,...,---Jenkins, who took over as CEO of the
,,----:-------:---,-While Credit SUisse was tortunng itself, UBS
most profitable financial linstitutions.
Business Week. July2005
Investment Bank on July 1, inhents phase two
of the expansion spree: integration ... [Hel
looks well surted to the global task, given his
background of working on three continents:
North Amenca, Europe and ASia.
, ,
went from strength to strength. It is now the
biggest pnvate bank In the world by some
margin.
"
The Banker. June 2005
The Daily Deal, July 2005
*UBS
Investment
Bank
20
Headline Success
UBS: Euromoney's 'Best, Global
Risk Management House 2005'
"
The Investment Bank hasI benefited from a
locus on long-term relationships and advice. "
Euromoney. July2005
UBS: Bloomberg Markets 'The UBS Way'
, ,The-world's
- -largest
- -wealth
- -manager
- - -IS - wielding its $1.78 trillion In assets to
compete with Wall Street's leading
Investment banks.
UBS: Forbes 'Big Kid on the Block'
,,-----------UBS is a banking giant, but a Wall Street
powerhouse? Oh, yes.
Forbes. September 2004
Bloomberg Markets. December 2004
21
Case Study: iCaremark Rx'sMerger of Equals with CVS Corporation
UBS Investment Bank acted as Joint Financial Adviser to Caremark Rx on its Merger of Equals with
CVS Corporation
1<'<\<\,
p\(el')(i~\IIf
•
•
•
•
•
On November 1, 2006 dremark Rx (NYSE: CMX) and CVS
Corporation (NYSE: CVS) announced that they entered into a
definitive merger agreement to create the nation's premier
Integrated pharmacy services provider, combining the leading
pharmaceutical services company with the largestpharmacy chain
Under the terms of the agreement, Caremark shareholders will
receive 1.67 shares at CVS tor each share at Caremark, which
approximates the so-dav average ratioot the two companies:
closing stock pnces
The combined entrty will have a market capitalization ot
approximately$49 billion i
to
The merger 1$ expected
create significant benefits tor employers
and health plansthrough 'more effective cost management and
Innovative newprograms,! and forconsumers through expanded
choice, unparalleled access, and more personalized services
The new companywill beicalled CVS/Caremark Corporation and
headquartered in Woonsqcket, RI, with the pharmacy benefits
managementbusiness headquartered in Nashville, TN
Transaction Highlights i
•
A landmark transaction that creates the world's largestIntegrated
pharmacyservice providel
•
One at the top 10 largestHealthcaretransactions In the last ten
years
:
•
The 2nd largest Healthcare Services transactions In the last ten years
(UBS hasadvised on 2 out at the 3 largesttransactions)
i
I
•
£~~~K
CVSICorporation
Caremark Rx, one at the nation's leading
pharmaceutical services companies, provides
comprehensive prescnptton benefit management
services to over 2,000 health plans, Including
corporations, managed care organizations,
Insurance companies, unions and government
entities. Its SilverScnpt subsidiary IS one ot the
top ten Prescription Drug Plans In the country,
servmg beneficranes of Medicare Part D.
Caremark operates a national retail pharmacy
networkwith over60,000 participatmq
pharmacies, seven mail service pharmaoes, and
ninecall centers. Caremark also has 21 specialty
pharrnacres and 21 disease management
programsthrough Accordant.
CVS operates the natrons largestretail
pharmacychain, with approximately6,200
stores across 43 states, aswell asa $3 billion
wholly owned PBM and specialty pharmacy
subsidiary. CVS generates over 70% of its
revenue trom the pharrnacv business.
Prescription Pathways, a tomt venture between
PharmaCare and Universal American Finanoal
Corp., IS one ot the top ten Prescnption Drug
Plans In the country, serving benefioanes ot
Medicare PartD. CVS also provides healthcare
services through ItS MinuteClinlc subsidiary,
which operates over 105 healthcare dimes, 87
at which are located within CVS pharmacy
stores.
I
.. UBS Role and Relationship History
•
•
•
•
UBS acted asJOint Hnancial Advisorto Caremark Rx on Its Merger of Equals with CVS
This transaction represents the culmination ot a long standing relationship with Caremark Rx
UBS acted asJOint FinanCial Advisorto Caremark Rx on ItS $5.8 billion acqursition at
AdvancePCS in 2004
In August 2006, UBS acted as Co-Agent on Caremark Rn $750 million credit tadlltv
Joint FihallciillAdvisor
Investment
DBS Bank
Largest ever M&A transaction executed by the UBS Global
Healthcare Group
22
Case Study: Caremark Rx'sMerger of Equals with CVS Corporation
The merger creates a compelling opportunity to improve patient care and create value ...
I
I
• Combines two industry leaders and addresses trends driving
growth in the PharmaCy Services Industry
I
• Creates the leading integrated pharmacy service provider
• Logical evolution of
p~armacy services Industry
Exchange Ratio
1.670
Price per Share
Premium to Current Price (10/31/06)
$52.40
6.4%
Equity Value
$22,490
Net Debt! (Cash)
1iru2
Enterprise Value
$21,665
• Helps manage costs and complexities In healthcare system, driving
supenor outcomes
EV / 2006E EBITDA
EV / 2007E EBITDA
11.7x
10.3x
• Delivers significant benefits to consumers, employers and health
plan providers
EV / 2006E EPS
EV / 2007E EPS
21.7x
18.5x
CVS Valuation Summary
• Accelerates growth opportunities for combined company
,
,
• Creates a platform to offer new and innovative personalized
services to consumers 'land employers
!
• Accretive to EPS and cash flow
Price per Share (10/31/06)
$31.38
Equity Value
$26,934
Net Debt! (Cash)
$5771
Enterprise Value
$32,705
EV / 2006E
EV / 2007E
EV / 2006E
EV / 2007E
10.5x
EBITDA
EBITDA
EPS
EPS
8.7x
20.4x
16.6x
23
!
Case Study: Sale ofThe Gillette Company to Procter & Gamble
On January 28, zoos, P&G and Gillette announced the acquisition of Gillette by P&G for approximately
$S7bn in stock
!
Implied Offer Value Per Share'
Diluted Shares Outstanding 2
Equity Value @ Offer
Net Debt and Minority Interest
53.94
1,015
54,732
2,512
(9/30/04)
Enterprise Value
@
Offer
Enterprise Value Multiples:
Sales (x)
EBITDA (x)
Equity Value Multiples:
PIE (x)
57.244
2004E
200SE
5.5
18.8
5.3
17.4
32.2
28.5
Notes:
Based on P&G closing pnce of $55.32 on 1/27/05 at O.975x exchange ratro
Based on the treasury stock method
I
2
LTM Operating Overview'
($mm)
Sales
EBITDA
Margm(%)
EBIT
Margm(%)
LT Growth (%)
Gillette
P&G
9,991
3,039
30.4
2,443
24.5
11.1
52,956
11,860
22.4
10,054
19.0
10.9
Notes:
I
2
As of 9/30104
IIB/EiS consensus as of 1127/05
24
Case Study: Sale of The Gillette Company to Procter & Gamble
"This merger is going to create the greatest consumer products company in the world. It's a dream
deal." - Warren B~ffett, Chairman and CEO - Berkshire Hathaway
,
,
Combined Portfolio-21 'Brands Greater,than $1 Billion
• Approximate pro
for~a market capitalization of $200bn
• Combined sales of - $70bn
GI" .
, .
• #1 position in categories representmg over 2/3 of total sales
• Improves top-line gro+th and margms
-
mcreases P&G's parucipanon m fast growth health and
-
beauty categories ';
,
• Present value of revenue
and cost synergies approximately
,
Pampers
DURACELL:
• $14-$16bn
- annual run-rate of approximately $1.0-$1.2bn of aftertax synergies
• Balances P&G's streng'th
in marketing to women with Gillette's
,
strength In marketing to men
~
WELLA
NlwlfJf
til
IJJl!I1
••
lAMS·:'
• Complementary scale 'and distribution capabilities m key
emerging markets
I
• Combines two best-in-class innovation companies
5-
PANTENFPRO·V'
BRAun
,-
<@
OLAV
Aatnel'
5t~,1f;
25
Key Awards ~nd Deals
Best Investment Bank Asia
"
Euromoney 2006
,
Best Glol)al Private Bank
Euromoney 2006-2004
!
Corporate, Broker of the Year
Acquisitions Monthly 2006
I
Best Glo~al Emerging Markets Equity House
,
Euromoney 2006
I
I
Best Bank Overall for FX
I
FX Week 2005-2003
Best Glo~,al Risk Management House
Euromoney ~005
No.1 Currency Derivatives
Risk msutunonal client survey 2006
I
M&A/Advisory
W•
fJorcelor
I
,
autostradel/spa
BAA P'J"
2006
2006
2006
US$43.6 billion
€46 billion
US$30.2 billion
JOint tinanoal advisor to
Financral advisor to
Autostrade on Its merger at
equals with Abertis.
Jomttinancral advisor and iomt
corporate broker to BAAon the
recommended cash offer tram a
consortium led by Grupo Ferrovial SA
Arcelar SA on Its unsolioted
offer tram Mittal Steel Co
NV
.1lJ.'l~"'~~~""
ViNCi.....
IWACKER I A~LOGOLDASHANTI
2006
US$3.1 billion
JOint bookrunner on Vine
Company's US$3.1 bn
rights Issue.
2006
US$1.4 billion
JOint bookrunner on the
Wacker Chemte IPO.
2006
US$l.3 billion
JOint bookrunner on
AngloGold Ashanti primary &
secondary block deal.
I
Equities House of the Decade
I
nnanaalNet' 2006
I
No.1 Distributor of Secondary Cash
Leading PrivAte Industry Survey 2006-2002
I
No.1 Debt House for Financial Institutions
Bloomberg JLne 2006
!
Best Overall on-line services for FX, Fixed
Income ahd Derivatives
I
Euromoney 2005
Debt :
-
Swiss Re
I II
2006
US$7S0 million
I
_
Roouh", of Au"",
2006
US$S billion
SWISS Re: Joint bookrunner on Republic at Austria: JOint
a dual tranche $750m hybrid bookrunner on a $5bn
10 year
Tier 1
VimpelCom
2006
US$4S0 1600 million
Vimpelcom: Sale dealer
manager on a $450m
exchange and $600m 10 year
tor one ot Russia's leading
telecom companies
26
Topping the Tables - Globally
Award-winning expertise across a full spectrum of products globally.
Best Glob~1 Private Bank
EUROMONEY!2006-2004
i
Largest W~alth Manager
SCORPIO PARTNERS 2006
Best Equities House of the Decade
FINANCIAL N~WS 2006
No.1 Distributor of Secondary Cash
Equities
Best Bank for Fixed Income
Online Services
LEADING PRIVATE INDUSTRY SURVEY 2006- 2002
EUROMONEY 2005
No.1 Global Equity Derivatives for
Corporates
Best FX Internet Bank
EUROMONEY 2006
RISK 2005
Corporate! Broker of the Year
Currency Derivatives House
ofthe Year
Best Bank for Derivative Online
Services
ACQUISITIONS MONTHLY 2006
RISK 2005
EUROMONEY 2005
Interest Rate Derivatives House
ofthe Year
Best Bank for Online Equity Research
i
Best Bank!Overali in FX
FXWEEK 2095-03
Best Le~diManager of
_
Subordinated Debt/Bank Capital
Best Provider of Support in the
Secondary Markets (Debt)
EUROWEEK 2006
EUROWEEK 2005-04
INTERNATIONAL SECURITIES FINANCE
2006
Best Glob!!1 Emerging Markets Equity
House
.
No.1 Overall Currency Derivatives
for Institutions
No.1 Debt House for Financial
Institutions
EUROMONEy 2006
RISK 2006
BLOOMBERG JUNE 2006
Best Global
Risk Management House
,
Electricity House of the Year
EUROMONE~
ENERGY RISK 2005
No.3 Derivatives Dealer Overall (for
Institutions)
2005
Best ECM! IPO and Secondary
House of the Year
FINANCIAL N'r'WS 2005
'*
EUROMONEY 2005
RISK 2005
No.1 Cash Taker
RISK 2006
No.1 Broker for Cash Trader
(Global Weighted)
No.3 Hedge Fund Derivatives
FINANCIAL NEWS 2006
RISK 2006
No.1 Broker
for Portfolio
,
Trading (Global Weighted)
No.2 Broker for Direct Market
Access (Unweighted)
FINANCIAL NEWS 2006
FINANCIAL NEWS 2006
i
DBS ~;.;:tment
27
Topping the Tables - in Europe
Award-winning expertise across a full spectrum of products globally.
Best Bank :for Western Europe
EUROMONEyl2005
i
Best Equity House in Western
Europe
No.1 Emerging-EMEA Research Team
INSTITUTIONAL INVESTOR 2005-04
EUROMONEY 2005
Best Pan-European
Brokerage
,
Firm
No.1 All-Europe Research Team
INSTITUTIONAL INVESTOR 2006-02
THOMSON EXTEL 2006-01
Best Lead Manager of Subordinated
Debt / Bank Capital
EUROWEEK 2006
Best Pan-European Firm for
Equity Sales
No.1 European Investment
Grade Research
No.3 EMEA Bonds
THOMSON EXTEL 2006-02
INSTITUTIONAL INVESTOR 2006
Best Provid er of Support in th e
Secondary Markets
Best Pan-European Brokerage
Firm for Derivatives
INSTITUTIONAL INVESTOR 2005-04
No.1 Pan-European Sales Force
EUROWEEK 2006
EUROWEEK 2005-04
Best Debt House in Russia,
Serbia & Montenegro
THOMSON EXrEL 2006-02
Best Pan-European Firm for
Equity Tra~ing & Execution
Services
No1 Ranked Prime Brokerage
Research Analyst Team in
Developed Europe
EUROMONEY 2005
THOMSON EXTEL 2006-02
INSTITUTIONAL INVESTOR ALPHA 2006
IFR 2005
j
No.1 Swiss Franc Bond House
i
Best Euro~ean Equity House of
the Year I
No.2 European Fixed Income
Research Team
THE BANKER 2005
INSTITUTIONAL INVESTOR 2006
i
No.1 Broker for Cash Trading
(Europe Unweighted); No.2
Broker for Cash Trading (Europe
Weighted);
FINANCIAL NEWS 2006
i
European ~quities House of the
Decade
No.1 Hedge Fund All-Europe
Research Team
FINANCIAL NEWS 2006
INSTITUTIONAL INVESTOR 2006
No.1 Broker for Portfolio
Trading (Europe Weighted &
Unweighted)
No.1 Financial
Institution Bonds
,
Best Bank Switzerland
FINANCIAL NEWS 2006
EUROWEEK 2006
,
EUROMONEY 2005
!
I
28
I
Topping thell'ables - in the Americas
Award-winning expertise across a full spectrum of products globally.
No.1 trader of NASDAQ
AUTEX YTD2006
!
No1. for Announced M&A Deals
in LatAm
No.1 Latin America Strategy &
Economics Team
THOMSON FINANCIAL YTD2006
INSTITUTIONAL INVESTOR 2006-03
No.4 All-America Fixed Income
Research Team
INSTITUTIONAL INVESTOR 2006-03
No.2 trader
of NYSE
,
AUTEX YTD2q06
No1.
us Structured
Securities
INSTITUTIONAL INVESTOR 2005
INSTITUTIONAL INVESTOR 2005
I
No.1 LatinjAmerica Research Team
No.1 Mexico Research Team
No.5 All-America Equity Research Team
Largest Shipper of Gas daily
No.5 All-America High Yield
Research Team
INSTITUTIONAL INVESTOR 2005
,
2005
No.1 MBS Strategy Team
INSTITUTIONAL INVESTOR 2005-2001
FINANCIAL NEWS 2006
No.2 Broker for Cash Trading
(US Weig~ted)
INSTITUTIONAL INVESTOR 2006-03
INSTITUTIONAL INVESTOR 2005
INSTITUTIONAL INVESTOR 2006-03
No.1 Broker
for -Portfolio
,
Trading (US Weighted)
No.2 Brazil Research Team
No.5 Hedge Fund All-America
Research Team
INSTITUTIONAL INVESTOR 2005
FINANCIAL N~WS 2006
No.1 Underwriter of US Municipal
Debt
THOMSON FINANCIAL Q1 2006
No.1 Economics Research Team
Best Equity House in Latin America
INSTITUTIONAL INVESTOR 2005, 2004
EUROMONEyi 2005
29
I,
Topping the.Tables - in Asia-Pacific
Award-winning expertise across a full spectrum of products globally.
Best Investment Bank Asia
I
EUROMONEY ,2006
No1 AII-As,ia Research Team
INSTITUTIONAL INVESTOR 2006-2002
1
APAC Equity
House of the Year
I
IFR 2006
Best Equity-House in Korea
THE ASSET 20P5
Best Stockbroker in the Philippines
No;1 Japan Research Team (weighted)
FUND MANAGERS ASSOCIATION (FMAP) 20062004
INSTITUTIONAL INVESTOR 2005
No.3 Japan Research Team
INSTITUTIONAL INVESTOR 2006
No.1 Most Innovative Prime Brokerage
ASIAMONEY 2005
Asia's Best Overall Brokerage House
ASIAMONEY 2005
No.2 Asian G3 Currency Bonds
EUROWEEK 2006
No.3 Asian Leveraged Finance
EUROWEEK 2006
No.3 Japanese Equity Capital
Markets
Best Wealth Management House for
Equity Derivatives
Asia's Best Overall Stockbroker
ASIARISK 2005
THE ASSET 2005
No.2 Australian Equity Capital
Markets
Best Foreign Investment Bank in
Malaysia and Best Foreign Investment
Bank in Philippines
Asia Equity House of the Year
EUROWEEK 2006
FINANCEASIA1S 2006 COUNTRY AWARDS FOR
ACHIEVEMENT
Best Asia Derivatives House
Best Stockbroker in the Philippines
IFR ASIA 2005
No.2 Broker for Cash Trading
(Japan Weighted)
FINANCIAL NEWS 2006
DERIVATIVES WEEK 2005
Best Equity-Linked Structured
FUND MANAGERS ASSOCIATION (FMAPl 2006-2004 Product House
I
No.1 in Fixed-Income Sales Trading;
No.2 in Fi~ed
Income Research
I
EUROWEEK 2006
ASIAMONEY 2005
No.1 Broker for Portfolio
Trading (Japan Weighted)
FINANCIAL NEWS 2006
FINANCEASIAi 200S
30
APPE~DIXA
I
Technical Reference Guide
I
Understanding Financial Statements
Three main financial statements
!
•
Income statement
a~ P&L (profit and loss statement>
-
also referred to
-
shows how profitable the firm has been over the past year
I,
•
Balance sheet
-
provides 'snapshd,t' of a company's assets and liabilities at a pomt In time
I
-
top portion: assets
I
bottom portiqn: liabilities and shareholders' equity
-
balance sheet must BALANC E
I
- assets = liabilities + shareholders' equity
-
Items are listed in!declinlng order of liquidity
I
•
'*
Statement of cash flows
I
-
shows the sources and uses of cash flows
-
don't confuse with profits
-
difference between dollars received and dollars paid out
DBS ~~~~tment
I
32
Linking the Financial Statements
I
Key to projecting ~ company's future financial performance
•
•
Financial statements are interactive
.
I
-
with income and cash flow statements and pnor year balance-can calculate most current balance sheet
-
with mcome statement and two years balance sheet-ean calculate cash flow statement
Key Interactions
-
net mcome (income
statement).
,
-
first line of ca~h
flow
I
-
less dividend provides change m shareholders' equity on balance sheet
I
-
net change in cash (bottom of cash flowl-indicates change in cash on balance sheet
-
cash and debt (ani balance sheet)-average over one year determmes interest income and expense (respectively) on mcome statement
33
I
Illustrative Financial Statements
($mm)
Income Statement
Cash Flow Statement
Year 1
Revenue
Cost of Goods Sold
Sales, Gen. & Adm.
EBITDA
Dep'n & Amort
EBIT
InterestIncome
Interest Expense
EBT
Income Tax
Net Income
Year 1
1,000
500
200
300
50
250
(2)
34
218
76
142
NI
From Operations
Net Income
Changes In WC
Dep'n & Amort
Total
142
5
50
197
=NI
= - Inc CA + Inc CL
=D&A
Investing Activities
Cap. Expenditures
(75)
Capex
Financing Activities
Debt
Dividends
Total
ISO)
(25)
(75)
= -Inc DB
DVD
Net Change in Cash
Balance Sheet
CinC
Notes
'Year 0
Cash
Current Assets
Total Current Assets
PPE, net
Total Assets
Current Liabilities
Debt
Equity
Total Liab. & Equity
47
25
40
65
500
565
50
450
65
565
Year 1
72
50
122
525
647
65
400
182
647
- PY + CinC
CA
= PY - D&A + Capex
Earnings on Cash
Cost of Debt
Tax Rate
4%
8%
35%
CL
DB
= PY + NI- DVD
CA
Current Assets
CinC
Change
(apex
Current Expenditures
DVD
Dividends
OM
Deprecratron & Amorteaton
NI
Net Income
DB
Debt
py
PreviousYear
CL
Current Liabilities
WC
Working Capital
In
Cash
34
-------------------------------------------
Valuing a Company
i.
There are three pnmary ways to value a company
!
•
Comparable company analysis
- value by reference to similar companies
- how to choose comparable companies:
-
!
similar industries and markets
size: similar mkrket caps and balance sheets
I
-
look at enterprise ivalue and equity value
- enterprise value multiples: EViRevenue, EViEBITDA
I
- equity value multiples: EqV/Net Income (same as PIE ratio)
-
typically add control premium -30%
!
I
•
Precedent transaction analysis
- value by referenc~ to previous relevant transactions
-
ex: Ford buys GMlat a multiple of 20x EBITDA
- how much should DaimlerChrysler pay for Toyota? Perhaps around 20x Toyota's EBITDA
!
uses the same multiples comparable company analysis does
- Includes contrpl premium paid in similar transactions (based on Industry, size, etc.)
•
Discounted cash f1o/N (DCF) analysis
- determines value by discounting company's expected future cash flows
-
helps to find intrinsicvalue of a company
I
discounts future (projected) cash flows to a net present value (NPV) using a discount rate
discount rate Influenced by weighted-average cost of capital (WAC C):
I .
.
-
risk free rate,US Treasuries. plus
-
expected inflation, plus
-
risk premium reflecting uncertainty as to attainability of future projections
I
35
Understanding PIE Ratios
PIE is the price to
~arnings ratio
!
•
Price of a stock divided by its earnings per share
i
- gives Investors an Idea of how much they are paying for a company's earnings power
!
•
Sample Question 1: I
- a company with ~ PIE of 20x acquires a company with a PIE of 1OX-IS this transaction likely to be accretive or dilutive?
-
based on this limited info, answer: likely accretive
I
- a PIE of 10x sould indicate that the company has high earnings (i.e. bottom part of the equation IS bigger)
I
•
Sample Question 2:
- Company A has ~ PIE of 20x and Company B has a PIE of 10x-which is cheaper?
- answer: Company B
Ii
!
-
'*
lower PIE = cheaper
UBS ~:~tment
36
Differentiating Between Debt and Equity
I
i
.
.
.
Would you rather fi,nance a company with debt or equity? Which is cheaper?
I
•
Debt is cheaper
- because It is less risky for investors
-
debt-owners
~ave priority claims on the company's
assets if the company goes bankrupt
I
•
Equity is more expensive
-
equity-holders are! not guaranteed to get their money back if the company goes bankrupt, therefore they require a higher return to
mitigate risk
I
-
higher return
~ more expensive
I
A few examples to
demonstrate this POINT...
I
•
Company A
- suppose you purchase Company A with $10 from your own pocket
"
-
one year later, you sell Company A for $20
-
•
i
$10 profit or 100% return on Invested capital
I
•
Company B
i
- suppose you purc?ase Company B with $2 from your own pocket and an $8 loan from a friend
I,
one year later, you sell Company B for $20
-
after repaying Ithe loan, you pocket $12, or a 500% return on your equity Investment
I
I
Which is the better deal?
,
,
•
Company B, because you made a 500% return on your investment better to use less equity and more debt (i.e. more "Ieverage")
37
Dlff'erentiatlng Between Debt and Equity
Another way to I06k at it...
I
1
Equity
Debt
Total Capitalization
•
Company A
Company B
50
50
100
25
75
100
I
Suppose the company grows, and is now worth $200
I
Equity
Debt
Total Capitalization
Company A
Company B
150
50
200
125
75
200
I
I.
Notes:
•
Debt stays the same, equitv Increases
For both Company A and Company B, equity has grown by 100; however, your return on your investment IS different:
-
Company A: invested $50 equity, now has $150 equitv: a 200% return on investment
-
Company B: Invested $25 equity, now has $125 equity; a 400% return on Investment
I
38
Terms to Know
•
Product group
investment bankl~g group that focuses on a method of transaction or financing tool
-
mergers & acquisitions, equity capital markets, debt capital markets
cover all industry groups
I
•
Industry group
investment
!
bankl~g group that focuses on a specific industry
,
-
consumer propucts. media, telecom, global Industrial
covers all productl groups
•
Premium
- the amount at wHich something is valued above ItS par or nominal value
•
Discount
"
-
I
i .
_
the amount at which something is valued below ItS par or nominal value
I
•
Bull market
-
characterized by
~rolonged nse in prices of stocks, bonds, or commodities
"buy" market: with high trading volumes
~ood
market because investors make money
-
considered a
-
Investors "charqe ahead" like bulls
I
•
Bear market
-
I
characterized by prolonced penod of falling prices for stocks, bonds, or commodities
I
"sell" market:due to anticipation of declining market activity
-
Interest rates bn bonds Increase dunng such a period
I
Investors choose to avoid risk, buy bonds
-
considered a bad market because Investors lose money
-
investors
"hib~rnate"
like bears
39
Terms to Know
•
Equity value
-
equity value = share price x number of shares outstanding
-
value of shaleholders' interest
i
•
Enterprise value
-
!
enterprise value ~ equity value + debt - cash
-
Includes all fbrms of capital
main difference between equity value & enterprise value:
-
enterprise value includes net debt (debt - cash)
I
•
EBIT (Earnings Before
Interest & Taxes)
I
•
EBITDA (Earnings
•
also called oper~tlng income
Income from operations before the effects of financing and taxes
i
measure of profitability independentof capital structure
B~fore Interest, Taxes, Depreciation & Amortization)
income from operations before the effects of financing, taxes, and non-cash expenses
proxy for free caph flow, but a poor one
Multiples
-
also called ratios'
i
provide a measure of relative valuation to an underlying financial (operating) statistic
equation: valuation statrsnc/operatmq statistic
-
- Enterprise V~lue/Revenues,
Enterprise Value/EBITDA, PIE
I
allow for relative comparisons between similar companies
i
•
Margins
-
equation: operating statisttorevenues
- Gross Profit/~evenues, EBITDAIRevenues, EBIT/Revenues, Net Income/Revenues
,
40
Terms to Know
•
Free cash flow
-
cash flow availab ~ to all providers of finance
on~ measurement used in torecastmq future performance
-
EBITDA is a proxylfor fr~~ cash flow, but a poor one
,
i
•
•
Working capital
.
-
working capital =Icurrent assets - current liabilities
funds Invested in a company's cash
-
finances the cash liconversion cycle of a business:'
- time required ito convert raw materials into finished goods, finished goods Into sales, and accounts receivables Into cash
WACC (Weighted Averaqe Cost of Capital)
used in deterrnininq discount rate employed to calculate the net present value (NPV) of future cash flows in discounted cash
flow (DCF) analysis
return commensu'rate with risk of the investment
,
,
,
•
Time value of money equations
,
-
present value (PV1 = FV/(1 + r)
future value (FV) T PV * (1 + r)
- note: r = discount rate
41
Contact Infdrmation
UBS Securities LLC
299 Park Avenue
New York NY 10171
Tel. +1-212-8213000
www.ubs.com
UBS Investment Bank IS a business qrocp at UBS AG
UBS Securities LLC isa subsidiary of UBS AG
42