Understanding the Deal and the Role of the Actuary
• Type of Buyer
• Reason for Buying
• Type of Deal – Stock or Asset
• Whole Company or Part
• Who is Advising Whom?
• Friendly or Hostile Transaction?
• Stage of Deal

Market Overview
–
North American M&A Split by Deal Size
Value ($bn)
Volume
Source: Merger Markets
Year Number of Deals Value of Deals (US $Mn)
2003 2,565 504,900
2004
2005
3,969
4,080
820,200
1,104,700

Top 5 North American Corporate Deals in US$
2004
1 – JP Morgan Chase – Bank One – Financial Services : 57.88 bn
2 – Cingular Wireless – AT&T Wireless Services – Telecomms : 47.02 bn
3 – Sprint Corp.– Nextel Communications – Telecomms : 40.76 bn
4 – Exelon Corporation – PSEG (Public Service Enterprise Group) –
Energy, Oil & Gas : 25.97 bn
5 – Wachovia Corp. – SouthTrust Corp. – Financial Services : 14.3 bn
2005
1 – Procter & Gamble – Gillette – Consumer : 55.69 bn
2
– Bank of America – MBNA Corporation – Financial Services: 34.86 bn
3 – Viacom (Shareholders) – Viacom Inc – Media: 33.2 bn
4 – SBC Communications Inc – AT&T Corp – Telecomms : 21.65 bn
5 – Koch Industries Inc – Georgia-Pacific Corporation – Consumer : 21.0 bn

Market Overview
–
Private Equity
There has been a consistent increase in the value of deals in $ bn over the passed 4 years
The market is expected to cool down in 2006
Source: Merger Markets

Top 5 North American Private Equity Deals in US$
2004
1
– Comcast Corporation/DLJ Merchant Banking Partners/Providence Equity
Partners Inc./Sony Corporation of America/Texas Pacific Group – Metro-
Goldwyn-Mayer : 4.85 bn
2 – Kohlberg Kravis Roberts & Co. – PanAmSat Corporation: 4.08 bn
3
– Riley Property Holdings LLC – LNR Property Corporation : 3.7 bn
4
– Boise Cascade LLC – Boise Cascade (Paper, forest products, and timberland assets) : 3.7 bn
5
– Texas Genco LLC – Texas Genco Holding Inc.: 3.65 bn
2005
1 – Clayton/Dubilier & Rice/Merrill Lynch Global Private Equity/The Carlyle
Group – The Hertz Corporation: 15.0 bn
2 – Texas Pacific Group/Warburg Pincus – The Neiman Marcus Group : 5.11 bn
3
– AIG Highstar Capital/Ontario Teachers Pension Plan – InterGen
(10 power stations) : 4.85 bn
4 – 3128012 Nova Scotia Limited – Fairmont Hotels & Resorts : 3.9 bn
5 – Providence Equity Partners – Kabel Deutschland GmbH (63% stake):
3.43 bn

US Pension Considerations
• Aim: Leave accrued past service benefits with seller
• Only possible if buying/selling portion of business
• If transfer of liabilities:
• Seller will look to value ABO (past service liabilities, no salary increases, market discount rate)
• Buyer will want value at PBO or higher
• Negotiate method and assumptions
• Negotiate eligibility conditions
• Issues with asset transfers from qualified plans
(IRC Sect. 414(l), ERISA Sect. 4044)
• May need IRS and PBGC approval

Canadian Pension Considerations
• Aim: Leave accrued past service benefits with seller
• Only possible if buying/selling portion of business
• Buyer must establish a qualified plan (DB or DC) for seller to avoid Regulators requiring partial wind up
• Eligibility for past service benefits continues based on total service (incl. service with the buyer)
• If transfer of liabilities and qualified plan assets, likely to be share of fund on wind up valuation basis to satisfy Regulators
• Provinces have differing requirements

Post-Retirement Medical Considerations
• Canada and US very similar
• Not vested until retirement and typically not funded
• Variety of approaches in asset deals, e.g.
• Retire and rehire those eligible for benefits
• Allow to grow into eligibility with future service
• If eligible, retain benefit, but defer commencement to actual retirement from buyer
• If not eligible, no benefit from the seller
• If liabilities are transferred, with purchase price adjustment, seller typically requires buyer to retain plan for a period of years

Market Overview
Corporate M&A Europe
800,000
700,000
600,000
500,000
400,000
300,000
4,000
3,500
3,000
2,500
2,000
1,500
Value of Deals (US$M)
Number of Deals
200,000
100,000
1,000
500
0 0
Source: Merger Markets
2001 2002 2003 2004
Years
2005
Year
2001
2002
2003
2004
2005
Number of Deals Value of Deals (US$M)
1,971 629,584
1,854
2,412
584,004
429,445
3,413
3,500
493,216
756,189

Top 5 European Corporate Deals in US$
2004
1 – Sanofi – Aventis: 70.9 bn
2 – Telecom Italia – Mobile (TIM) : 25.5 bn
3 – KBC Bank – Almanij : 19.2 bn
4 – Santander – Abbey National: 15.5 bn
5 – Mittal Steel – LNM Holdings : 11.8 bn
2005
1 – Gas Natural SDG – Endesa: 52.3 bn
2 – Telefonica – O2 : 32.0 bn
3 – Vinci – Autoroutes du Sud de la France: 20.9 bn
4 – Unicredito – HypoVereinsbank : 18.9 bn
5 – Pernod Ricard – Allied Domecq : 16.6 bn

Market Overview
Private Equity Deals
300
1,750
250 1,500
200
150
100
50
0
1,250
2000 2001 2002 2003 2004 2005
0
1,000
750
500
250
Year
2000
2001
Nº of
Deals
Deal
Price
Total $ Million
403 88,854
470 93,769
2002
2003
519 121,781
881 137,658
2004 1,276 197,275
2005 1,552 272,412

Top 5 European Private Equity Deals in US$
2004
1 – Borealis – National Grid Transco: 5.8 bn
2 – Fortress – Gemeinnuetzige Angestellt : 4.3 bn
3 – CDR/Eurazeo/Merrill Lynch – Rexel : 3.7 bn
4 – Elliott Bernerd – Chelsfield: 3.3 bn
5 – CVC/Permira – Automobile Association: 3.2 bn
2005
1 – Apax/Blackstone/KKR/Permira– TDC: 16.0 bn
2 – BNP Paribas – Galeries Lafayette : 11.1 bn
3 – Terra Firma – Viterra : 7.5 bn
4 – Access Industries – Baselle: 5.4 bn
5 – Cinven/Air France/Lufthansa – Amadeus : 5.3 bn

 Pan European Plans
 Cross-Border Acquisitions
 Sourcing and the move to the East
 IFRS

 Book reserve plans
 Pensionskasse
 ATZ/Early retirement plans
 Jubilee awards

 Top-Hat plans
 Retiree health plans
 DC retirement plans
 Restructuring

 DC plans
 Collective/Industry-wide plans
 Early retirement plans
 Unions
 Company/Fund Separation
 Funding

 Externalization of funding
 Individual and management agreements
 Reduction in government benefits
 Unions and collective labor agreeements

 DB plans
 Collective/Industry-wide plans
 Long-Term disability provisions

Agenda
• Background to UK
• Recent legislation
• Pensions Regulator
• Impact on transaction

Number and Value of UK M&A Deals (over £10m)
2,500
2,000
1,500
2,500
1,000
2,000
Total Number and Value of UK M&A Deals (over £10m)
500
1,500
1,000
0
500
2000
0
2001 2002 2003 2004
2000 2001 2002 2003 2004 2005
Disclosed Value
Number of Deals
Disclosed Value
0
700,000
600,000
500,000
400,000
300,000
200,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
•
M&A activity continues recovery
•
Increased number of deals in
UK consistent with M&A growth worldwide
•
Low interest rates have contributed to an increase in the amount of debt leveraged in the average deal.

Background to UK
• Defined benefit schemes
– In deficit
– Closed to new entrants
– Increasing closed to future accrual of benefits
– Maturing membership profile
– Increasing longevity
• Recent legislation
– Pension Protection Fund established
– Pensions Regulator with significant powers
– Pension scheme funding rules
– Multi-employer regulations

Pension Regulator Powers
• Contribution Notices
– Act, or failure to act, that is detrimental to the pension scheme
– Cash penalty on connected or associated companies or individuals
• Financial support directions
– May apply if a company is insufficiently resourced to support its pension deficit
– Connected or associated company to guarantee support
– Pierces corporate veil

Impact on transactions – pensions liabilities an unsecured creditor
1. Creditors with fixed charges
2. Preferred creditors
3. Creditors with floating charges
4. Unsecured creditors
5. Subordinated creditors
6. Equity
Prevent reduction in security:
•Change in priority
•Reduction of capital
•Change of control

Impact on transactions – voluntary clearance
• Clearance can be obtained from Pensions Regulator
• Need to understand the effect of transaction on pension creditor
• Need to engage with trustees during transaction process

Scheme Funding Rules
• Trustee must
– Adopt prudent assumptions
– Understand strength of employer
– Negotiate with employer
• Impact on transactions
– Current degree of uncertainty
– Likely to lead to increased cash

Multi-employer regulations
• Sale of a participating employer triggers buyout/insurance debt
• Liability related to actives, pensioners, defereds of participating employer
• Impact on transactions
– Buy-out debts are significantly higher than IAS19 deficit
– Buy-out debts can be avoided but alternatives are complex and challenges to agree.