The Practical Side of Investment Banking October 10, 2006 Table of Contents Citigroup’s Investment Banking Michigan Team Structure of an Investment Bank Deal Teams and the Role of an Associate Why Citigroup? Citigroup’s Investment Banking Michigan Team Citigroup’s Investment Banking Michigan Team Managing Directors Randy Barker Co-Head, Global Fixed Income John Ciolek Energy James McCummings Global Communications Timothy Devine FIG Stephen Schiller Client Strategy Hugo Verdegaal Latin America Directors Nathan Eldridge Mergers & Acquisitions Jodi Schenk Mergers & Acquisitions Victor Voorheis FIG Peter Kapp FIG Vice Presidents Rich Harding Healthcare Daniel Lee Global Communications Jas Singh Energy Keith Anderson London Ramon Gonzalez Global Communications Susan Manuelle Global Industrial Christa Volpicelli Global Industrial Associates Ben Riback (A4)* Global Consumer Arun Prasad (A3) Health Care Owen Bittinger (A3) Palo Alto Benjamin Carpenter (A3) Los Angeles Paul Croci (A3) Pablo Pallas (A3) London Martin Valdes (A3)* Latin America Sarah Ransdell Bayer (A2) Palo Alto Patty Yang (A2) Hong Kong Jason Godley Generalist Julius Peter Generalist Harsh Singh Generalist * Team Co-Captain Structure of an Investment Bank What is an Investment Bank? An “investment bank” typically consists of three distinct, but related businesses: Traditional Investment Banking Capital raising – Debt – Equity Strategic advisory services – Mergers & acquisitions – Restructuring – Takeover defense Sales & Trading Distribution and execution arm of the investment bank Sells and trades stocks and bonds Manages the firm’s risk and makes markets for the securities underwritten by the investment bank Research Analysis and recommendations of stocks and bonds Includes company coverage and sector coverage Who are the Leading Investment Banks in the United States? Large / Global Small / Regional Structure of an Investment Bank — Conduit to the Corporate Client Private Side Public Side Client Capital Markets Other Product Groups Financial Strategies Derivatives Liability Management Pensions Bank Loans Inv Grade Debt M&A High Yield Equity “Chinese Wall” Investment Banking Coverage Groups Corporate Banking Sales & Trading Research Products and Services An investment bank provides numerous corporate finance functions Balance Sheet Management Hedging Capital Raising Equity Share and Debt Repurchases Investment Grade Debt Debt Exchanges High Yield Debt Consent Solicitations Syndicated Loans Bridge Commitments Advisory M&A Restructuring Financial Strategy Industry Coverage Groups Consumer Financial Institutions Communications Energy, Power & Chemicals Health Care Real Estate Financial Entrepreneurs Industrials Technology Valuation: The Foundation of Every Deal Primary Valuation Techniques Discounted Cash Flow Analysis Public Market Analysis (Comparable Companies) How is my client trading relative to peers? – WHY is it trading this way? Growth? Margins? “Hot” market versus fundamentals – HOW can the company improve its valuation? Private Market Analysis (Precedent Transactions) Does an acquisition make sense? LBO Analysis What is an appropriate price? Is cash or stock a better choice? Secondary Valuation Techniques What is appropriate leverage? Pro Forma Consequences Analysis How would the market value the company in a public offering? – Accretion/dilution – Capital Structure – EPS Growth Rates Relative Contribution Analysis Liquidation Analysis 11 How long will a company take to pay back debt holders? Do cash flows support an LBO? Valuation and the Associate The associate is responsible to ensure numbers are accurate and assumptions are realistic Valuation is NOT A single, quantitatively derived answer A precise number A static number 12 Valuation is Lots of number crunching More art than science Heavily dependent on judgment Raise Capital for Clients One of the most common functions of investment bankers is to assist companies in raising capital Investment banks are the intermediaries between users of capital and providers of capital Equity – IPO – Secondary Offering – Preferred Stock Debt – Investment Grade – High Yield Debt – Structured & New Product Financing 13 Capital Raising Assignment The associate manages the flow of information and therefore must be organized and anticipate everything Pitching 14 Pre-Filing Preparation Marketing Pricing / Closing Post-deal follow-up Capital Raising: Pre-Filing Screen the Deal Internally – Put together all internal memos and coordinate meetings Commitment Committee Investor Issues Committee Organizational Meeting – Establish agenda, timetable, information request list and working group list Due Diligence Meetings Drafting of Registration Statement – Development of business section and positioning – Participation in drafting sessions – Work with underwriters’ counsel on underwriting agreement Marketing Preparation – Prepare roadshow presentation with company – Coordinate for reds to be delivered as necessary 15 Capital Raising: Marketing Prepare memos for sales forces – Institutional sales memo – Retail Sales Memo Coordinate dry-run (company presentation to sales force) Roadshow: – Responsible that ALL logistics run smoothly – Accompany company to investor meetings—keep meetings on time – Feedback to Capital Markets desk: know how the book is building – ANTICIPATE everything Denver one-on-ones Minneapolis one-on-one Milwaukee one-on-ones Chicago one-on-one Toronto one-on-ones group mtg Montreal group mtg Boston one-on-ones group mtg New York one-on-ones group mtg Philadelphia one-on-ones Europe group call San Francisco one-on-ones group mtg San Diego one-on-one group call 16 Kansas City one-on-ones Capital Raising: Pricing/Closing Pricing: Handled by ECM – Coordinate bring down due diligence call prior to pricing Finalize registration statement – Meet with lawyers and printers to add in final pricing information Closing: Help coordinate wiring of funds to company – How much? Where? When? Wire instructions via memo to syndicate Post-deal client relationship – Create post-mortem book – Organize closing dinner – Design Lucite 17 Keys to Success as an Associate Goals Pitfalls ▲ Develop credibility early with team, especially analysts ▼ Presenting materials with mistakes or typos ▲ Leadership: Delegating authority ▼ Waiting to get involved ▲ Time management skills: Balance multiple projects ▼ Failure to anticipate ▲ Understand the transaction and communicate both up and down ▼ Not leveraging firm’s resources appropriately ▲ Develop a rapport with the analysts and communicate the big picture ▲ Manage expectations and define responsibilities ▲ Get your hands dirty ▲ Don’t be afraid to ask questions ▲ Proactive client interaction ▲ Educate senior bankers and exceed expectations 18 ▼ Getting lost in the detail and missing the big picture ▼ Insubstantial interaction with clients ▼ Does not properly delegate work ▼ Losing confidence under pressure ▼ Lack of attention to detail ▼ Lack of follow through ▼ Lack of involvement in recruiting and training activities Why Citigroup? Citigroup is the #2 Global M&A Advisor YTD Global Europe Volume ($B) Rank Volume ($B) Rank Volume ($B) Rank 769.5 437.9 326.1 714.7 315.1 440.9 664.3 315.3 384.9 592.2 260.4 371.0 524.2 185.0 344.8 472.9 166.5 279.6 452.8 297.6 175.3 13 Source: Securities Data Company, Inc Note: Data as of September 30, 2006, based on rank date 19 U.S We Advised on of the 10 Largest Deals YTD Deal Size Companies Deal Size $89 Billion $32 Billion $71 Billion $30 Billion $44 Billion $28 Billion $41 Billion $27 Billion $38 Billion $26 Billion Source: Securities Data Company, Inc Data as of September 30, 2006, based on rank date 20 Companies We Have Advised on Many Landmark, Cross-Border Deals Pending Pending Announced Cross-Border (2004–YTD 2006) Volume (US$bn) Advised on Mittal Steel’s proposed offer to acquire Arcelor Advised on Autostrade SpA’s merger of equals with Albertis Infraestructuras US$43,632 mm January 2006 US$28,389 mm April 2006 Pending Completed Advised on NYSE’s proposed merger with Euronext Advised on Bavaria’s sale of a 71.8% stake owned by Santo Domingo to SABMiller US$10,203 mm May 2006 US$5,227 mm July 2005 International (1) Client Advisory (2004–YTD 2006) Volume (US$bn) Completed Completed Advised on G-TECH Holdings sale to Lottomatica SpA Advised on CNPC International’s acquisition of PetroKazahkstan US$4,736 mm January 2006 US$3,957 mm August 2005 Source: Securities Data Company, Inc (1) Advising a non-U.S or non-European client in a cross-border transaction M&A deals rank-eligible 2004-YTD 2006 (as of August 31st) 21 Citigroup’s Dominance in Capital Raising Citigroup is a leading bookrunner in Global Capital Markets C12 MONDAY, OCTOBER, 1, 2006 THE WALL STREET JOURNAL R10 TUESDAY, JANUARY, 3, 2006 SCORECARD OF WALL STREET UNDERWRITING: FIRST NINE MONTHS THE WALL STREET JOURNAL YEAR-END REVIEW OF MARKETS & FINANCE Global Stocks and Bonds Global Stocks and Bonds In the U.S public, Rule 144a, domestic and international equity and Euro markets, ranked by first nine months 2006 proceeds FIRST NINE MONTHS 2006 FIRST NINE MONTHS 2005 U.S public, Rule 144a, domestic and international equity and euro-market issues, ranked by 2005 proceeds PROCEEDS (billions) Citigroup J.P Morgan Deutsche Bank AG Lehman Brothers Morgan Stanley Merill Lynch Goldman Sachs Credit Suisse Barclays Capital UBS TOP 10 TOTALS INDUSTRY TOTAL MARKET SHARE $490.0 382.6 340.5 330.9 319.3 300.9 276.6 262.9 241.3 232.2 $3,177.1 $5,463.5 9.0% 7.0 6.2 6.1 5.8 5.5 5.1 4.8 4.4 4.3 58.2% 100.0 NO OF ISSUES 1,384 1,270 1,072 955 968 1,097 643 834 757 870 9,850 15,264 Who's No 1? Leading stock-and-bond underwriters, by volume, third-quarter 2006 MARKET SECTOR Global Debt, Equity & Equity-related U.S.Debt, Equity & Equity-related STOCKS Global Common Stock Global Convertibles Global Common Stock- U.S Issuers Global Convertibles- U.S Issuers BONDS U.S Asset-backed Securities U.S Investment Grade Corporate Debt U.S High Yield Corporate Debt U.S.Mortgage-backed Securities SYNDICATED LOANS U.S Syndicated Loans 22 NO RANKED MANAGER PROCEEDS (billions) MARKET SHARE $431.5 322.6 331.2 326.1 299.2 259.9 246.8 256.4 194.2 256.5 $2,924.3 $4,933.9 8.8% 6.5 6.7 6.6 6.1 5.3 5.0 5.2 3.9 5.2 59.3% 100.0 THIRD QUARTER MKT SHARE RANK 12 CHANGE IN MARKET SHARE FROM PREV Q Citigroup Citigroup 9.3% 10.6 0.80 0.20 J.P Morgan Citigroup Goldman Sachs Citigroup 11.3 19.2 16.0 31.6 3.60 3.30 -0.40 17.00 Citigroup Citigroup Citigroup Royal Bank of Scotland 9.6 17.1 17.8 10.8 -0.60 2.20 1.30 0.30 J.P Morgan 28.1 -5.40 MANAGER Citigroup Lehman Brothers Deutsche Bank AG J.P Morgan Morgan Stanley Merill Lynch Credit Suisse First Boston UBS Goldman Sachs Barclays Capital TOP 10 TOTALS INDUSTRY TOTAL PROCEEDS (billions) 2005 NO OF ISSUES $564.7 420.8 418.1 414.6 383.5 343.2 337.3 323.5 310.2 269.7 $3,785.6 $6,511.3 1,856 1,249 1,398 1,553 1,238 1,450 1,138 1,188 819 853 12,742 20,118 2004 MARKET SHARE PROCEEDS (billions) 8.7% 6.5 6.4 6.4 5.9 5.3 5.2 5.0 4.8 4.1 58.3% 100.0% $539.9 377.2 343.4 395.6 416.3 385.7 366.5 303.6 291.1 191.8 $3,611.2 $5,767.0 RANK 12 Who's No 1? Leading stock and bond underwriters, by 2005 proceeds MARKET SECTOR Global Debt, Stock & Stock-Related U.S.Debt, Stock & Stock-Related STOCKS Global Common Stock Global Convertible Offerings Global Common Stock- U.S Issuers Global Conv Offerings- U.S Issuers BONDS U.S Asset-backed Securities U.S Investment Grade Corporate Debt U.S High Yield Corporate Debt U.S.Mortgage-backed Securities SYNDICATED LOANS U.S Syndicated Loans NO RANKED MANAGER 2005 MKT SHARE CHANGE FROM 2004 (pct Pts.) Citigroup Citigroup 8.7% 10.1 -0.70 -0.90 Citigroup J.P Morgan Morgan Stanley Goldman Sachs 9.5 14.6 12.1 15.7 -1.10 5.00 -3.30 4.90 Citigroup Citigroup J.P Morgan Bear Sterms 8.6 16.5 13.0 10.7 -1.10 -3.90 1.60 -1.70 J.P Morgan 28.1 -4.00 So What Does This Mean For You? Acquisition of Vincor International Advisor to Constellation Acquisition of American Household Inc Buy-Side Advisor Acquisition Finance Acquisition by Constellation Brands Inc Advisor to Mondavi $1,310,000,000 June 2006 $890,000,000 January 2005 $1,355,000,0000 December 2004 European Beverages Financing of Acquisition by Blackstone and Lion Capital Joint Book-Runner 23 New Credit Facility in Connection with Acquisition of Grey Goose Joint Book-Runner $4,400,000,000 September 2004 Acquisition by GTCR Buy-Side Advisor Acquisition by GTCR Buy-Side Advisor 7.250% Senior Notes due 2016 Joint Book-Runner Sale of Tohato, Inc to Yamazaki Baking Co, Ltd Advisor to Unison Capital Partners €1,850,000,000 February 2006 $700,000,000 July 2006 ¥18,200,000,000 July 2006 $555,000,000 April 2004 $240,000,000 January 2004 Acquisition of FileNet Corporation Advisor to IBM Senior Notes Sole Bookrunning Manager Convertible Senior Subordinated Notes Sole Bookrunning Manager Senior Subordinated Notes Joint Bookrunning Manager Senior Notes Joint Bookrunning Manager $1,600,000,000 Pending $400,000,000 May 2006 $190,000,000 May 2006 $600,000,000 January 2006 $300,000,000 July 2004 Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements This presentation is not a commitment to lend, syndicate a financing, underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment, nor are we acting as a fiduciary to you By accepting this presentation, subject to applicable law or regulation, you agree to keep confidential the existence of and proposed terms for any transaction contemplated hereby (a “Transaction”) Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such Transaction In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters By acceptance of these materials, you and we hereby agree that from the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S tax treatment or U.S tax structure of such Transaction IRS Circular 230 Disclosure: Citigroup Inc and its affiliates not provide tax or legal advice Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of the Transaction Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us We will ask for your complete name, street address, and taxpayer ID number We may also request corporate formation documents, or other forms of identification, to verify information provided Any prices or levels contained herein are preliminary and indicative only and not represent bids or offers These indications are provided solely for your information and consideration, are subject to change at any time without notice and are not intended as a solicitation with respect to the purchase or sale of any instrument The information contained in this presentation may include results of analyses from a quantitative model which represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product Any estimates included herein constitute our judgment as of the date hereof and are subject to change without any notice We and/or our affiliates may make a market in these instruments for our customers and for our own account Accordingly, we may have a position in any such instrument at any time Although this material may contain publicly available information about Citigroup corporate bond research or economic and market analysis, Citigroup policy (i) prohibits employees from offering, directly or indirectly, a favorable or negative research opinion or offering to change an opinion as consideration or inducement for the 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