Achieving & Accelerating Value In Mergers & Acquisitions - Summit

Achieving & AcceleratingValue in Mergers &AcquisitionsPaula TolliverVice President PurchasingThe Dow Chemical CompanyNovember 17, 2010

Session AgendaAbout DowThe Challenge of Corporate TransformationThe Process for Mergers and AcquisitionsDeveloping a Purchasing SolutionCase Study ResultsSummary

The Company: About Dow• Founded in 1897 by Herbert H. Dow in Midland, Michigan• From bleach to a multi-billion dollar enterprise• $45B Annual Revenue• 52,000 Employees• 5,000 Products with sales in over 160 countries• 214 Manufacturing Sites - 41 R&D FacilitiesAdvanced MaterialsElectronic & Specialty MaterialsUS4.6B in salesCoatings & InfrastructureUS$4.8B in salesHealth & Agricultural SciencesHealth & Agricultural SciencesUS$4.5B in salesPerformance Products & SystemsBasicsPerformance SystemsUS$5.9B in salesBasic PlasticsUS$9.9B in salesNote: All figures represent 2009 pro forma sales in billions of dollarsBasic ChemicalsUS$2.5B in salesPerformance ProductsUS$9.1B in salesHydrocarbons & EnergyUS$4.2B in sales

The CompanyDow’s Global Procurement Organization• Manage ~$20 billion in Spend($14B direct and $6B indirect)• Procurement at Dow: StrategicSourcing, TransactionalServices, Expertise Center• Procurement leveraged andSourcing is centralized atbusiness centers and nonsourcingactivities attransactional centers• A global network withstrategic ( ) and satellitecentersTransactional CentersMidland, MichiganMumbai, IndiaSao Paulo, BrazilShanghai, ChinaTerneuzen, The NetherlandsStrategic SourcingMidland / Houston, U.S.Sao Paulo, BrazilShanghai, ChinaHorgen, Switzerland

The Challenge:The Transformation of Dow’s PortfolioConsistently Higher EarningsGrowth and MarginsBASICS~12-15%EBITDA Margins*1-1.3x GDPPERFORMANCE~15-18%EBITDA Margins*1.1-1.3x GDPPerformance SystemsPerformance ProductsMARKET-DRIVEN~18-30%EBITDA Margins*1.5-2x GDPHealth & Agricultural SciencesElectronic & SpecialtyMaterialsCoatings & Infrastructure$4.00 to$4.50 EPSin ~2012Basic PlasticsBasic ChemicalsHydrocarbons & Energy*Normalized EBITDA margin. EBITDA margin is defined as EBITDA as a percentage of sales.Elevated:• Technology differentiation• Customer centricity• Innovation• Emerging geographies• Business independence

The Challenge:Changes in Dow’s Strategy• JVs and divestitures are a key part of Dow’s Basicstransformation.• Mergers and acquisitions are a key part of Dow’sMarket-Driven transformation.• Dow Purchasing provides leveraged services across allbusinesses with increasing M&A/Divestiture/JV activity.– Ensuring business continuity, speed and value optimization• Purchasing is managing growing complexity and diversitywithin a rapidly changing, Spend portfolio.

The Challenge:Increasing M&A, Divestiture and JV Activity at Dow45403530252015105023 33 42 27&counting03-04 05-06 07-08 09-10YearDeals range in size from millions of dollars to $18 Billion

The Process:A Comprehensive, Corporate Approach1. Transaction PhaseCorporate M&AProgram ManagementOffice (PMO)coordinates activities2. Due Diligence Phase3. Implementation Phase (all functions represented)EstablishScopeDesignEnd-StateEstablishImplementationTeamEstablishPlan DetailsValidateMulti-GenPlanHand-off toImplementationTeamExecutePlanPoint ofConceptConcurrentEngagementCheck Point…Probable Go

The Process: PurchasingA Comprehensive, Corporate Approach3. Implementation Phase (all functions represented)Leadership Participation OnlyEstablishScopeDesignEnd-StateEstablishImplementationTeamEstablishPlan DetailsValidateMulti-GenPlanHand-off toImplementationTeamExecutePlan

The Solution: PurchasingDesign End-State Objectives for ImplementationDesignEnd-State• Establish purpose/end state and resulting priorities• Establish high-level synergy targets• Define organizational design principles• Define strategy to harmonize work processes, data,and tools• Design approach for Business Partner andSupplier engagement

The Solution:Strong Program Management StructureEstablishImplementationTeamSupplier Relationship Management TrackOrganization/People TrackSourcing Synergy TrackCross Functional Implementation TeamSteering Team & Geog. TeamProgram Management TeamPurchasing-DrivenCorporate-Driven/Key StakeholdersChange Management TrackPartner Engagement TrackWork Process & Systems TrackBusinesses, Sites, CorporationSeamless integration accomplished by considering People, Processes and Tools, andcoordinating check points across functional teams and with key stakeholders

The Solution: Purchasing‘Clean Team’ Accelerates Synergy Identification3. Implementation Phase (all functions represented)Leadership Participation OnlyEstablishScopeDesignEnd-StateEstablishImplementationTeamEstablishPlan DetailsValidateMulti-GenPlanHand-off toImplementationTeamExecutePlanDetermine need for Purchasing Clean Team• Independent team – 3 rd party, retirees or employees close to retirement• ‘Sensitive’ Information from both companies consolidated and used forpre-close synergy definition prior to lockdown• Upon close, knowledge shared with Dow and team disbands• Non-disclosure, non-participation agreement in place

The Solution: PurchasingValidate Plan / Handoff to Implementation TeamHand-off toImplementationTeamIntensive “Lockdown” Week1. Clean team reviews synergy opportunities with each commercial area2. Sourcing category leaders review relevant clean team data3. Conduct category synergy target-setting sessions• Deep drill reviews & validations (Purchasing + Business)• Project Charters completed (synergy target, timeline, probability ofsuccess)• Project teams identified (Lead Sourcing Manager named)4. End of week, rollup synergy targets and timeline for delivery – confirmcommitment at corporate level5. Launch synergy projects in waves – Day 1, Day 30, Day 90, Day 270

The Solution: PurchasingDevelop and Validate a Multi-Generational PlanEstablishPlan DetailsPre-Deal Teams / Due Diligence /Clean Team (2008)LateMarchLockDownMulti-Gen Plan: Day 2 to 90• Synergy – 300 additional Wave 1 sourcing projectslaunched in first 30 days• Organization – announced / majority of employeesknow personal status• Process / Systems – strategy defined, critical ITprojects underwayMulti-Gen Plan: Day 180 to 360• Synergy – Last 35 Wave 3 projectslaunched after 9 months• Organization – 70% implemented• Process / Systems – harmonized withexisting processes and systemsMulti-Gen Plan: Day 90 to 180• Synergy – 45 Wave 2 sourcing projects launched at 90 days• Organization – all employees know personal status• Process / Systems – critical transactional IT underwayJan-09Multi-Gen Plan: Day 1• Synergy – 70 priorityprojects launched• Suppliers informed via lettersApr-09May-09Jul-09Sep-09Nov-09Jan-10Mar-10Apr-10May-10Jul-10Sep-10Nov-10Jan-11Example from Rohm and Haas Integration

The Solution: PurchasingTimely Execution with Robust GovernanceExecutethe PlanSourcing Synergy Project Management OfficeGoverned by Commercial Area(Direct and Indirect Spend)Weekly MeetingHigh-Level, Standardized ReportingAccountability for Timelines, Targets and Synergy ContributionsCorporateServicesRawMaterialsPackaging Logistics MROAbbreviated Strategic Sourcing Process used where appropriate

The Solution:A Comprehensive, Corporate Approach1. Transaction Phase2. Due Diligence Phase3. Implementation Phase (all functions represented)EstablishScopeDesignEnd-StateEstablishImplementationTeamEstablishPlan DetailsValidateMulti-GenPlanHand-off toImplementationTeamExecutePlanPoint ofConceptConcurrentEngagementCheck Point…Probable Go

The Results: A Case StudyThe Rohm & Haas Acquisition … 2008-2009• $18 billion deal / Rohm & Haas Revenue $9.5 Billion• Deal announced in August 2008 and closed April 2009• Financial crisis drove need for accelerated cost synergies• Rohm & Haas Purchasing Spend ~$5 billion• Cost synergies $1.3 billion annually / Growth synergies $2 billion• Procurement responsible for $400 million in cost synergies (31%)

The Results• Synergy Track– Surpassed total Procurement synergygoal ($400MM) in 12 months– Delivered 125% of initial synergy commitment(over $500 million) in less than 24 months– Managed ~450 cost synergy projects in additionto supporting business growth projects• Organization / People Track– Global, centralized model for sourcing andtransactional centers fully in place within 12 monthsof closing the deal– Achieved 70% people synergies (majority weretransactional) – quick ramp up of variableresources in established transaction centers

The Results (cont.)• Partner and Supplier Engagement Track– Business / functional key stakeholder meetingsthroughout integration– Supplier communications maintained throughoutintegration and opportunities for supply relationshipmanaged fairly through a disciplined strategicsourcing process• Work Processes & Systems Track– Disciplined value tracking with credible metrics(audited)– Fully integrated processes in first 3 months• Change Management Track– Roles transitioned effectively with no significantbusiness interruption– Regular employee communications and training

SummaryKey Enablers for SuccessCombining sourcing excellence with strong programmanagement drives accelerated and increased valueextraction Established, unified vision and priorities at corporate level –accelerates decision makingGlobal Program team structure and governance - manageinterdependencies, fewer disconnects, and faster issue resolutionEstablish regional, functional and cross-functional leadership teams(matrix approach) – alignment and coordination for speedDeep knowledge of markets and well documented and understoodsourcing strategies and contracts – accurate synergy targets andresults

Summary (cont.)Key Enablers for SuccessCombining sourcing excellence with strong programmanagement drives accelerated and increased valueextraction Robust and disciplined sourcing and transactional Purchasing workprocesses – speed and quality of execution Well planned and coordinated role/job transition process (completed inless than 6 months) – minimizes business disruptions Pre-defined, credible synergy accounting – credible synergy results Respectful treatment of employees throughout the transition Celebrate key milestones and reward your team along the way …

Thank youPaula TolliverVice President PurchasingThe Dow Chemical Company989-636-1163PTolliver@dow.com