managing complex global carve-outs. a case study and lessons learned from an HR and organisational perspective. the Areva T&D case

1. 1
MANAGING COMPLEX GLOBAL CARVE-OUTS
A CASE STUDY AND LESSONS LEARNED FROM AN HR AND
ORGANISATIONAL PERSPECTIVE
5 Merger Integration
Management Forum
Amsterdam, Sheraton Schipol
May 14th, 2013
Francesco Picconi

2. Introducing Francesco Picconi
Group Head of HR at Falck, Italy
HR Director, South Europe & Africa, Areva T&D, Italy
HR Director, BU Corus Colors, Corus Group, UK
Group OD Director, Indesit Company, Italy
HR Director BU, Transolver/Fraikin, Fiat Iveco, France
OD Manager, Automotive Lighting, Fiat Magneti Marelli, Germany
HR Manager Global Marketing and Sales, GE Oil&Gas, Italy
BUT MOST IMPORTANTLY……
A Multicultural HR passionate for M&A, JV, Post-Mergers Integration
in International/ Global contexts
it.linkedin.com/in/francescopicconi/
2 Phone +39 335 5351875

3. 3
What is a carve-out
A carve-out is the process through which a Company divests
subsidiaries, divisions, B.U.’s, assets to:
- another company
- a combination of companies
- individuals
in exchange for cash, securities or assets as consideration

4. 4
The buyer can be:
- - another Company (acquisition)
- - a combination of Companies in view of a joint management
or a subsequent carve-out: the Areva T&D case
- - Its own shareholders (spin-off)
- - the public stock market (IPO)
- - the subsidiary’s management (Management Buy Out)
What is a carve-out

5. 5
Carve-out and Acquisition
Company A
w/o subsidiary B
Old Sub B
Company C
Cash, securities or
assets as consideration

6. 6
Carve-out and Spin-off
Company A
after spinoff
New
company BShareholders receive
Shares of company B
Old shareholders still own shares of company A,
which now only represent ownership of A without B.

7. 7
Rationales for carve-outs
Kaplan and Weisbach
Change of focus or corporate strategy (40%)
Unit unprofitable or mistake (22%)
Sale to pay off leveraged finance (29%)
Antitrust (2%)
Need cash (3%)
Defend against takeover (1%)
Good price (3%)

8. Global carve-outs: organisation and HR aspects
We will focus on the most frequent case, whereas the carved-
out organisation is then integrated into one or more acquiring
organisations.
We will focus on the carve-out planning and execution from an
organisation and HR perspectives.
8

9. In complex global carve-outs, workforce allocation difficulty
depends on whether employees belong to:
1) A well defined Division/B.U. or a Country entirely carved out
2) A Core Function, dedicated both to the carved-out
organisation and to the original organisation (f.i. Global Sales,
Global Services , Global R&D)
3) A Shared Services Function, providing support to both the
carved-out and the original organisations. These are normally
staff functions (f.i. HR, Finance, Sourcing, EHS)
9
The planning phase:
workforce allocation issues

10. 10
Global CEO
Global HR
Global
Finance
BU 1 BU 2 BU 3
Global
Sales
Global
Services
Global
R&D
Difficulty of workforce allocation in organisations to be carved out:
Low (full carve-out of B.U.)
Medium (partial carve-out of core functions)
High (partial carve-out of support functions)
The planning phase:
workforce allocation issues

11. 11
BU 3 CEO
BU HR BU Finance
PL 1 PL 2 PL 3
BU
Sales
BU
Services
BU R&D
Difficulty of workforce allocation in a case of a subsequent carve-out:
Low – Full carve-out of PL to C1 or C2
Medium – Splitted between C1 and C2
High - Splitted between C1 and C2
Future of the BU CEO?
The planning phase:
workforce allocation issues

12. 12
1) A well defined Division/B.U. or a Country entirely carved out
This is normally the case of the majority of the employees of the carved Out
organisation who are usually fully allocated to a clearly defined Division/B.U.
Depending on the sector and on the organisation model, employees in B.U.
or Countries entirely carved out can easily be 80% - 85% of the total
manpower to be allocated.
Therefore for the majority of employees, workforce allocation difficulty is
relatively low
BUT
In case of acquisition by more than one Company, the intention of the buyers
is frequently to proceed to a further separation of Product Lines within the BU,
often with a second carved-out. Then the degree of difficulty may vary again
The planning phase:
workforce allocation issues

13. 13
2) A Group Core Function dedicated to both the carved out
organisation and to the original organisation (f.i. Global
Sales, Global Services, Global R&D)
These global core functions in complex global companies may report at
Group level and may comprise employees who are physically located in
the Corporate HQ or sometimes at local level in various Countries
Depending on the sector and on the organisation model, employees in
these core functions can be 10% - 15% of the total manpower to be
allocated
These employees are normally highly critical in the short and long term in
the new context
The planning phase:
workforce allocation issues

14. 14
3) A Group Shared Services function providing support to both the
carved out and to the original organisation (f.i. HR, Finance, Sourcing)
Similarly to the core functions, employees in the Shared Services functions
may report at Group level and may be based either at Corporate HQ or locally
Depending on the sector and on the organisation model, employees in these
Shared Services can be 5% - 10% of the total manpower to be allocated
• They are normally critical to the carved out organisation in the short
term, when the organisation has not been fully integrated in the acquiring
Company/ies (f.i. Payroll, Accounts Receivables, all “transactional” functions)
• They become much less critical (redundant?) in the long term, when the
acquiring Company/ies have better understood the carved-out organisation
and integration has moved forward
The planning phase:
workforce allocation issues

15. 15
Focus on allocation of employees in the Group Core Services and Group
Shared Services Functions
Employees in the Core Services and Shared Services Functions can be:
• Part of teams fully dedicated to the carved-out organisation. Will be
transferred => low/medium difficulty
• Part of teams who are not fully dedicated, but individual employees may be
full-time working for the carved-out organisation. Will be transferred =>
low/medium difficulty
• Part of teams who are not fully dedicated, and individual employees may be
only part-time working for the carved-out organisation. Can be transferred (f.i.
if they work >50% of time), but difficult allocation decisions => high difficulty
The planning phase:
workforce allocation issues

16. 16
The Relocation issue
Employees belonging to a B.U./Country entirely carved out are often
already based in the “right” location.
Employees in the Group Core Services and Group Shared Services
Functions can be based at Corporate HQ locally in different Countries
The allocation exercise in this case sometimes takes two steps:
1. Workforce allocation: these employees are normally allocated to the
carved-out organisation, which follows strictly objective rules
2. Employees allocation: before of after the workforce allocation exercise is
made public, individual issues (willingness to relocate, but also availability of
relocation or redundancy packages, different career options) may be taken
into account and employees and be allocated differently
The planning phase:
workforce allocation issues

17. The Execution phase:
People Management Processes
17
Trade Unions: Communication and Consultation processes
The role of T.U. varies substantially from Country to Country depending on
the more or less regulated labour environments.
A Country-specific planning has to take place well before the execution
phase, with timings, milestones and a high level of HR involvement
Most legislations only require a consultation and information process. In few
highly regulated legislations T.U. have a by-law negotiation power
In the EU the Transfers of Undertakings Directive 2001/23 EC provides a
common framework in terms of consultation and information, and a specific
body (European Works Council) may play a key role
Failure to fully comply with the EU T.U. consultation and information process
may block/delay the process

18. 18
Trade Unions: Negotiation processes
T.U. agreement (or at least non opposition) is always critical to avoid any
disturbance to normal operations (f.i. strikes, overtime avoidance).
T.U. can play a significant support in sustaining employees morale and
customer focus, particularly if social plans are foreseen.
According to a recent Ernst & Young research among 100 Executives
experienced in global corporate divestments (Human Capital Carve-out
Study strategies of successful sellers, E&Y, 2013), the ideal point to engage
in T.U. discussions on carve-outs is:
• After the employees allocation process
• 15 to 30 days before the announcements
• few days before the legal limit
The Execution phase:
People Management Processes

19. 19
Negotiating HR Transitional Services Agreements (TSA’s)
Buyers of a carved-out business expect business operations to continue
seamlessly, so HR TSA’s is needed until internal capabilities are developed
It is critical to have an agreement on HR TSA’s to support the carved-out
organisation as a condition for the deal, in order to avoid lack of support from
the original organisation
The Ernst & Young research shows that the most common HR TSA’s, are:
1.Payroll and Benefits
2.HR Information Systems
3.Pensions
4.General HR support
5.Expats support
6.Recruiting
The Execution phase:
People Management Processes

20. 20
Managing Key People: Communication and Retention Issues
Retaining Key People is, also according to the Ernst & Young research, the
N.1 priority, followed by Costs (n.2) and Speed (N.3).
Freezing transfers is the most common practice used by 88% of
Executives, of which 72% before the closing)
If the confidentiality of the deal allows, it is considered a best practice to
manage early communications with:
• Executive Leadership and Management Teams
• Key employees (f.i. critical R&D or Key Account Managers)
Need to gain early acceptance and engagement of these two groups
through a targeted communication before public announcement is made
and transfers are frozen, to better retaining Key people in the long term
The Execution phase:
People Management Processes

21. 21
Managing Key People: Communication and Retention Issues
Typical options to retain Key People in a carved-out organisation are:
• Retention bonuses (typically in a 2-3 years horizon)
• Exceptional Salary increases
• Stock-based grants in the acquiring Company/ies
• New benefits from the acquiring organisations
• Career perspectives (in the carved-out or in the acquiring organisations)
Compensation-based incentives (f.i. Retention Bonuses) are a temporary
solution and have little effect on individual engagement and motivation
Career perspectives have a stronger long-term effect on engagement and
motivation (at least after the Retention Bonus has been cashed !)
The Execution phase:
People Management Processes

22. 22
Managing all Employees: Communication and Retention Issues
Plan in advance the all-employees Communication strategy at global level,
and a related Communication timeframe, conveying few key general
messages which can be adapted at local level
Top-down communication from the carved-out or the acquiring organisation
(all-employees meetings, formal presentations, welcome days, house
organs) is essential to convey the idea of a positive future
However, according to the Ernst & Young research, all-employees retention
initiatives rank as follows, in order of successful results:
1. Leverage the Management of the carved out organisation
2. Provide employment or severance protection for the post-close period
3. Top-down communication to articulate the value proposition
4. Retention bonuses for all employees
The Execution phase:
People Management Processes

23. The Areva T&D Carve-Out
Case History

24. This Project represents approx. 4bn€ in
Enterprise Value
Financial
Net Debt at
30.6.09
,
Enterprise Value
Agreement with
Areva
~ 400M €
1 053M €
2 290M €
• EBITDA 2008: 587M€ - 50M€ Minor.
• Part Alstom ~2/3
• Part Schneider Electric ~1/3
•
• Multiple de ~8 x EBITDA* 2009
~ 4 000M €
~ 200M €
Minorities
Finance
*Estimated by Alstom and Schneider Electric
3,3
Enterprise ValuePensions
~ 400M €
1 053M €
2 290M €
•
• Part Alstom ~2/3
• Part Schneider Electric ~1/3
• Adjustment of each part based
on EBITDA of T and D activities
•
~ 4 000M €
~ 200M €
impact
3,3Bn €
Part Schneider Electric ~1/3

25. In late 2009 the French Multinational Areva, N.1. worldwide in the Nuclear
industry and N.3 worldwide in the Energy Transmission & Distribution (T&D)
business, decided to dismiss T&D in order to better focus on Nuclear and in
order to finance the exit of Siemens from its NP business
In 2010 T&D had a turnover of around 5.6 bn€ and around 33.000
employees worldwide. The T&D business was actually sold in January 2011
The French state, majority owner of Areva, posed 3 conditions to win the
bid: Price, Market perspectives and Social perspectives. Final bidders were
GE, Toshiba and a consortium Alstom/ Schneider Electric, who won the bid
The consortium would then allocate the Distribution activities (Medium
Voltage, about 11.000 employees) to Schneider Electric, while Alstom would
keep the Transmission activities (High Voltage, about 22.000 employees)
An innovative Labour Agreement between Alstom, Schneider Electric and
the European Federation of Metalworkers (EFM) defined a stringent job
security framework (a role for all employees, no plant closures for 2 years)
Case Description: key points

26. A booming energy market with two different
drivers
Distribution & User pointsGeneration & Transmission
Network control
Industry & Infrastructure
Residential
Other industries
& services
Ultra high voltage (UHV) and High voltage (HV) –
from 52kV to 1200kV
Medium voltage - from 3kV to 52kV
Low voltage - < 3kV
Conventional generation
Renewables
UHV
HV MV MV
LVUHV/HV
Decentralized management
LV
Automation and
Substations

27. Two poles of specialization, with two different
sets of dynamics
Renew-
able
On-site
Storage
Backup
Power
Centralized
Generation
Transportation
Residential
Commercial
Industrial
• Major global players
• Large projects
• Focused on utilities
Production Transmission Distribution Consumption
• Global and regional players
• Equipment and product sale
• Multi-clients

28. Distribution and user pointsGeneration & Transmission
● Two complementary actors for
a unified answers which
integrates and connects
generation with the
transmission network
● Takes into account the new
generation sources thanks to
optimized network
management
● Innovative answers in order to
propose integrated solutions
Alstom
with Areva T
● Consolidation of 2 actors
in:
- Primary and secondary
Distribution
- Automation and
substations
● An answer to the challenge
posed by Smart grids with
a flexible interface between
user points and the
distribution network
Schneider Electric Medium
Voltage with Areva D
The Alstom – Schneider Electric offer: an
answer to energy strategic challenges…

29. … To create two global leaders
ABB
Production
High
Voltage
Medium
Voltage
Low
Voltage
Siemens
Areva T&D
Schneider
Electric
GE
Cooper
Crompton
Greaves
XD Group
Alstom
GeneralistsSpecialistsEmerging
3rd
2nd
1st
1st
2nd
3rd
4th
1st
2nd
4th
3rd
2nd
3nd
1st
4th
Integrated player in Production
and Transmission
New n 1 in Medium and Low
Voltage

30. General Scheme: a multi-stage Project
Power
1
Areva Activities
T&D
Trans-
mission
Distribu-
tion
T&D Separation
Areva T&D Separation
2
Business
Energy
3
Separation of
Activities with
Medium Voltage
4
2Separation of
Activities with
High Voltage

31. Activity Separation Principles, in line with Alstom
and Schneider Electric Strategic Interests
Trans-
mission
Distribu-
tion
Transmission Ultra-
High Voltage &
High Voltage
Primary and
Secondary
Distribution
General Principles

32. Integration of Areva Transmission within
Alstom
A new Sector, represented by the President of the Sector at the
Executive Committee
Located in Paris region
Preservation of the industrial base
Preservation of the ISO commercial network
Organisation by Sector of the future combined Group
Alstom
Power Transmission Transport

33. A new Energy business focused on utilities
and electro-intensive industries
Key market
segments
Key product
lines
• Utilities
• Oil and gas
Areva D
€ 1.7 bn
IT
Power
(MV
+LV )
Buildings
IT
Power
Industry
Buildings
Energy
5 Businesses
critical
power &
cooling
LV Power
Industrial
automation
Building
automation
& security
MV
distribution
IS&C
Grid
Automation
• Retail
• Hotels
• Hospitals
• Offices
• Data centers
• Bank / Insurance
• Residential
• Marine
4 Businesses
€ 4.6 bn
Industry
• OEMs
• Water
• Mining
CST

34. Objective
Prior to the final offer, Alstom and Schneider Electric have entered into
a Consortium Agreement setting out the key principles of:
The joint acquisition of Areva T&D
The allocation and separation of T and D activities
The management of each activity during the transition period

35. Joint Acquisition
At Closing, acquisition of Areva T&D by a joint acquisition vehicle
(“AS5”)
AS5 financed by Alstom and Schneider Electric pro-rata to the
respective contribution of T and D activities to the EBITDA (i.e.
approximately 2/3 for T and 1/3 for D)
Then, progressive transfer of D activities to Schneider Electric

36. Allocation
All Areva T&D’s activities allocated to either Alstom or Schneider
Electric and no “orphan” employees
Provisional allocation agreed upon between Alstom and
Schneider Electric, and to be confirmed/adjusted based on further
exchanges with Areva T&D
Such provisional allocation to be discussed separately
through a tri-partite working group

37. Separation
Transfer of D activities to Schneider Electric as soon as
feasible/practicable, taking into account the need to:
Ensure business continuity
Preserve the value of each of T and D activities
Respect the rights of employee representatives
Make this transfer compliant with social legal requirements

38. Management during Transition Period
From Closing:
T activities exclusively managed by Alstom
D activities exclusively managed by Schneider Electric
Management Committee to manage/coordinate joint decisions
regarding both T and D activities during the transition period until
their transfer to either Alstom or Schneider Electric

39. Industrial base
High Voltage product lines remain with Alstom
Medium voltage product lines are transferred to Schneider
Electric
- Either through the transfer of a legal entities or sites
- Or through the transfer of carved-out elements
Employment contracts will be transferred accordingly
When sites will be shared, common services could be maintained
Alstom
Schneider
Electric

40. Commercial network
The majority of employees in local teams are in effect specialized in T
or D – their allocation is natural
For the employees which are not specialized in T or D, in particular within
commercial functions :
Power generation, Transmission, rail transportation and aluminum
activities remain with Alstom
Distribution, oil & gas, mining and heavy industries will be transferred to
Schneider Electric
The management of these teams will be associated to the allocation
process of the employees who are not specialized
Alstom
Schneider
Electric

41. R&D
The majority of employees in local teams are in effect
specialized in T or D – their allocation is natural
The management of the R&D teams will be associated to the
allocation process of the employees who are not specialized

42. Support Functions and Shared Services
(at Corporate / Country level)
Support functions will be allocated to Alstom and Schneider
Electric based on their respective weights. The management of
the T&D teams involved will be associated to the allocation
process
For Shared Services, an option will remain to maintain service to
transferred activities, which is made possible as there is no
overlap between Alstom and Schneider Electric

43. For the majority of activities, « natural separation » basing on activity
predominance = ~ 85% of Areva T&D employees
A
Allocation by
reporting Units
following
Economic
rationales
B
Allocation
principally
linked to
competences
and Market
Segments
C Support
Functions
ISO (Global Sales Force):
• Allocation by Country
• Majority of Sales Force actually specialized in T or D
• Link to Market Segments :
o Within Alstom: Power Generation, Transmission, Rail, Aluminium
o Within Schneider Electric: Distribution, Oil&Gas, Mining and Heavy Industry
Service :
• Allocation linked to technical competences and product knowledge
R&D:
• Natural allocation for the majority of R&D activities
Shared Services :
• As much as possible, keep Shared Services unity, to avoid value destruction
and disorganisation: either within Alstom or within Schneider Electric
Support Functions to Regions & to BU, ISO and R&D :
• Study to identify the main activities served (T or D)
• On a case by case basis, keep integrity and operational consistency
Support Functions based in La Défense HQ:
• Separation based on activities needs of the two Groups, based on a 70% - 30%
ratio
• Proposal for a Pilot Project limited to HQ-based HR and Finance (~100
employees) : use of simple allocation principes, to be validated in view of their
extension on larger scale
Impact on Employment: 3 Different Situations

44. A coherent split of the activities
Secondary
Distribution
Ultra High
Voltage
Transmission
High Voltage
Transmission
Primary
Distribution
Products
Services
GIS & Circuit breakers MV switchgears
Power transformers
HV substations Proximity business
EMS / DMS
SAS
MV installed baseHV installed base
Power electronics
Distribution transformers
HV relays MV relays
Prefabricated substationHV instrument transformers
Disconnectors
Primary substation
Alstom
Schneider Electric
Under review
Automation
Systems

45. Impact on Employment: 3 Different Situations
220
3 90017 580
JV Protection
1 070
NMS
520
1 180 2 090
7 330
250
10 000
2 830
320
740
590
1 870 1 180 2 090
0 %
3 350
100 %20 % 40 % 60 % 80 %
3 270
8 070
+
PACIS
14 490
29 970
Total
To be
allocated
Pure SEI
Pure Alstom
Products Automation Systems Service
s
Support
FunctionsISOTotal
PACIS
SEI mix
JV Protection
Alstom mix
SDSU

46. What about me?
At Closing, all employees remain employed by the same legal
entities.
The acquisition vehicle is the new shareholder of legal entities
Employment contracts remain unchanged
Social commitments become effective

47. Sound social commitments
Alstom and Schneider do not foresee any restructuring linked to
this acquisition
Alstom and Schneider will propose a professional future to each
and every employee. All employees will have a proposal of an
equivalent position (same geographical area, grade, seniority,
remuneration)
Until early 2013, there will be no site closure in Europe (except
plans communicated to the employees before the sale agreement)
and no mass redundancy departures other than voluntary (except
in the case of a significant downturn in the general economic
conditions)
Alstom and Schneider are working closely with the management
of AREVA T&D, in order to lead to a rapid integration

48. Overall timetable
Comex meeting
Top 60 meeting
EWF / Works councils
Antitrust
Preparation of separation with
Areva and PMI*
PMI* workgroups kick off
PMI*
India (Public offer)
Business Continuity
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
05/01
ClosingSigningKey milestones 01 December
Dec
15/12
17/12 (Areva) and 18/12 (T&D)
Disposal Separation / Integration
*PMI: Post Merger Integration
Jan. 5

49. Majority of legal separations
completed. Effective transfer
dates below
2010 2011
Letters available for communicating
legal entity name changes to
stakeholders. See Regional
Communications and Regional Legal.

50. 50
Thank you !