hello, can you please help me answer the questions attached.

Attached is the case merger and sample write-up. Its be in Times New Roman 12-point font, double-spaced and 4 pages. Any supporting material can be added at the end of the report as an appendix and are not counted into total page count. This will be turned into a Turnitin dropbox, so please all original work no plagiarism. Here are the questions to be covered. Merger of UBS and Swiss Bank Case Questions: Note: Use the following questions to guide your case analysis report, which should be a complete piece of work. Follow the instructions about format on the syllabus. Further, the following questions should all be addressed in your report but should not be the constraints limit your thoughts. 1. What are the contemplated synergies worth, in present value terms? Prepare your own estimate of this value. How certain are we of them? (Note: equity-market risk premium is assumed to be 6%, long -term growth rate is assumed to be 2.5%) 2. Exhibit 17 suggests that SBC will be sold at a discount. How could it be possible that SBC would sell for less than it market value? 3. How do the terms of the merger allocate power in the board and management of the new firm? Is this a merger of equals or a takeover? By whom and of whom? (Hints: you may want to google what \"merger of equals\" indicate) 4. As a shareholder of ex-UBS, would you vote for or against this merger? Why? UV2515 Version 3.0 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER In early December 1997, Marcel Ospel and Peter Wuffli,1 respectively CEO and CFO of Swiss Bank Corporation (SBC), reviewed the proposed merger agreement with Union Bank of Switzerland (ex-UBS). This deal would dramatically change the two firms and reshape the competitive landscape worldwide. In the context of the comparative rarity of mergers in Europe and among global banking giants, this deal would trigger fresh reflection on the appropriateness of this means of corporate transformation. The internal changes, including layoffs, the rationalization of operations, the blending of customer bases and technology platforms, would spark controversy. Potential benefits, including synergies, seemed promising. But any continuation of recent turbulence in the capital markets might challenge the realization of those gains. In financial terms, ex-UBS2 was the larger firm with CHF3 730 billion in assets under management (AuM), CHF 437 billion in total assets, and CHF 49.5 billion in market capitalizationversus CHF 590 billion, CHF 360 billion, and CHF 35.6 billion respectively for SBC. But both firms had similar revenues (CHF 13.1 billion for ex-UBS, CHF 13.0 billion for SBC) and number of employees. The revenue composition for the two firms was comparable. Merging the two firms would create the largest asset management company and the largest private bank in the world. The investment banking business segment would gain much-needed critical mass. Finally, UBS AG would inherit the strong capital base of ex-UBS. This would help SBC overcome its shortage of capital arising from its acquisitions-based growth strategy and severe loan losses suffered in previous years. 1 For ready reference to the positions of persons cited in this case (and the (B) and (C) cases), please see Exhibit 1. 2 For clarity, this case will distinguish between the former Union Bank of Switzerland (UBS (SBG)) and the new post-merger UBS using the acronyms, ex-UBS, and UBS AG respectively. 3 \"CHF\" stands for \"Confederation Helvetique Franc,\" also known as the Swiss Franc (alternatively abbreviated as \"SFr.\"). This case was prepared by Professor Robert F. Bruner from field research, including seven primary interviews, and the review of numerous internal documents and memoranda. The cooperation of UBS AG is appreciated, as are the research assistance of Jessica Chan and the financial support of the Batten Institute and Trustees of the University of Virginia Darden School Foundation. Neither the author nor the Darden School have received compensation or other support from UBS AG in connection with this research. This case was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright 2004 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenpublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the permission of the Darden School Foundation. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -2- UV2515 The executive teams of both firms endorsed the proposed merger. It remained to receive board approvals and go public with the news. Analysts and investors would want to determine whether this deal made economic sense for shareholders of both firms. They would seek a sound rationale for the deal and some comfort that a transaction on this scale could be implemented effectively. And they would want to understand how this might change the fortunes of peers in the industry. Would this deal create value? Did it make strategic sense? How would the two organizations fit together? The Global Financial Services Industry Worldwide, the financial services industry was modestly concentrated. Exhibit 2 gives the largest financial service institutions (FSIs) ranked by market capitalization at November 1997. Together, these accounted for $490 billion in market capitalization. The industry had at least five segments: Corporate banking provided senior debt financing to corporate borrowers. Investment banking provided securities underwriting to corporations and brokerage services to individuals and institutional investors. Private banking offered banking and investment advisory services to high net worth individuals. Institutional asset management. This segment provided investment management services to institutions such as pension funds. Exhibit 3 presents the ten largest asset managers ranked by assets under management.4 These ten firms accounted for $5.6 trillion under management, compared with $21.6 trillion5 of total investor wealth. Insurance. Analysts of the global financial services industry believed that competition was intense and subject to changes in national and regional economies, and to fluctuations in foreign currency exchange rates. A wave of mergers and acquisitions in the U.S. financial services sector was prompting firms headquartered elsewhere to reconsider their traditional attitudes toward independence. Especially in Europe, where FSIs enjoyed tacit protection and strong loyalties in the local markets, mergers had been relatively rare. But during the 1990s the global financial services sector had confronted a series of changes and events that called into question conventional wisdom about FSI growth and competition: 4 5 Globalization. Large institutions had expanded beyond national and regional borders, in response to the global needs of their customers. It was less relevant to discuss competition in merely local terms. The amounts in Exhibit 3 include both institutional and private wealth management segments. World Federation of Exchanges, www.world-exchanges.org. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -3- UV2515 Integration of markets. Financial and product markets had become regionally and globally integrated. This reflected both the rise of regional trade groups (NAFTA, Mercosur, and the European Union) and the emergence of global trading of foreign currencies and some securities on a 24-hour basis. Integration meant that performance in one country market would spill into others. Deregulation. The mood among governments worldwide had swung in the direction of easing laws and regulations that bound competition within the financial services industry. Harmonization. Viewing the increasingly global basis of competition, regulators sought to place competitors on a level playing field. Obvious manifestations of this were moves to harmonize tax rates and reduce trade barriers across countries. In commercial banking, the Basel accord of 1988 committed banks to retain a minimum threshold of capital against risky assets in proportions that would apply across the globe. In theory, this would prevent banks and their local regulators from seeking local advantage from local regulatorsbut in practice local regulators still had wide leeway in enforcing the Basel accords. Technological innovation. The rise of new information technologies raised the level of information transfer on a global basis, and thereby created a need for increased IT investment in the financial industry. To be a global player, an FSI needed a global information platform. This would put extra demands on the capital bases of the firms. Innovation in financial markets. The design of new financial instruments permitted even small and privately held firms to access the capital they needed to transform themselves and to hedge risks they faced. These new markets offered new opportunities to compete for profits, for instance, in derivatives and high-yield debt. These new instruments were highly influential in the rise of leveraged buyouts, and both private equity and debt financing. Hedge funds proliferated to trade in these new instruments and exploit market inefficiencies. More ominously for FSIs, the new products threatened older markets (e.g., for bank loans) with new lower-cost substitutes. Rising customer sophistication and expectations. Reflecting these changes, the FSIs had begun to perform at higher levels of customer service. Simultaneously, customers learned to expect higher service from their suppliers. Therefore, many executives believed it was not possible for an FSI to ignore continuous improvement in service doing so committed the firm to slow erosion in business as clients sought better value elsewhere. Demographic change. Changes in the make-up of the population affected the competitive strategy and industry structure. Such changes included immigration and agingfor instance, the graying of the population in Japan, Europe, and the U.S. affected the demand for wealth-management services. Contagion. The growing linkages among markets and economies and the spread of round-the-clock trading meant that manias and panics would spread faster than before. During the 1990s, FSIs had dealt with the Tequila Crisis (1994) and the Asian flu This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -4- UV2515 (1997)these had started as currency crises and spread to debt and equity markets. The intervention of global institutions such as the IMF and World Bank had been influential in stemming the panics. But this represented the dark side of globalization and integration of markets: rather than quelling volatility, these linkages seemed to amplify it. In the minds of some observers, these turbulent forces dictated the need for greater scale in order to capture market share and profits. In the emerging new marketplace, officials at ex-UBS and SBC regarded a handful of peers as leaders in responding to these forces: Credit Suisse, Deutsche Bank, Morgan Stanley Dean Witter, Goldman Sachs, Merrill Lynch, and JP Morgan. Swiss Bank Corporation As of December 1997, SBC was the third largest financial service institution in Switzerland in terms of total assets. Headquartered in Basel, Switzerland, SBC was regarded by many as one of the most innovative FSIs. Several managers noted that the strategic transformation of SBC started with a vision statement, \"Vision 2000,\" that was approved in 1989 (see Exhibit 4). Marcel Ospel said, \"Vision 2000, committed us to expand from commercial banking into investment banking and wealth management for private clients, and to expand internationally. At the same time, it committed us to move out of corporate banking activities where there were lower yields and higher costs....I had returned from working at Merrill Lynch, and it was expected by senior management that I would bring a new culture into the firm. I knew that many professionals at SBC potentially had similar views. What I found was that the organization was totally regionalized and controlled by commercial bankers. It was nonmeritocratic. If you were Swiss and a banker and prepared to work abroad, you would have gotten into the leadership.\"6 Following the adoption of Vision 2000, SBC had transformed itself through a range of acquisitions from 1992 to 1997 O'Connor Associates. Following a strategic alliance in 1989, SBC acquired O'Connor in 1992 in a deal valued at US$250 million.7 O'Connor was the leading risk management and derivatives trading firm in the world, known for its application of mathematical models. Its work environment was meritocratic, rigorous, informal, and team-oriented, with a flat organizational structure. Not only did O'Connor bring risk management skills to SBC, but it also enabled a re-engineering of SBC's risk management and control processes, providing a sound platform for future expansion. Before its integration into SBC, O'Connor's average age of employees was 30 years old. Later, a company memo declared, that this acquisition was a \"'cultural reverse take-over'...At the time, the strong cultural differences between the two firms were perceived by the industry as a serious 6 Interview of Marcel Ospel by Robert F. Bruner, March 3, 2003. The acquisition price of O'Connor was never publicly disclosed by SBC. The figure cited here is an estimate by the press. 7 This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -5- UV2515 pitfall to a smooth integration process. The cultural gap did seem wide at least on the surface. The European 'buttoned down' image of SBC sharply contrasted with the jeans and sneakers dress code then prevalent at O'Connor. The traditional divide between commercial banking and trading cultures was still a potential issue between the Swiss bank and the US securities firm. At SBC, decision-making reliant on committees tended to be slow and risk averse. At O'Connor, the decision-making process was less formal and consequently faster, with a company culture seeming to thrive on risk. Lastly, there were notable differences in compensation between the two firms...\"8 Marcel Ospel said, \"This acquisition put us on the map in risk management. We became a serious player in international investment banking.\"9 Alberto Togni recalled, \"With O'Connor we acquired know-how in risk management, but we also changed the culture of our bank. We had a dearth of talent and acquired people who were at the top of their field, and whom we could use to rejuvenate and change the culture of our bank....These young people came in and challenged and questioned everything we did; they didn't say, 'We're here to change the bank.' Rather they did it in a constructive way: they asked questions.\"10 Following the integration of O'Connor, SBC pursued its strategic transformation. An important milestone in this respect, which would enable and accompany changes arising from future acquisitions, was the creation of a group-level Chief Financial Officer function at the beginning of 1994 headed by Peter Wuffli. Shortly after taking over his function, the new CFO observed that SBC's market valuation was low compared to its intrinsic value. As a consequence, he initiated a sweeping program aimed at more systematically enhancing shareholder value, an objective already expressed in Vision 2000. This involved creating a number of new management instruments and processes that were necessary to measure the sources of profitability and promote greater performance orientation. What followed in the course of 1994 was a thorough redesigning of controlling and financial management, an extensive redeployment of staff, and a further move toward a culture valuing transparency and intellectual honesty, two values that had been instilled by O'Connor. Brinson Partners Inc. In 1994, SBC acquired Brinson, a leading investment management company with a strong U.S. client base, known for its value-style investing, asset allocation techniques, and for its advocacy of investing globally. The estimated cost of the transaction was $750 million with $200 million paid at closing, and the remainder paid over time. Headquartered in Chicago, Brinson had $36 billion of assets under management, and would assume responsibility for SBC's existing asset management 8 Internal memorandum, \"The Making of UBS,\" UBS AG, July 6, 2001, pages 1 and 2. Interview of Marcel Ospel by Robert F. Bruner, March 3, 2003. 10 Interview of Alberto Togni by Robert F. Bruner, March 4, 2003. 9 This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -6- UV2515 operations with considerable autonomy. SBC had $40 billion of mutual funds under management and $200 billion of managed private client accounts. Journalists noted that SBC's competitors had recently acquired asset management companies. An SBC memorandum noted that motives for the acquisition were to make a significant entry into institutional asset management and thereby create synergies with its activities in investment banking and risk management. Marcel Ospel recalled, \"Brinson brought us a highly disciplined approach to research, asset allocation, and stock picking. It had the most successful track record as a global asset manager, and had a highly successful client service record. It was very focused, extremely disciplined, and intellectually absolutely honest. Gary Brinson became our single biggest shareholder. He brought a refreshing influence on the Group Executive Board and the Board of Directors, openly expressing himself about shareholders welfare.\"11 11 12 S.G. Warburg. In 1995, SBC acquired what many regarded to be the leading European investment bankthe price was 860 million, only 63 million more than net asset value. Headquartered in London, S.G. Warburg brought to SBC the leading brand name in European investment banking and complementary product lines, as shown in Exhibit 5: SBC was strong in risk management capabilities and had a strong trading culture; S.G. Warburg was strong in cash equities, research, and corporate finance and had a strong set of client relationships. Its culture was collegial. \"Vision 2000\" had committed SBC to become a top-tier investment bank by 2000. SBC had perceived that U.S.-based investment banks were gaining dominance in global competition and that with the opening of European investment banking, these foreign competitors would strongly challenge the European incumbents. Furthermore, SBC perceived the need to integrate commercial and investment banking, in recognition of the growing integration of these businesses in the U.S. An internal memo stated that the motives for this acquisition were to become the leading investment bank through combining corporate finance, equities, equity-linked securities and risk management, as well as exploiting synergies between product areas. In both M&A services and equities, notably in underwriting, S.G. Warburg filled a critical product gap. Peter Wuffli argued that this was the result of a strategic assessment: \"We had these debates on strategy in which we asked how we were going to avoid being marginalized. Ex-UBS and Credit Suisse were larger than SBC. We were a bit scared. It was not exciting or fun to be number three. It prompted Marcel Ospel to think about how to fix our position in investment banking. 1994 was a dreadful year: rates rose against expectation and our investment banking business was barely breaking even. We didn't have a direct client franchise. So our debate was whether to retrench back to principal investing, or become a full-service global investment bank, as stated in our \"Vision 2000.\" We decided to stick with it. We had enough excess capital at the time to give it a try. Buying Warburg turned out to be an incredibly lucky and smart move.\"12 At the time, Warburg had been demoralized by declining profitability and a failed attempt to be acquired by Morgan Stanley. Institutional Investor described the Interview of Marcel Ospel by Robert F. Bruner, March 3, 2003. Interview of Peter Wuffli by Robert F. Bruner, March 3, 2003. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -7- UV2515 integration of Warburg into SBC as \"... an extraordinarily acute case of culture clash old, brash and freewheeling SBC could scarcely be more different from Warburg, the very model of an establishment merchant bankit is also proving to be one of the most painful...'Never in history have two investment banks of this size been merged,\" [Marcel Ospel] declared, 'let alone at this pace.'\"13 Notable was the rapidity of the post-merger integration: the acquisition was consummated on July 3, 1995. The integration of S.G. Warburg into SBC's International Finance Division, which was renamed into 'SBC Warburg', was completed on December 31. One journalist reported a former Warburg employee saying, \"What they did was to go charging in like a bull in a china shop.\"14 The Economist reported, \"There is a delicious irony in SBC's approach. Warburg made its name by shaking up London's haughty financial establishment during the 1950s and 1960s. SBC has been a latter-day equivalent of late, using daring new ideas in its efforts to drum up customers.\"15 Dillon Read and Company. In May 1997, SBC announced an agreement to acquire Dillon, Read, and Company for US$ 600 million. Dillon Read would be merged with SBC Warburg. Dillon Read was a boutique investment bank in the U.S. specializing in M&A advisory work and the underwriting of debt and equity offerings. SBC was attracted by the firm's \"blue chip\" client list and esteemed brand name. Dillon Read offered SBC entry into the U.S. investment banking market, shoring up SBC Warburg's U.S. corporate finance activity. David Solo said, \"Corporate Finance mandates increasingly had global, and therefore US, aspects. Without a credible US capability, the top US firms were challenging our dominant European franchise on global deals. By acquiring Dillon Read, SBC aimed to leverage the US firm's 'blue-chip' brand name with European corporates, and thereby help to strengthen its corporate finance business in Europe and globally.\"16 Exhibit 6 summarizes the chronology of acquisitions by SBC. Exhibits 7 and 8 give the recent income statements and balance sheets for SBC. Exhibit 9 compares the stock price trend of SBC and ex-UBS against a bank stock index. Union Bank of Switzerland (ex-UBS) Union Bank of Switzerland (ex-UBS) had been for some time the largest bank in the country. Headquartered in Zurich, it, too, had built itself through a process of acquisitions. From 1985 onward, its strategic aim was to become a global financial services institution through organic development of an investment-banking platform and selective acquisitions to strengthen of its global private banking business. This was motivated in part by declining return 13 Clare Pearson, \"Has Marcel Ospel got it right?\" Institutional Investor December 1995, page 63. Ibid,. p. 68. 15 \"UK: The cruel fate of small frySG Warburg,\" The Economist June 5, 1995. 16 Interview of David Solo by Klaus Durrer and David Remmers, December 20, 2002, UBS Archives. 14 This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -8- UV2515 on equity at ex-UBS starting in 1986, which caused the firm to decline from first place in profitability among its Swiss peers, to second place by the end of the 1980s. Responding to its profitability challenge, in March 1989 senior management drafted \"Strategy for the 1990s,\" a plan that called for the firm to push strongly into investment banking, to reorganize along functional lines (commercial banking, corporate finance, sales and trading, private banking and asset management), and to start a global sales and trading operation. Mathis Cabiallavetta led the development of the firm's sales and trading activities, aggressively hiring new talent and opening offices in New York, London, and Asia. The strategic shift was also apparent in the firm's acquisitions: Phillips & Drew. In 1984, ex-UBS acquired a minority interest in this firm as an entry into the UK brokerage business at the time of the \"big bang\" deregulation of financial markets there. Ex-UBS raised its ownership to 100 percent in 1986. Phillips & Drew also had a relatively small pool of funds under management, using a value-style investment approach. This transaction pioneered the wave of acquisitions of UK brokers by foreign financial institutions in the 1980s. In the years following the acquisition, P&D's small asset management business was grown to the second-largest asset manager in the UK. On the other hand, the integration of P&D's brokerage business turned out to be quite costly and painful, discouraging ex-UBS from pursuing its international ambitions through a strategy of acquisition. In all the acquisition of P&D was highly significant for the transformation of ex-UBS. Chase Investors. In 1991, ex-UBS acquired the asset management division of Chase Manhattan Bank, adding about US$ 30 billion in assets under management to the ex-UBS total. Stephan Haeringer said, \"The acquisition of Chase Investors provided ex-UBS with an important foothold in the large U.S. institutional asset management market...The acquisition of Chase Investors was also then seen to help ex-UBS to tap into a large Middle East client base...Secondly, Chase Investors filled an important product gap for the asset management offering of ex-UBS by adding a broad selection of USD denominated products.\"17 Schroder, Munchmeyer, Hengst. In 1997, ex-UBS bought this leading German private bank from Lloyds TSB for GBP 100 million. It was viewed as the platform for building ex-UBS's private wealth management business in Germany. Exhibit 6 summarizes the chronology of acquisitions by SBC and ex-UBS. Exhibits 10 and 11 give the recent income statements and balance sheets for ex-UBS. History of the Proposed Merger of SBC and ex-UBS 17 The quotations of Stephan Haeringer were drawn from interview notes by Klaus Durrer and David Remmers, November 15, 2002 and January 16, 2003. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -9- UV2515 The merger discussions were motivated and framed by large economic and political developmentsthese seemed to argue for the creation of greater institutional mass with which to handle the turbulent environment. In 1996, both banks reported losses, reflecting write-offs of losses in their domestic loan portfolios. Later Stephan Haeringer said, \"Following Swiss expansionary monetary policy in the 1980s, a real estate bubble formed. Banks adopted aggressive lending policies. Then the central bank punctured the bubble producing a period from 1990 to 1997 of no real growth in Switzerland. The lack of growth plus a sharp rise in credit losses meant that banks were losing money in the Swiss corporate and consumer lending market.\"18 Consolidation in the Swiss market would help to realize economies of scale and to skirt the constraints imposed by a small Swiss market with relatively low growth. Finally, Swiss banks were charged in 1996 with harboring assets of dormant accounts of victims of the Nazi holocaust the resolution of which drained the time and emotions of bank executives.19 Internationalization of financial markets, deregulation, steady trends toward institutionalized saving, and costly technological change added uncertainty to an already turbulent Swiss banking industry. Advances in computing, telecommunications, and trading systems would be costly to absorb. Deregulation of financial institutions was sweeping the developed countries, permitting entry into new (and formerly protected) markets. The reaction of financial services providers was to reposition themselves away from the lower-growth commercial lending markets and toward the higher-growth segments of investment banking, brokerage, and asset management, areas that would profit most from the serious trends in the environment. Some firms repositioned themselves through an internal development process; others sought to reposition by means of acquiring the business platform and franchise of other firms. The proposed merger took root in separate discussions within ex-UBS and SBC. Executive thinking at ex-UBS had been stimulated by Martin Ebner, a Swiss activist investor, who offered public criticisms, mounted legal challenges to the implementation of strategy, and opposed the nomination of Robert Studer as Chairman. Discussions within ex-UBS were further stimulated by a phone call in April 1996, during which Rainer E. Gut, then Credit Suisse's Chairman, made an unfriendly takeover proposal to his ex-UBS counterpart, Nikolaus Senn. Senior management of ex-UBS rapidly evaluated hypothetical mergers with SBC, Credit Suisse, 18 Interview of Stephan Haeringer by Robert F. Bruner, March 3, 2003. In May 1996, the Swiss Bankers Association and Jewish leaders established an \"International Commission of Eminent Persons\" (ICEP) under the leadership of former Federal Reserve Chairman, Paul Volker, to investigate the status of holocaust victims' assets in Switzerland. In December 1999, after thorough forensic investigations within more than 250 Swiss banks operating during the period, the ICEP reported 53,886 accounts \"probably or possibly related\" to Nazi victims, whereof roughly one quarter was found \"dormant.\" Furthermore, it maintained that \"no evidence of systematic destruction of records of victim accounts\" or \"organized discrimination\" against them had been reported by the auditors mandated with the investigation. However, it found \"confirmed evidence of questionable and deceitful actions by some individual banks\" and \"a general lack of diligence -even active resistance - in response to earlier private and official inquiries about dormant accounts.\" (Independent Committee of Eminent Persons \"Report of Dormant Accounts of Victims of Nazi Persecution in Swiss Banks,\" December 1999) 19 This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -10- UV2515 Morgan Stanley, Merrill Lynch, and Deutsche Bank, and concluded that SBC would be the better partner because of greater potential synergies, a closer cultural match with SBC, and smaller overlap in investment banking. Ex-UBS declined Gut's proposal, and when Mathis Cabiallavetta became CEO of ex-UBS in 1996, he and Stephan Haeringer discussed approaching SBC. Serious consideration on the SBC side of a merger with ex-UBS began with a discussion between Peter Wuffli and Marcel Ospel during a train ride on December 11, 1996. Ospel, who had been named CEO of SBC the previous May, argued that a merger between SBC and ex-UBS was a matter of necessity. Although Wuffli recognized the logic behind such a deal, he expressed concerns about the cultural differences between the two banks, and the weaknesses of SBC. The SBC Executive Committee met on January 2-3, 1997 to explore various merger alternatives. The alternatives ranged across various strategic dimensions: cross-border vs. domestic, and banking versus insurance. Ex-UBS emerged as the superior merger partner alternative to others, including Credit Suisse. During January and February 1997, Marcel Ospel met with the President of the ex-UBS Group Executive Board, Mathis Cabiallavetta, to discuss mandates and leadership of the new firm. They agreed to begin formal negotiations. On March 3, 1997, senior executives from SBC (Ospel and Wuffli) and ex-UBS (Cabiallavetta and Haeringer) met at the landmark Widder Hotel in Zurich, Switzerland. The initial discussion covered a range of topics, including strategy, term sheets, and governance issues. A proposal was advanced that would create a CEO, Mathis Cabiallavetta (ex-UBS), with two co-Chairmen, one each from the former banks, and with Marcel Ospel heading the investment bank of the merged entity. A critical point of discussion was the rationalization of banking activities in Switzerland and of the management of that activitythis was the source of some sensitivity, as it would entail massive layoffs close to home. The negotiators agreed to meet again after the annual general meeting of shareholders of the two firms. On June 10, negotiations resumed, with the creation of various teams of negotiators to develop details of aspects of the deal. SBC retained Wasserstein Perella as its advisor. Ex-UBS retained Morgan Stanley. Later that month, the Committees of the two Boards of Directors met in Frankfurt, Germany. Negotiations continued again on July 7, in an air of pessimism because of disagreements over several key issues, notably regarding the management structure and the valuation of loan loss provisions made by the two firms over previous years. Following this unsuccessful meeting both sides independently decided to discontinue negotiations. Stephan Haeringer said, \"When it was called off, it was the first time in my career of having the sense of looking into a black hole. There seemed to be no future for us. In August we held a strategy seminar and came to the conclusion that the deal with SBC was the best we could have.\" As a backdrop to the negotiations, ex-UBS was experiencing losses in derivatives positions. This was due to an unusual confluence of events, including changes in tax laws in the U.K. and the collapse of Japanese bank stocks. However, it also raised questions about the effectiveness of risk control systems at ex-UBS and eventually triggered an investigation by the This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -11- UV2515 Federal Banking Commission, Switzerland's supervisory authority. These, combined with continuing difficulties in corporate lending in Switzerland that affected all banks, placed greater pressure on ex-UBS to reach a resolution to its strategic problems. Negotiations resumed in October 1997, between Mathis Cabiallavetta and Marcel Ospel. By the end of the month, a term sheet was drawn up that designated Cabiallavetta as Chairman, and Ospel as CEO. By late November, details of the merger had been agreed upon: the exchange ratios, board and management composition, communications plan, etc. On December 5, the boards of directors of ex-UBS and SBC would meet to review the final terms and vote on whether to approve or reject the deal. If approved, the transaction would be announced on December 8. Approvals by Swiss and foreign bank regulators would take time. Therefore, it seemed unlikely that the transaction would be consummated before the summer. Objectives of the Merger The general motives for the merger, as outlined in the preceding section, translated into five specific objectives: Attain global leadership in four lines of business: private banking, institutional asset management, investment banking, and private equity. Develop the leading edge in Swiss consumer and corporate banking, and to use this as a platform for international expansion. Create substantial shareholder value, targeting return on equity in the range of 15 to 20 percent, improving financing with the aim of reducing cost of capital, and improving transparency and disclosure. Exhibit 12 gives the targeted 2002 net profit after tax by segment. Exploit an excellent cultural fit between the two firms. Both firms had a Swiss heritage, though SBC was more oriented toward capital markets and trading, while ex-UBS was still significantly influenced by its history as a commercial bank. Create a sustainable position for a leading Swiss financial institution. Hans de Gier said, \"If I had found that ex-UBS was going to merge with Dresdner Bank, we would have kicked ourselves because this was unacceptable. I said, we have to do the deal. It is in the interest of Finanzplatz Schweiz,20 it is in the interest of our survival. We never had the illusion that the deal was going to be pretty; we knew that it was going to be very tough.\"21 Create the scale and capital base that would allow a next step to establish a meaningful position in U.S. investment banking. 20 21 Swiss financial marketplace. Interview by Peter Buomberger and Klaus Durrer, August 30, 2001. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -12- UV2515 Now, in December 1997, a sober assessment of SBC's competitive position motivated its contemplated merger with ex-UBS. An internal memorandum prepared in June 1997 highlighted concerns about the viability of SBC's independence in the future. It saw challenges in SBC's major business lines: 1. Commercial Banking. The Swiss market was over-banked and offered only low margins. Greater scale would be needed to take advantage of innovation in the delivery of retail banking services. A merger with ex-UBS would withdraw substantial capacity from the market and permit more rational pricing. 2. Private Banking. Though SBC held a leading brand internationally, greater sophistication among customers and more rapid growth in \"onshore\" private banking meant that a more aggressive program of acquisition and organic growth would be needed in Europe, North America, and Asia. 3. Investment Banking. SBC believed that it was the most successful European investment bank, but not the most successful investment bank in Europe. American banks were penetrating Europe, threatening to draw off clients and talented staff. Synergies This memo foresaw synergy value created in the amount of CHF20-25 billion. Later, the executives detailed the sources of new value: Cost savings of CHF 3.5 billion per year. Sources would include the elimination of duplicate activities in areas such as operations, infrastructure, trading rooms, Swiss branch networks, and corporate staffs. Exhibit 13 gives a breakdown of the sources of headcount reduction of 14,000. Accelerated revenue growth of over 10 percent per year. Sources would include market growth in private banking, and the realization of benefits from a \"bulge bracket\" position in investment banking. Redeployment of excess capital of CHF 11-13 billion. Capital would be released by closing and sale of redundant facilities and operations. This capital would be reinvested to earn a targeted return on equity between 15 and 20 percent. Exhibit 14 gives a summary of capital redeployment opportunities. Against these economic benefits would be netted expenses related to realizing the synergies, such as the cost of personnel layoffs, new information technology, and changes in real estate. Anticipating these expenses, the two partners would reserve CHF 7.0 billion (to be charged against 1997 results, 40 percent to SBC, and 60 percent to ex-UBS.) Exhibit 15 gives pro forma financial results by business segment and provides forecasts for revenues, net income, and ROE This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -13- UV2515 through 2000.22 Exhibit 16 gives pro forma results for the combined firm as of June 30, 1997. The statutory marginal tax rate for corporations headquartered in Zurich, Switzerland was 25 percent. However under Swiss tax law, firms were taxed only on the profits they earned domestically. Therefore, the effective tax rate would be an average of the tax rates in the respective countries in which the new firm did business, weighted by the economic activity in the respective countries. Many developed countries were harmonizing their tax rates toward about 35 percent. Terms of the Proposed Transaction Exhibit 17 outlines the terms of the proposed deal.23 In essence, this was to be structured as a \"merger of equals\" with exchange ratios based on market valuesthe fairness would be confirmed by letters from Morgan Stanley and Wasserstein Perella. Exhibit 18 gives the percentage contribution by each firm on a range of financial measures. Exhibit 19 shows that shareholders of each bank would exchange their shares for shares in a new firm, UBS AG Shareholders of ex-UBS would account for 60 percent of the shares of the new entity; old SBC would account for 40 percent. Peter Wuffli noted, \"Most of our client relationships are bound to a legal entity. This structure enabled us to preserve the contractual relationship between the former entities with our clients, since the former entities would continue to exist as subsidiaries of the new firm. Without this, we would have had to ask the consent to merge from millions of clients.\"24 Betas and valuation ratios on a group of peer firms are given in Exhibit 20for reference the yields on Swiss Government debt are given in Exhibit 21. The make-up of the board of directors and management team of UBS AG, the new company, is given in Exhibit 22. Dual headquarters would be located in Zurich and Basel, Switzerland. International businesses would be directed from executive offices in Chicago (institutional asset management) and London (investment banking). Headcount reductions in Switzerland of about 7,000 would be \"carefully managed with strong social responsibility and fairness.\" At the same time, management aspired toward a \"meritocracy in selection of and rewards for management and employees.\"25 The negotiators envisioned an organization structured around lines of business rather than geography. A regional matrix structure would be retained to give effective focus on customer needs at the local level. The Swiss banking business operations would remain distinct from the investment banking and private banking activities, except for some shared local logistics. The key managerial positions would be filled on the basis of merit rather than 'power sharing' 22 This pro forma presentation does not include the effects of any synergies. Exhibits 16 and 17 are drawn from company documents and refer to different points in time. Market capitalization (Exhibits 16 and 17) is dated December 4, 1997. The number of shares (Exhibit 16) is dated October 31, 1997. Share prices (Exhibit 17) are given as of December 4, 1997. These differences in timing produce differing estimates in the implied discount to SBC shareholders. The number of shares consistent with a 40 percent interest to SBC shareholders is 79.5 million. 24 Interview of Peter Wuffli by Robert F. Bruner, March 3, 2003. 25 Draft of presentation to management, media, analysts, \"Creating a Premier Global Financial Institution,\" November 27, 1997, pages 17 and 18. 23 This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -14- UV2515 between the two organizations. Management compensation would be structured to align the interests of employees and shareholders. The new entity would adopt IAS accounting standards as soon as possible. The negotiators affirmed a common vision for the new firm: To be the preferred choice of the clients we wish to serve. To be a highly attractive place in which to work. To offer a superior source of value creation for our shareholders. The targeted return on equity was in the range of 15 to 20 percent, while maintaining strong credit ratings. Outlook If the boards of ex-UBS and SBC approved the deal, Mathis Cabiallavetta and Marcel Ospel would announce it to the public and begin the process of obtaining approvals from shareholders and banking regulators. This might take five or six months. In parallel, the two organizations would begin planning the details of their post-merger integration. Already, the executives had targeted the following goals by business lines: Combine private banking operations and focus on both international and domestic (Swiss) expansion. Align the institutional asset management activities within 12 months. Integrate the investment banking operations within 12 months. Restructure and consolidate the Consumer and Corporate Banking activities within three to four years. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. UV2515 -15Exhibit 1 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER Persons Prominently Featured in the A, B, and C Cases Brinson, Gary Cabiallavetta, Mathis Costas, John de Gier, Johannes (Hans) Gillespie, Robert Haeringer, Stephan Ospel, Marcel Togni, Alberto Wuffli, Peter Before the Merger Founder of Brinson Partners, which was acquired by SBC in 1994. CEO of SBC Brinson. CEO of ex-UBS. Chairman of UBS. Global Co-Head of Fixed Income, exUBS. Chairman of SBC Warburg Dillon Read. Co-Head of Fixed Income, Warburg Dillon Read. CEO of Warburg Dillon Read. Head of European Corporate Finance for SBC Warburg Dillon Read. Deputy CEO of ex-UBS and CEO of exUBS Switzerland. Head of European Corporate Finance, Warburg Dillon Read. Deputy President of Group Executive Board and CEO of Private and Corporate Clients Business Group, UBS. CEO of UBS. Vice-Chairman of UBS. CFO of UBS. CEO of SBC. Chief Risk Officer of SBC. Chief Financial Officer of SBC. Position to be held after the Merger CEO of UBS Brinson. Source: UBS AG archives. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. UV2515 -16Exhibit 2 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER Ten Largest Financial Service Institutions Ranked by Market Capitalization (as of November 27, 1997) Largest Financial Institutions by Market Capitalization CHF bn 100 90 80 70 60 50 40 30 20 10 0 B ank o f To kyo / M itusibishi HSB C Citicorp B ank o f A merica Natio nsB ank Credit Suisse B arclays ING B arings Deutsche B ank M organ Stanley Dean Witter UB S SB C Source: Internal documents, UBS AG. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. UV2515 -17Exhibit 3 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER Ten Largest Asset Managers Ranked by Assets under Management (as of December 31, 1997) Largest Global Asset Managers US$ bn 1200 1000 800 600 400 200 0 UBS Kampo Fidelity Credit Suisse (1) Axa Barclays Merrill / MAM Prudential (US) Morgan Stanley Dean Witter Zurich (2) (1) Credit Suisse including Winterthur. (2) Zurich (3Q97) includes Scudder, Kemper and Threadneedle Asset Management N.B.: the estimate for UBS is pro forma the merger and includes both institutional asset management and private wealth management businesses. Source: Internal documents, UBS AG. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -18- UV2515 Exhibit 4 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER \"Vision 2000\" Medium-Term Strategic Goals and Guidelines, Swiss Bank Corporation, 1996 update (first version approved in 1990) Vision 2000 Our three core businesses are Asset Management for Private and Institutional Investors Global Investment Banking Domestic Retail & Commercial Banking In the core businesses, we want to be among the leading top quality banks. In selected areas, we are a trendsetter. Sustained creation of added value for our shareholders Our aims are: To capitalize on business opportunities and systematically exploit potential for improvement in order to achieve a minimum of 10% p.a. increase in the shareholder value of the SBC Group To achieve a balanced risk/return ratio through well diversified earnings streams with annual volatility in net profit of under 30% To focus the resource allocation and corporate financial management processes on providing costefficient equity to the business activities, to avoid excessive equity surpluses and achieve a mediumterm aftertax return on equity of 15% To measure ourselves against our best competitors in each of our business activities To achieve a fair market value for our businesses through wideranging disclosure of specific business strategies and results To uphold our premier ratings on the financial markets by applying a prudent risk policy To keep the net costs of corporate management as low as possible through a Corporate Center dedicated to adding value This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -19- UV2515 Exhibit 4 (continued) Balanced business portfolio with three pillars Our activities are based on three core businesses: Asset management for Private and Institutional Investors is our most consistently profitable core business. We want to invest in it to expand our market position in an increasingly competitive and global environment. In particular, we aim at strengthening and globalizing our asset management capabilities and substantially expand our franchise with institutional investors. In Global Investment Banking, thanks to our leadership position in derivatives, we have created a promising platform for developing and deepening our relationships with major international clients with the goal of becoming one of the leading Investment Banks by the year 2000. In Domestic Retail & Commercial Banking, we want to substantially strengthen our market position and achieve a sustained improvement in earnings. To support our core businesses we maintain a highperformance market and customeroriented technologybased infrastructure whose services and products we also make available to outside partners to better leverage the fixed costs associated with it. We grow our businesses based on a balanced mix of build and buy strategies (including alliances). Business opportunities are realized where they make a demonstrable and substantial contribution to our position in one of our three core businesses. Development of customeroriented core capabilities We want to strengthen our core capabilities corporatewide in four areas: Focus our structures and processes and our behaviour on the needs of our clients to strengthen retention and commitment. Manage our business activities and functions, globally, across geographies and cultures. Continuously renew our range of products and services with rapid rollout of innovations. Achieve superiority in engineering our business processes through marketdriven quality standards and economies of scale. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. -20- UV2515 Exhibit 4 (continued) Resultsoriented organization and management Our organization combines the advantages of focused, entrepreneurially led business units with those of a strong, global institution with diversified sources of income and an excellent reputation. The business areas and business sectors are the focal points of our business strategies and business cultures; they are responsible for their business results The business areas and business sectors are grouped into divisions which share logistics resources The Corporate Center develops and supports corporatewide management processes with main focus on the areas of credit risks and financial management. Attractive employer for committed employees We want to be among the top recruiters on the international talent markets. We intend to recruit an annual quota worldwide of at least 150 top talents who are in the top 20% in their categories. We want to foster the professional and personal development and satisfaction of SBC employees, thereby adding to their longterm market value. We compensate employees based on the contributions they make to results and to realizing the longrange aspirations of the SBC Group. We expect our employees and managers to have a longterm commitment to the SBC Group and support this with our incentive structures and stock ownership schemes. Our goal is for our employees to own a significant portion of our share capital. Source: Internal documents, UBS AG. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. UV2515 -21Exhibit 5 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER S.G. Warburg/SBC Product Complementarities Strategic Fit SBC S.G. Warburg Research European equities - No. 1 M&A/Advisory (outside US) No. 38 Top 3 International equity underwriting No. 28 Top 5 - No. 1 (10%) Warrants No. 1 No. 20 FX Top 3 - Eurobonds underwriting Top 5 No. 17 Derivatives (swaps, options) Source: Internal documents, UBS AG. Top 6 No. 72 Cross border sec. Equities Market shares Int'l. Equity Underwriting SBC Warburg (pro-forma) European M&A Advisory Eurobond Underwriting 4.3% 14.4% 4.4% 13.3% 8.1% 5.8% Merrill Lynch 8.5% 5.0% 8.0% Morgan Stanley Source: Internal documents, UBS AG. 7.2% 9.6% 4.2% Goldman Sachs This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. UV2515 -22Exhibit 6 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER Chronology of Acquisitions by SBC and ex-UBS Year ex-UBS SBC Phillips & Drew 1986 (Institutional asset management and securities underwriting) Joint Venture with O' Connor & Associates 1989 (Risk management and derivatives) Chase Investors 1991 (Asset management) Acquisition of O' Connor & Associates 1992 (Risk management and derivatives) 1994 (Asset management) 1995 (European Investment banking) Brinson Partners SG Warburg 1997 Schroder, Munchmeyer, Hengst Dillon Read (German private bank) (US Investment banking) Source: Internal documents, UBS AG. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. UV2515 -23Exhibit 7 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER Income Statement Swiss Bank Corporation S Fr millions Interest income Interest and dividend income from financial investments Interest expense Net interest income 1995 10,377 144 7,764 2,757 1996 10,863 100 8,012 2,951 Credit-related fees and commissions Fees and commissions from securities and investment business Other fee and commission income Fee and commission expense Net fee and commision income 285 3,203 233 384 3,337 290 4,488 227 631 4,374 Net trading income 2,338 3,046 145 26 9 71 230 36 445 108 28 6 65 198 25 380 Total ordinary income 8,877 10,751 Personnel expenses Other expenses Total operating expenses 3,692 2,151 5,843 4,228 2,618 6,846 Gross operating profit 3,034 3,905 Depreciation and amortization Provisions for doubtful debts and contingencies Total depreciation, amortization and provisions 685 1,005 1,690 995 1,350 2,345 Group profit before extraordinary items and taxes 1,344 1,560 Extraordinary income Extraordinary expenses Taxes Group profit / loss 83 60 296 1,071 154 3,309 308 (1,903) Gain from sale of financial investments Net income from investments in associated companies Income from other participating interests Net income from real estate holdings Sundry ordinary income Sundry ordinary expense Other ordinary income Minority participations 16 52 Net profit / loss 1,055 (1,955) Net profit before extraordinary and exceptional items 1,055 1,328 Source: SBC 1996 annual report. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. UV2515 -24Exhibit 8 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER Balance Sheets Swiss Bank Corporation S Fr millions Assets Cash and other liquid assets Money market placements Loans and advances to banks Loans and advances to customers Mortgage lending Securities and precious metals held for trading Financial investments Non-consolidated participating interests Fixed assets Intangible assets Accrued income and prepaid expenses Positive replacement values Other assets Liabilities and shareholders' equity Money market liabilities Due to banks Due to customers on savings and deposit accounts Other amounts due to customers Medium-term notes Long-term debt Accrued expenses and deferred income Negative replacement values Other liabilities Allowance for general credit losses and other provisions Reserves for general banking risks Common stock Capital surplus Retained earnings Shares of minority shareholders in equity Group profit / loss Total liabilities and shareholders' equity 1995 1996 1,767 15,217 45,024 54,862 67,177 55,643 2,956 495 6,740 94 2,417 30,097 5,787 288,276 2,188 6,502 73,238 57,934 71,010 93,289 2,252 495 5,662 278 3,056 37,911 6,131 359,946 9,217 59,530 34,415 100,324 8,669 17,327 3,836 29,805 8,989 2,057 274,169 11,768 81,778 36,905 130,947 6,707 20,146 4,228 38,490 12,703 2,452 346,124 450 3,856 3,581 5,065 86 1,069 14,107 288,276 2,530 3,933 3,799 5,356 107 (1,903) 13,822 359,946 Source: SBC 1996 annual report. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. 01.09.92 SBC acquires O' Connor 02.22.91 UBS acquires Chase Investors 12/5/1992 12/5/1989 Source: Datastream N.B. The DJ Stoxx Banks Index is composed of the largest European banks. 50 100 150 200 12/5/1990 250 12/5/1991 05.02.95 SBC acquires SG Warburg 08.31.94 SBC acquires Brinson Partners 12/5/1994 300 12/5/1995 350 05.15.97 SBC acquires Dillon Read 12/5/1996 Ex-UBS and SBC vs. DJ STOXX Banks (Dec. 5, 1989 to Dec. 5, 1997) DJ STOXX Banks SBC Ex-UBS 08.27.97 UBS acquires Schroder, Munchmeyer Exhibit 9 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER Stock-Price Performance -25- 12/5/1997 12/5/1993 UV2515 UV2515 -26Exhibit 10 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER Income Statement Union Bank of Switzerland (ex-UBS) S Fr millions Operating income Interest income Interest expense Net interest income 1995 1996 15,194 11,746 3,448 15,314 11,595 3,719 Net commission income Net trading income Other income, including income from associates Total income 3,997 1,727 545 9,717 4,875 2,186 319 11,099 Credit loss expense 1,166 3,561 Operating expenses Personnel General administrative Depreciation and amortization Total 4,164 1,773 720 6,657 4,943 1,963 829 7,735 Operating profit / loss 1,894 (197) Extraordinary income, net Taxes Minority interest Net income 120 331 10 1,673 (192) 2 (7) Sources: UBS 1997 annual report; Thomson Financial BankWatch report, May 5, 1997. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. UV2515 -27Exhibit 11 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER Balance Sheets Union Bank of Switzerland (ex-UBS) S Fr millions Assets Trading securities Investment securities Bills and money market paper Mortgage loans Other loans Interbank assets Other earning assets Total earning assets Fixed assets Other non-earning assets Total assets 58,397 12,894 17,953 68,506 83,782 91,286 1,420 334,238 7,475 45,071 386,784 70,107 10,758 20,404 70,191 104,786 104,677 1,879 382,802 7,718 46,732 437,252 Liabilities and Equity Interbank deposits Customer deposits Money market paper Other liabilities Accumulated provisions Medium term notes and bonds Minority interest Equity capital Total liabilities and equity 118,219 151,840 13,053 50,295 9,131 22,059 91 22,096 386,784 132,372 176,205 21,340 50,459 11,488 22,217 34 23,137 437,252 1995 1996 Source: Thomson Financial BankWatch report, May 5, 1997. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. UV2515 -28Exhibit 12 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER Targeted 2002 Profit by Business Segment for UBS AG Estimated Equity* Targeted Group Profit Structure for 2002* CHF 53 bn CHF bn 12 0.8 0.5 11.2 ROE: 20% 0.7 1.8 10 2.9 8 6 4.5 4 2 0 Private banking Investment banking Consumer and Institutional asset commercial management banking Private equity Corporate center Group * Assumption: No acquisitions. Source: UBS AG internal documents. This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. UV2515 -29Exhibit 13 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER UBS AG Headcount Reduction Plan Combined Workforce Estimated Headcount Reduction Est. Headcount Reduction in Switzerland Private Banking 8,000 1,200 Institutional Asset Management 2,000 200 Consumer and Corporate 25,000 5,000 5,000 Investment Banking 19,000 7,000 800 2,000 600 300 56,000 14,000 7,000 Corporate Center Group Source: Internal documents, UBS AG. 900 This document is authorized for use only by Jason Young (jpyoung11@hotmail.com). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies. UV2515 -30Exhibit 14 THE MERGER OF UNION BANK OF SWITZERLAND AND SWISS BANK CORPORATION (A): THE PROPOSED MERGER UBS AG Capital Redeployment Plan Equity available for investment 1998-2000 Private banking onshore strategy New equity from profit retention CHF 8 - 9 bn Release of equity CHF 3 - 4 bn Expansion of US investment banking position International mutual fund distribution strategy Internationalization of consumer and corporate banking CHF 11-13 bn * Payout ratio 45%; Tier 1 at 8.5 - 9% Source: Internal documents, UBS AG. This document is authorized for use only by Jaso