Dan Malina Operating Partner Merger Week Dan Malina Operating Partner

Agenda My Background Key Success Factors to Mergers & Acquisitions The M&A Process: My Perspective

My Background “Eclectic Career” filled with wonderful mentors Numerous operating & corporate positions Transacted across the globe Experience with: Defending against a public co hostile Initial public offerings Joint ventures Merger of equals $25 million to $10 billion Leading strategy and innovation

Key Success Factors It all begins with strategy Be proactive Realism Develop actionable strategies Identify (new) growth opportunities Pursue targets directly Realism Establish criteria Leverage the trends Valuation: “Is the team willing to step up?” Due diligence: “The glass is half empty.” Structure: “Do we have the right terms and conditions to reduce risk?” Integration: “Do we have the right approach?”

Health Opportunities Play Across Consumer Products Personal Care Food Healthcare Natural Personal Care Nutritional Supplements Ingredient Flavoring Houses Copackers Functional Foods Natural/Organic Pharmacy/OTC

Recommended Opportunities Category Potential Targets Highest Priority Second Priority The recommended opportunities are a mix of near-in and further-out initiatives.

Understanding the Competitive Landscape Debt capital markets available/unavailable given the day Large wave consolidation less likely Commodity price pressure Pressure to drive top line growth (beyond early 2000’s consolidation) Innovation Line extensions/flankers Promotions/Trade spending Competitors Shifting/Realigning Portfolios Focused on macro trends (Nestle nutrition, Danone on health) Focusing on selective divestiture Increased international exposure

Develop Actionable Strategies Essence of strategy….guides choice and execution Internal Analysis External Analysis Strategic Alternatives Investment Choice

Develop Actionable Strategies: External Analysis Markets Which markets are attractive? Consumers How are consumers changing? What trends create the greatest opportunities and challenges to your business? Customers How will customers evolve over time? How will that affect our business? Competition Who is our competition? What are their strengths? How are they positioned for the future? Costs How will our business costs change? What are the greatest threats and challenges to our business? Context How will our business climate change? Any expected changes in government regulation, media, etc?

Develop Actionable Strategies: Internal Analysis Assets What assets do we have? What are most strategic or important to our success? Capabilities What capabilities do we have? Which are most strategic or most important to our success? Competitive Advantage How do we uniquely combine those assets and capabilities to create competitive advantage? How sustainable is that advantage? Economic Model How do we generate profit? Sales/Marketing How will target go to market with their “branded”/private label products? How will that change over time? Replace second person words with first person “youwe”

Develop Actionable Strategies Identification of Strategic Growth Platforms Define the Opportunity Set Vision Attractive Quantitative Characteristics Attractive Secondary Characteristics Strategic Assessment Strong Fit with Capabilities Actionables Growth Platforms Growth Platforms External Analysis Internal Assessment Key Issues/Risks/ Opportunities Growth Strategy

Deep Dive Analysis – Food & Bev. 2 major steps: BUILD CATEGORY LEVEL ANALYSES Nielsen/Euro-monitor Develop category profiles Size Growth Profit Segmentation Competition Etc. INVESTMENT PROPOSITION Evaluate categories Category fundamentals Competitive advantage Entry vehicles Sources of value creation Develop investment proposition Preliminary Strategy Investment rationale Key Assumptions Next Steps

Financial Characteristics Competitive Dynamics in Grocery Exhibit I: Most Attractive Categories/Growth Platforms Olive Oil Competitive Dynamics Financial Characteristics Competitive Dynamics in Grocery Sales 750 Grocery Sales Growth 12% (last 5 yrs) Unit 5 Pricing 7 Estimated EBIT 9% ROC % on Deal 21% Top 3 Share (expl) 40% PL 20% Brand (Company) Size ±≤4 X 24 8% Y 102 -5% Z 44 4% 13

Consumer/Channel Dynamics Exhibit I: Most Attractive Categories/Growth Platforms Consumer/Channel Dynamics Trends Changing Demographics Aging Population Convenience Health & Wellness Consumer Penetration 37% Buy Rate $16 Channels Grocery 61% Supercenter 10% Alt 29 Consumer Target Index Senior Couple 139 Empty Nest 138 Boomers 111 14

The M&A Process

The M&A Process Strategic Executional Create Corporate Strategy Identify the Target Engage the Target Perform Due Diligence Draft and Negotiate Agreements” Integration 1 2 3 4 5 6 Example: The Pillsbury Acquisition + =

Create Corporate Strategy Strategic Components Create Corporate Strategy Identify the Target Understand the Food Industry Set Strategies That Create Shareholder Value Strategy is the “Filter” We Use to Determine Our Interest in M&A Opportunities

Create Corporate Strategy Strategic Components Create Corporate Strategy Technology Medicinal/Nutritional Biotechnology Packaging Competitors Size Manufacturer consolidation Growth rates Categories Strategies Geographies Customers Retailer consolidation Private label Growth of mass merchandisers and other retail formats Consumers Demographics Economics Health Life stage Eating habits GMI Strategy

Create Corporate Strategy Strategic Components Create Corporate Strategy Product and Marketing Innovation Channel Expansion International Expansion Margin Expansion Goal: Create Shareholder Value

Strategic Components Drill Down on Attractive Categories Identify the Target Drill Down on Attractive Categories Choose Method of Attack

Review of 50 Supermarket Categories “Attractive” Category List Strategic Components Identify the Target Project 500 Identify General Mills distinctive capabilities Evaluate capabilities as sources of leverage within each category Review of 50 Supermarket Categories New to General Mills “No” Category List Likely Never Lack of Entry Vehicle Not for GMI “Attractive” Category List Potential Add-ons Adjacency Explore Further

How can we create the best value for shareholders? Strategic Components Identify the Target How can we create the best value for shareholders? Build License/Joint Venture Buy

Strategic Components Growth Strategies Pillsbury Rationale Identify the Target Growth Strategies Pillsbury Rationale Product & Marketing Innovation New platforms via refrigerated and frozen capabilities Strong brands with numerous potential for extensions Convenience and portability in breakfast, snacks, and dinner Channel Expansion New distribution through increased presence in Food Service Broader Foodservice product image International Expansion Doubles the size of GMI’s international business Exposure and access to global brands: Haagen Daaz, Green Giant, Old El Paso Margin Expansion Integration synergies approximately $475 million

Executional Components Engage the Target Perform Due Diligence Draft and Negotiate Agreements” Integration

Executional Components Engage the Target Perform Due Diligence Draft and Negotiate Agreements” Integration Corporate Development takes the reigns Identify strategy Initiate discussions Sign confidentiality agreements Expression of interest Preventing leaks

Preliminary Valuation Engage the Target 10 year projected cash flow: Standalone (What is the business worth on its own?) Synergies (Value we bring to the party) Post Acquisition Value Discount Rate: Discount cash flows at appropriate WACC Calculate Return on Investment Return calculation sensitivity on multiple purchase prices + transaction costs EPS impact Year 1 Impact (Accretitive/Dilutive) Ongoing (Years 2-5)

Creating Value via Divestitures Engage the Target Identify businesses with limited long term strategic fit Assess value to GMI vs. other potential strategic and private equity owners Evaluate one-time and ongoing financial impact from sale Determine climate for interested buyers and right time to sell

Creating Value via Divestitures Engage the Target Opportunities Risks Cash proceeds can be invested behind initiatives to drive greater return Share buyback and/or debt payment Acquisitions and minority investments Increase business team’s long-term focus Immediate replacement of lost operating profits Divestiture process creates short-term distraction and potential lack of focus on day to day operating results Complexity of carving out integrated business Limited flexibility on close date Lack of business specific balance sheet

Executional Components Engaeg the Target Perform Due Diligence Draft and Negotiate Agreements” Integration

Executional Components Engage the Target Perform Due Diligence Draft and Negotiate Agreements” Integration Why wouldn’t we do the deal? Corporate development is the quarterback but the business units must take ownership of the transaction Avoid surprises (the French Fry lesson) Cross-functional team digging into all aspects of the business HR: Finance, Sales IS: Legal, Environmental Tax: Operations, Purchasing Communication is vital—daily debriefs are a must Refine the strategy/revalue the business along the way Integration begins with due diligence Potential change in deal structure/valuation

Executional Components Engage the Target Perform Due Diligence Draft and Negotiate Agreements” Integration

Executional Components Engage the Target Perform Due Diligence Draft and Negotiate Agreements” Integration Initial approvals and announcement: July, 2000 FTC approval Sale of Desserts and Specialty Products in International Multifoods Renegotiation and final agreement: October, 2001 GIS Stock: 134 million shares = $5.9 billion Debt: $3.8 billion Contingent Value Right: Based on April, 2003 stock price ($273 million) Total price: Just under $10 billion

Executional Components Engage the Target Perform Due Diligence Draft and Negotiate Agreements” Integration

Executional Components Successful Merger & Integration Ensure leadership commitment Choose the right integration approach Achieve mobilization Maintain vision and customer focus Manage the process Build measurements Align resources with business vision Examine the Target Perform Due Diligence Draft and Negotiate Agreements” Integration The Keys to Success in Every Transaction

A New Era for GMI/Pillsbury It is with sadness that I bring you news that the Pillsbury Doughboy died yesterday of a yeast infection and complications from repeated pokes to the belly. He was 71. Doughboy was found buried in a slightly greased coffin. Dozens of celebrities turned out including: Mrs. Butterworth, Hungry Jack, Betty Crocker, The Hostess Twinkies, Captain Crunch, Baby Ruth, and many others. The graveside was piled high with flour arrangements, as long time friend, Aunt Jemima delivered the eulogy, describing Doughboy as a man who “never knew how much he was kneaded.” Doughboy rose quickly in show business, but his later life was filled with many turnovers. He was not considered a very smart cookie, wasting much of his dough on half-baked schemes. Still, even as a crusty old man, he was a roll model for millions. Doughboy is survived by his second wife, Play Dough. They have two children, Cookies and Cream, and one in the oven. The funeral was held at 3:50 for 20 minutes.

The Doughboy is Alive & Well!

Questions?