1. Strategic investment criteria Olivier LEVYNE (November 7 th, 2008) Global Investment Banking

2. - 2 - 1.Analysis of an investment opportunity: main principles 2.Data on Carrefour and Wal Mart 3.Example: investment opportunity for Wal Mart 1.Analysis of an investment opportunity: main principles 2.Data on Carrefour and Wal Mart 3.Example: investment opportunity for Wal Mart

3. - 3 - 1. Analysis of an investment opportunity: main principles

4. 1. Introduction to strategic investment decisions The NPV is one of the drivers of the decision as the valuation of the target generally relies on the Discounted Cash Flows approach But the investment decision relies on other criteria:  It must be EPS accretive in order to create shareholders value  It must be acceptable from a banking point of view These criteria enable to define the modality of the transaction:  Cash offer  Share offer  Mix offer Beyond industrial considerations, the decision is eventually based on a sensitivity analysis

5. 2. Purchaser ’s EPS accretion / dilution in a cash offer PER = Price/EPS. ie: Price = PER x EPS. Hence, if the PER is stable (no change in the market status of the share):   Price = PER x .EPS Taking into account that, under IRFS, the goodwill is no more amortized: Share of the target’s net profit (Post tax interest expenses) ______________________ Impact of the acquisition on the acquirer's net profit=  RN A Accretive cash tender offer if, for a 100% acquisition of the target’s capital: NP T > i.V where:  NP T = target’s net profit  i = post tax cost of debt [ie: pretax cost of debt x (1 – corporate tax rate)]  V = target value (ie: market cap. + premium) Then: V/NP T < 1/i =Cash PER Hence: Accretive Cash tender if: Target PER < Cash PER EPS accretion= (EPS after– EPS before) / EPS before The number of the acquirer’s shares is unchanged. Then, with NP A = acquirer’s net profit EPS accretion= (NP A after– NP A before) / NP A before=  NP A / NP A before

6. 3. Purchaser ’s EPS accretion / dilution in a share offer A share tender offer consists in proposing to the target’s shareholders to swap their (listed) shares for the bidder’s listed securities.  These securities generally correspond to new shares issued by the bidder The exchange parity generally includes a 20%-30% premium on the target share price The goodwill corresponds to the difference between:  the valuation of the target (ie the number of shares issued by the bidder x the last price of the bidder share)  the equity group share of the target x % purchased (ie 100% if the bidder had no interest in the target’s capital before the tender offer)

7. 4. Banks’ constraints / main covenants Gearing: Net debt / Equity <1 Debt coverage: Net debt / EBITDA < 3 Interest coverage: EBIT / net financial expenses > 4

8. - 8 - 2. Data on Carrefour and Wal Mart

9. - 9 - Carrefour and Wal Mart - Datastream information

10. - 10 - WM and Carrefour - P&L, balance sheet

11. - 11 - 3. Example: Investment opportunity for Wal Mart

12. Introduction Wal Mart is indisputably the world leader of the retail sector The purchase of its challenger would make sense from an industrial point of view:  Their retail networks prove a geographical complementarity: No WM stores in France  The merger would enable cost synergies: Cuts in head office costs Decrease in the costs of goods sold thanks to an increasing bargaining power towards suppliers Carrefour is listed on the Paris Stock Exchange. Therefore, the purchase of a controlling stake requires the launching of a tender offer :  Either in cash (take over bid)  Or in shares  Or in the background of a mix offer The market cap of Carrefour is around 23 bn € (ie: 30 bn $)

13. Cash offer - Balance sheet impacts Assumed premium: 30%  Carrefour valuation: 39 bn $ (corresponding to an increase in the net financial debt)  Based on a 15 bn $ equity, the implied goodwill would be 24 bn $ Carrefour would be fully consolidated by WM then WM would have to consolidate Carrefour existing debt (9 bn $) The implied gearing ratio is unacceptable for the banks (114% vs a target 100% ratio)

14. Cash offer - EPS accretion/dilution Assuming a 100% shareholding in Carrefour (following a tender offer and a squeeze out), WM would:  Consolidate 100% of Carrefour’s net profit  Pay interest expenses based on a 6% pretax cost of debt The following table presents the sensitivity of the EPS accretion/dilution rate to the premium offered  Significant accretive impact (6% in the base case) but the transaction is not acceptable from a banking point of view

15. Share offer - Balance sheet impacts Assumed premium: 30%  Carrefour valuation: 39 bn $ (corresponding to an increase in the net financial debt) Based on a 15 bn $ equity, the implied goodwill would be 24 bn $ Based on a 56.13$ price per WM share, WM would issue 697 million new shares Carrefour would be fully consolidated by WM then WM would have to consolidate Carrefour existing debt (9 bn $) The implied gearing ratio is acceptable for the banks (39% vs a target 100% ratio)

16. Share offer - EPS accretion/dilution Assuming a 100% shareholding in Carrefour (following a tender offer and a squeeze out), WM would c onsolidate 100% of Carrefour’s net profit The following table presents the sensitivity of the EPS accretion/dilution rate to the premium offered Whatever the premium on Carrefour above 30%, the share offer is dilutive from an EPS point of view because the implicit PER of the target (Carrefour: 16.3) is equal or higher than the PER of the buyer (WM: 15.7)

17. Mix offer - Balance sheet impacts It is possible to offer a 50% premium assuming a mix offer which would be 60%-80% paid in cash