Schneider

SCHNEIDER - SQUARE D
Strategic Rationale for a Combination of Schneider and Square D (1)

1. Historically, the industry has been segmented by country or by region. Barriers to entry in these different markets have been perpetuated by:- Fragmentation
Differences in standards across countries and regions;
Costs of R&D for new products and costs of translating technologies for different regional standards;
Proprietary distribution networks;

2. Industry trends point towards increased globalization & Concentration
Product standards are becoming common across regions;
R&D costs continue to grow increasing the benefits of economies of scale;

SCHNEIDER - SQUARE D
Strategic Rationale for a Combination of Schneider and Square D (2)

Given the above factors, Schneider and Square D appear to be a good match:

Schneider is a leader in Europe whereas Square D is a major player in the US market; Square D has a wide distribution network. In terms of distribution network itself a partnership or a joint venture could be a good option. But Square D was not friendly towards this.

Schneider appears to be especially strong in industrial distribution whereas Square is strongest in residential distribution;- Complementarities in terms of products.

SCHNEIDER - SQUARE D
Synergies between Schneider and Square D

Rationalization of R&D efforts and benefits from sharing existing technologies; - effect on income statement

Access to larger distribution channels for both companies;- Revenues & selling costs will be impacted

Rationalization of manufacturing capabilities;- Production costs

Benefits from cross-selling products;

SCHNEIDER - SQUARE D
Effect of Acquisition on Goodwill

Purchase Price

$60

$65

$70

Square D’s SE ($m)

603.6

603.6

603.6

Adjustment for inventory revaluation

138.1

138.1

138.1

Revalued SE ($m)

741.7

741.7

741.7

Nb of shares (m)

23.2

23.2

23.2