CFC s Program Series Webinar. How to Submit Your Question. The Merger Process. Financial Webinar Series. Financial Webinar Series

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1 CFC s Program Series Webinar The Merger Process How to Submit Your Question Step 1: Type in your question here. Step 2: Click on the Send button.

2 To Save Today s Presentation: Click in Links Box to open handouts. Click here to print or save handouts. CFC s Program Series Webinar The Merger Process TOPICS January 31 The Merger Process February 2 Communicatingwith Stakeholders February 16 Mergers:A Panel Discussion

3 The Merger Process. As a result of this session you will be able to: List the keys to merger success or failure. Describe the phases to the merger / consolidation process. Understand the role of the project team. List the phases in the action plan / schedule. Polling Question Which one of the following mergers is considered one of the most successful in corporate history? Quaker Oat and Snapple AOL and Time Warner Disney and Pixar Sears and K-mart Exxon and Mobil Johnny Vaughn CFC Henry Cano NRECA

4 Consolidation Study Components Introduction Outline of Consolidation Process External/Internal Approach Action Plan/Schedule Conclusions Recipe for Success or Failure? We succeed when... Strong leadership Employee support Communication Methodical process Skillful pilot Chemistry Quantitative & qualitative study We fail when... Manager & directors self interest Employee fears Community presence Control Superior attitude Personalities Limited analysis Outline of Merger/Consolidation Process The NRECA/CFC Four Phase Approach: I. Preliminary Financial Review II. Formal Analysis: Organization, Management, Financial, Economic and Legal Analysis III. Integration Planning IV. Implementation & Strategic Planning.

5 Phase I: Preliminary Financial Review CFC Analysis Provides base-line information Conducted at no charge Go / No go decision Models A&G and O&M Costs Each system separately Systems combined Base year, 5 yr., 10 yr., & inflated (2% & 5%) Phase II: Detailed Organizational, Management, Finance / Economics and Legal Analysis Identify the costs-benefits created by a proposed merger / consolidation Strengthened financial position Improved operating performance Strengthened workforce characteristics Higher member awareness Increase services and value Phase II (continued) Requires a detailed review, analysis, and forecast of the combined systems Board of directors and governance Organizational structure Facilities utilization and general plant T&D facility assets and operations integration Legal evaluation and merger agreement

6 Phase II: Detailed Financial & Economic Analysis Compare results of the combined versus separate financial operations Identifies specific cost saving opportunities Serves a merger recommendation to Board Establishes financial advantages of merger Specifies ways the combined operation is better equipped to provide higher level of service at minimal additional cost Phase II: Continued Financial Analysis Projected income statements & balance sheet Projected sources and uses of funds Forecast cash-flow statements Forecast financial statements Equity management recommendations Retail rate comparison Phase III: Integration Planning Structures actual merger agreement Establish internal / external implementation teams Integration plan serves as the blue print" of the merger

7 Phase III: Integration Planning Finalize organization structure and staffing plan Develop bylaws and policies for merged cooperative Determine Board structure Determination of member districts Rate equalization (if necessary) Phase III: Integration Planning Develop merger/consolidation agreement RUS/other lender & governmental agencies review and/or approval Phase III: Integration Planning Determine non-economic issues Develop plan for combined patronage capital / capital credits program Develop schedule for integrating electrical systems Schedule for implementing corporate consolidation Formulate detailed action plan for organization, staffing, financial management, etc

8 Phase IV: Implementation & Strategic Planning Strategic plan for new cooperative Drives integration plans Guides operations and management planning Services as a management tool Establishes new goals and objectives Delegates responsibilities and determines schedules Phase IV (cont d) Provides for quarterly reports to the Board Updated annually to monitor change Tracks merger results Our Internal/External Approach Every merger/consolidation has two sides Numbers that justify the merger People who make it happen Mergers put together by consultants alone will not work NRECA/NCG uses a two-pronged approach Internal consolidation team External consulting team

9 Internal Project Team Composed of staff from both cooperatives working hand-in-hand with consultants Involved in each phase of analysis and projections Participate in the strategic planning Likely to become part of the new management team External Consulting Team Responsible for overall analysis and proposed design Facilitates the process and maintains schedules Provides objective viewpoint Provides professional cross section of skills and merger/consolidation experience Helps to resolve disputed issues IV. Action Plan/Schedule Phase I Completed Phase II Meet with GMs & Boards to discuss approach & schedule Holds employee meetings at each coop, issues press release Establish internal project team

10 IV. Action Plan/Schedule (cont d) Phase II (cont d) NRECA Team conducts study Report finding to GMs and Boards (milestone) The Boards must decide ( Go or No-Go ) Begin Phase III Report to GMs and Board (milestone) May involve coordination with specialized professionals Action Plan/Schedule (cont d) Phase III (cont d) Report to GMs and Boards (milestone to adopt merger/consolidation agreement) Vote of the membership New cooperative in place Periodic reports on integration and planning Action Plan/Schedule (cont d) Launch Phase IV Execute implementation plans developed by Teams Initiate the strategic planning process for the new organization

11 Conclusions Major project for all concerned Many pitfalls and barriers Study will answer critical questions There must be strong determination on the part of all participants Now let s turn it over to our audience! How to Submit Your Question Step 1: Type in your question here. Step 2: Click on the Send button.

12 Please take a minute to complete the NRECA survey. If you are requesting CPE credits, this is a requirement. Events & Training Tab Look for the replay of this program early next week Johnny Vaughn NRUCFC Phone: johnny.vaughn@nrucfc.coop Henry Cano NRECA National Consulting Group Phone: henry.cano@nreca.coop

13 Mark Your Calendar: Feb 2:Communicating with Stakeholders Feb 16: Mergers: A Panel Discussion Mark Your Calendar For: February 8, 1 p.m. Eastern Time The Topic is Project Management: What you need to know before starting your next project. This program The Merger Process is a copyrighted presentation of CFC. No portion of this program may be reproduced, used or distributed without CFC s written consent.

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