Exhibit (c) (29)
For Discussion Purposes Only
Strictly Private and Confidential
PRESENTATION TO THE DENALI SPECIAL COMMITTEE
September 14, 2012
STRICTLY PRIVATE AND CONFIDENTIAL
J.P.Morgan
For Discussion Purposes Only
Strictly Private and Confidential
This presentation was prepared exclusively for the benefit and internal use of the J.P. Morgan client to whom it is directly addressed and delivered (including such client’s subsidiaries, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or transactions and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by J.P. Morgan. Neither this presentation nor any of its contents may be disclosed or used for any other purpose without the prior written consent of J.P. Morgan.
The information in this presentation is based upon any management forecasts supplied to us and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. J.P. Morgan’s opinions and estimates constitute J.P. Morgan’s judgment and should be regarded as indicative, preliminary and for illustrative purposes only. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business of the Company or any other entity. J.P. Morgan makes no representations as to the actual value which may be received in connection with a transaction nor the legal, tax or accounting effects of consummating a transaction. Unless expressly contemplated hereby, the information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or potential change of control, which may have significant valuation and other effects.
Notwithstanding anything herein to the contrary, the Company and each of its employees, representatives or other agents may disclose to any and all persons, without limitation of any kind, the U.S. federal and state income tax treatment and the U.S. federal and state income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Company relating to such tax treatment and tax structure insofar as such treatment and/or structure relates to a U.S. federal or state income tax strategy provided to the Company by J.P. Morgan.
J.P. Morgan’s policies prohibit employees from offering, directly or indirectly, a favorable research rating or specific price target, or offering to change a rating or price target, to a subject company as consideration or inducement for the receipt of business or for compensation. J.P. Morgan also prohibits its research analysts from being compensated for involvement in investment banking transactions except to the extent that such participation is intended to benefit investors.
IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters included herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone not affiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
J.P. Morgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries worldwide. Securities, syndicated loan arranging, financial advisory and other investment banking activities are performed by a combination of J.P. Morgan Securities LLC, J.P. Morgan plc, J.P. Morgan Securities Ltd. and the appropriately licensed subsidiaries of JPMorgan Chase & Co. in Asia-Pacific, and lending, derivatives and other commercial banking activities are performed by JPMorgan Chase Bank, N.A. J.P. Morgan deal team members may be employees of any of the foregoing entities.
PRESENTATION TO THE DENALI SPECIAL COMMITTEE
DENALI
J.P.Morgan
For Discussion Purposes Only
Strictly Private and Confidential
J.P. Morgan’s dedicated team for Denali’s Special Committee
Senior Sponsorship
Jamie Dimon Chairman & CEO 212-270-1111 jamie.dimon@jpmchase.com
Mike Cavanagh Co-CEO, Corporate & Investment Bank 212-270-2288 mike.cavanagh@jpmchase.com
Jimmy Lee Vice Chairman 212-270-1301 james.b.lee@jpmorgan.com
Mergers & Acquisitions Jim Woolery Managing Director, Co-Head of North American M&A 212-622-1324
jim.woolery@jpmorgan.com
Drago Rajkovic Managing Director, Head of Technology M&A 415-315-8100
drago.rajkovic@jpmorgan.com
Marvin Larbi-Yeboa Executive Director, Technology M&A 415-315-4955 marvin.a.larbi-yeboa@jpmorgan.com
Technology Investment Banking
Kurt Simon Managing Director, Head of TMT 415-315-8600 kurt.simon@jpmorgan.com
Curt Sigfstead Managing Director, Head of Systems Technology IB 415-315-8408 curt.sigfstead@jpmorgan.com
Saurabh Srinivasan Vice President, Systems Technology IB 415-315-8786 saurabh.srinivasan@jpmorgan.com
Capital Markets
Andy O’Brien
Managing Director, Global Co-Head of Debt Capital Markets
212-270-4004
andrew.j.obrien@jpmorgan.com
Raj Kapadia
Managing Director, Head of Technology Leveraged Finance
212-270-5510
rajesh.kapadia@jpmorgan.com
Ira Fox
Vice President, Technology Leveraged Finance
212-270-2643
ira.m.fox@jpmorgan.com
Corporate Finance & Ratings Advisory
Ben Berinstein
Managing Director, Co-Head of Corporate Finance Advisory
212-270-3675
ben.berinstein@jpmorgan.com
Andrew Gold
Executive Director, Ratings Advisory
212-270-4994
andrew.gold@jpmorgan.com
Financial Institutions Investment Banking
Mark Feldman
Managing Director, Co-Head of
Specialty Finance & Alternative Asset
Management
212-622-6056
mark.feldman@jpmorgan.com
PRESENTATION TO THE DENALI SPECIAL COMMITTEE
DENALI
1
J.P.Morgan
For Discussion Purposes Only
Strictly Private and Confidential
Discussion topics
Situation overview
Key threshold questions
Initial perspectives on Denali
Due diligence considerations and update
Initial observations on transaction feasibility
Process and next steps
PRESENTATION TO THE DENALI SPECIAL COMMITTEE
DENALI
2
J.P.Morgan
For Discussion Purposes Only
Strictly Private and Confidential
Agenda
Situation overview
Initial perspectives on Denali
Due diligence considerations and update
Initial observations on transaction feasibility
Process and next steps
Appendix
Page
3
6
14
18
32
38
PRESENTATION TO THE DENALI SPECIAL COMMITTEE
DENALI
3
J.P.Morgan
For Discussion Purposes Only Strictly Private and Confidential
Situation overview
Denali’s founding shareholder has expressed an interest to the lead independent director in exploring the possibility of making a proposal to take the company private
The founding shareholder has informally discussed this possibility with Sponsor A, Silver Lake Partners and Southeastern Asset Management (7.5%¹ shareholder) and has retained legal counsel The founding shareholder currently owns 15.4% of Denali’s outstanding shares² The founding shareholder’s total net worth is estimated to be $15.9B as of March 2012³ with more than $10 billion managed by the founding shareholder’s private investment fund
The founding shareholder, Silver Lake and Sponsor A have executed NDAs which restrict their ability to:
Communicate with each other (other than discussions with the founding shareholder), other parties and Denali regarding the proposed transaction Engage with and retain financing sources Share and receive information without the Committee’s consent Enter into any agreement with respect to Denali, its securities or a potential transaction without the Committee’s consent Make any acquisition proposal unless invited by the Committee The founding shareholder has agreed to remain neutral
Silver Lake and Sponsor A have submitted preliminary diligence request lists, but no diligence has been provided
No offer has been submitted
Management is in the process of updating forecasts given the weak start to Q3 and recently revised guidance
1 Southeastern Asset Management ownership based on 13-F as of 6/30/12
2 Ownership percentage based on Denali’s proxy as of 05/24/12 and includes 1.6% beneficially owned by the founding shareholder’s spouse
³ The founding shareholder’s approximate net worth based on Forbes’ estimate as of March 2012
SITU A T ION O VERVI EW
DE N A L I 4
J.P.Morgan
For Discussion Purposes Only
Strictly Private and Confidential
Key threshold issues / questions
What is the intrinsic value of the company?
Is the status quo sustainable? What value creating alternatives are available?
Is now an appropriate time to explore a change of control transaction?
What is the feasibility of a transaction, including a leveraged buyout (“LBO”)?
What is the optimal process to pursue?
What are the rules of engagement to achieve optimal outcome?
What is the optimal process of obtaining quality information upon which to make a decision?
How does the committee maintain strict confidentiality?
What are the costs of commencing a process that is not successful?
SITUATION OVERVIEW
DENALI
5
J.P.Morgan
For Discussion Purposes Only
Strictly Private and Confidential
Agenda
Situation overview
Initial perspectives on Denali
Due diligence considerations and update
Initial observations on transaction feasibility
Process and next steps
Appendix
Page
3
6
14
18
32
38
PRESENTATION TO THE DENALI SPECIAL COMMITTEE
DENALI
6
J.P.Morgan
For Discussion Purposes Only
Strictly Private and Confidential
Denali investor considerations
Stock price has declined ~25% over the last year while the NASDAQ is up ~25%
Global IT spending outlook continues to remain under pressure
Limited near-term visibility on operating and financial performance
Significant PC weakness and share loss in key emerging markets that have historically been major growth drivers for Denali
Execution risks of business model transition from Server and PC to Enterprise solutions provider
Reliance on declining PC business to fund growth of Enterprise poses risk
Success in transitioning sales force to address sales execution missteps remains unproven
Missed Street expectations have put investors in a “wait and see mode” with increased focus on quarter-by-quarter execution and improved visibility
INITIAL PERSPECTIVES ON DENALI
DENALI
7
J.P.Morgan
For Discussion Purposes Only
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Denali historical and forecasted financial performance
Revenue ($ in billions)
CAGR CY08A-CY11A: 0.5%
CAGR CY11A-CY13E:
(3.3%)
$61.1 $52.9 $61.5 $62.1 $57.8 $57.52 $58.0
CY08A CY09A CY10A CY11A CY12E CY13E
Mgmt / Street
Street
Revenue by segment1
Client
S&P
ESG
Services
Software
9% 15% 17% 59%
11% 16% 18% 56%
12% 16% 17% 55%
13% 17% 16% 54%
1% 15% 18% 16% 50%
2% 15% 19% 16% 49%
CY08A CY09A CY10A CY11A CY12E CY13E
Mgmt
Operating income ($ in billions)
CAGR CY08A-CY11A: 11.6%
CAGR CY11A-CY13E:
(10.3%)
$3.7 $3.0 $4.1 $5.1 $4.1 $4.02 $4.1
CY08A
CY09A
CY10A
CY11A
CY12E
CY13E
% mgn: 6.0%
5.6% 6.7% 8.3% 7.0% / 7.0% 7.1%
Mgmt / Street
Street
EPS
CAGR CY08A-CY11A: 14.0%
CAGR CY11A-CY13E:
(7.8%)
$1.44 $1.05 $1.59 $2.13 $1.76 $1.702 $1.81
CY08A CY09A CY10A CY11A CY12E CY13E
Mgmt / Street
Street
Source: Company filings and plan, Wall Street research
Note: Denali’s January FYE assumed to be equivalent to December CYE of prior year; revenue, operating income and EPS projections in CY12E and CY13E based on Wall Street consensus
1 Historical segment breakdown based on Company filings and projected segment breakdown based on revised management plan for FY 2013 based on presentation to the Board of Directors on September 13, 2012
2 Revised management plan for FY 2013 based on presentation to the Board of Directors on September 13, 2012
INITIAL PERSPECTIVES ON DENALI
DENALI
8
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For Discussion Purposes Only
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Denali’s operating performance vs. peers
Select metrics
CY10–11A rev. gr.
CY11–12E rev. gr.
CY12–13E rev. gr.
CY13E EBITDA mgn. CY13E net mgn.
LT EPS growth rate
Denali
0.9% (6.9)% 0.3% 8.1% 5.5% 4.0%
hp
0.0% (4.1)% (0.8)% 13.1% 6.9% 4.0%
PC
58.0% 37.1% 21.0% 37.5% 26.0% 20.0%
lenovo
35.5% 19.8% 14.0% 2.9% 1.8% 14.0%
asus
(10.6)% 8.4% 12.1% 5.9% 4.7% 9.6%
acer
(24.4)% (0.9)% 8.4% 1.7% 1.0%
N/M
Median: 12.5%/(10.6%)2 Median: 14.1%/8.4%2 Median: 13.0%/12.1%2 Median: 4.4%/2.9%2 Median: 3.3%/1.8%2
Median: 11.8%/9.6%2 Segment: 70.0%1 Segment: 65.8%1 Segment: 64.4%1 Enterprise EMC2
17.6% 10.1% 10.6% 28.2% 17.8% 15.0%
Microsoft 8.5% 7.2% 7.7% 42.7% 31.4% 10.0%
Net App 24.1% 8.0% 7.0% 19.0% 13.1% 15.0%
CISCO 7.3% 6.4% 6.0% 31.8% 21.3% 8.5%
ORACLE 13.9% 4.4% 5.9% 50.2% 34.6% 12.0%
IBM 7.1% (1.6)% 2.7% 27.0% 17.0% 10.0%
Median: 11.2% Median: 6.8% Median: 6.5% Median: 30.0% Median:19.5% Median: 11.0%
Segment: 16.6%1 Segment: 18.4%1 Segment: 18.6%1
Services
xerox
4.6% (0.2)% 1.9% 14.7% 6.4% 1.2% csc (0.9)% (1.2)% (0.3)% 12.2% 2.7% 8.0%
Median: 1.8% Median: (0.7%) Median: 0.8% Median: 13.4% Median: 4.5% Median: 4.6%
Segment: 13.4%1 Segment: 14.8%1 Segment: 14.7%1
Software bmcsoftware
5.8% 4.2% 5.3% 38.2% 25.3% 8.8%
Symantec
7.4% 2.6% 2.6% 32.4% 17.5% 9.0%
ca
7.0% 1.2% 2.0% 37.8% 24.4% 10.0%
Median: 7.0% Median: 2.6% Median: 2.6% Median: 37.8% Median: 24.4% Median: 9.0% Segment: nm1 Segment: 1.0%1
Segment: 2.3%1
Source: Company filings, Company plan, Wall Street research, FactSet (market data as of 09/12/12)
Note: Companies sorted by CY2012 - 13E revenue growth in descending order; performance metrics are based on non-GAAP financials excluding stock-based compensation, amortization of acquired intangibles and non-recurring items; Denali January FYE shown as calendar year; median excludes Denali and HP
1 Represents segment contribution to total revenue; Historical segment breakdown based on Company filings and projected segment breakdown based on revised management plan for FY 2013 based on presentation to the Board of Directors on September 13, 2012
2 Represents median excluding Apple
INITIAL PERSPECTIVES ON DENALI
DENALI
9
J.P.Morgan
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Denali’s share price performance
3-year stock price performance
$35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00
Disappointing Q3 fiscal 2010 results; driven by corporate PC exposure; recovery driven by consumer and emerging markets
Recovery in stock price is driven by x86 server upgrades and corporate PC / notebook refresh cycle
Volatility in revenue and margins continues to be an ongoing concern
Growing revenue and margin contribution from ESS a positive, but sales execution issues and weak PC sales weigh on stock
PC 90.2%/24.0%3
NASDAQ 49.7%
Enterprise 37.8%
Denali (35.9%)
HP (61.0%)
Sep 2009 Sep 2010 Sep 2011 Sep 2012
Multiples ’09-’10 ’10-’11 ’11-’12
NTM P/E1 NTM P/E1 NTM P/E1
Denali
11.3x 9.0x 7.2x hp 10.6x 7.5x 5.4x
PC 15.5x /12.7x3 12.4x /11.3x3 11.7x /11.6x3
Enterprise 14.9x 14.2x 12.1x
EPS
Revenue
Earnings Results
Results vs. street Fwd guidance vs. street2 Results vs. street
Q3 FY10
Q4 FY10
Q1 FY11
Q2 FY11
Q3
FY11
Q4
FY11
Q1
FY12
Q2
FY12
Q3
FY12
Q4
FY12
Q1
FY13
Q2
FY13
Source: FactSet as of 09/12/12
Note: HP and NASDAQ indexed to Denali’s stock price of $16.60 on 09/11/09; PC includes Acer, ASUSTek, Apple, Lenovo; Enterprise includes Cisco, EMC, IBM, Microsoft, NetApp, Oracle
1 Based on average NTM P/E over a 1-year period beginning in September of the prior year
2 Compares Management guidance vs. consensus guidance
3 Excludes Apple
INITIAL PERSPECTIVES ON DENALI
DENALI
10
J.P.Morgan
For Discussion Purposes Only
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Denali trading analysis vs. peers
CY13E FV/revenue
CY13E FV/EBITDA
Cash adj. CY13E FV/EBITDA1
CY13 P / E
Denali
0.3x 3.2x 4.0x 5.9x
hp
0.5x 3.6x 3.8x 4.2x 2.6x 7.0x 7.4x 12.3x
ASUS
0.3x 5.5x 5.5x 10.5x
PC
lenovo
0.1x 4.1x 4.1x 12.0x
acer
0.1x 4.0x 4.0x 15.5x
Median: 0.2x/0.1x2 Median: 4.8x/4.1x2 Median: 4.8x/4.1x2 Median: 12.2x/12.0x2
ORACLE
3.7x 7.3x 7.6x 11.5x
Microsoft
2.6x 6.1x 6.6x 9.7x
IBM
2.4x 8.9x 9.0x 12.2x
EMC2
2.2x 7.7x 7.9x 14.0x
Enterprise
CISCO
1.5x 4.8x 5.8x 9.5x
NetApp
1.4x 7.3x 7.9x 15.0x
Median: 2.3x Median: 7.3x Median: 7.8x Median: 11.9x
Xerox
0.8x 5.6x 5.6x 6.6x Services
csc
0.4x 3.7x 3.7x 12.3x
Median: 0.6x Median: 4.6x Median: 4.7x Median: 9.4x bmcsoftwar
2.7x 7.1x 7.4x 11.5x
ca 2.4x 6.4x 6.6x 10.4x
Software symantec
1.8x 5.7x 6.0x 10.9x
Median: 2.4x Median: 6.4x Median: 6.6x Median: 10.9x 3-year NTM FV/EBITDA
15.0x 12.0x 9.0x 6.0x 3.0x 0.0x
Denali HP PC Enterprise Average Denali HP PC Enterprise Current
3.2x 3.6x 6.0x 6.9x 1-year 3.6x 4.0x 6.3x 6.8x 2-year 3.8x 4.4x 6.8x 7.6x 3-year 4.1x 5.0x 7.4x 8.0x 6.9x 6.0x/ 5.2x2 3.6x 3.2x
09/11/09 04/18/10 11/23/10 07/01/11 02/05/12 09/12/12
3-year NTM P/E 30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x Denali HP PC Enterprise Average Denali HP PC
Enterprise Current
5.9x 4.3x 12.1x 12.3x 1-year 7.2x 5.4x 11.7x 12.1x 2-year 8.2x 6.5x 12.1x 13.2x 3-year 9.2x 7.9x 13.2x 13.7x 12.3x 12.1x/ 11.8x2 5.9x 4.3x
09/11/09 04/18/10 11/23/10 07/01/11 02/05/12 09/12/12
Source: Company filings, FactSet (market data as of 09/12/12)
Note: Performance metrics are based on non-GAAP financials excluding stock-based compensation, amortization of acquired intangibles and non-recurring items; Denali January FYE shown as calendar year; median excludes Denali and HP
1 Firm value adjusted for repatriation of foreign cash, assuming a friction cost of 35%
2 Excluding Apple
INITIAL PERSPECTIVES ON DENALI DENALI
11
J.P.Morgan
For Discussion Purposes Only
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Denali shareholder base evolution
Fund-level shareholder style evolution
06/30/09
Other 11% Income 8% Value 32% Growth 23% GARP 26% 06/30/12 Other 14%
Income 11% Value 42% Growth 17% GARP 16% Shareholder base mix relative to peers Growth
GARP Value Income
Other
14% 11% 42% 16% 17% 12% 14% 32% 11% 31%
9% 6% 14% 8% 63% 35% 9% 17% 9% 30% 11% 6% 16% 8% 59% 9% 18% 50%
10% 13% 12% 23% 21% 7% 37% 10% 24% 29% 13% 24% 14% 3% 25% 10% 48% 11% 19%
23% 11% 36% 5% 21% 45% 16% 13% 6% 14%
48%
23%
9%
10%
3%
48%
7%
32%
8%
28%
36%
14%
14%
12%
8%
42%
16%
22%
Denali
Peer avg.
CISCO
EMC2
hp
IBM
Microsoft
NetApp
ORACLE
CSC
Xerox
bmcsoftware
ca
technologies
symantec
PC
Enterprise
Services
Software
Source: Thomson One as of latest filings; excludes broker-dealers, venture capital/private equity, and index investors
INITIAL PERSPECTIVES ON DENALI
DENALI
12
J.P.Morgan
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Key challenges and opportunities for Denali going forward
Key challenges
Key opportunities
Industry
PC business
Enterprise
Other
Global IT spending outlook continues to remain under pressure
Continued industry consolidation
Continuing macroeconomic headwinds and secular pressure on PC business
Long-term cost competitiveness vs. major competitors
Uncertain market acceptance of new Windows 8 products in light of key secular trends
Tablet and smartphone strategy as market continues to accelerate adoption
Transition of Enterprise business to solutions provider
Effective sales force transition
Success in leveraging PC business to fund growth of Enterprise business
Effective integration of recent acquisitions and value generation from organic and inorganic initiatives
Limited U.S. cash balance and cash flow generation to fund future dividends, share repurchases and acquisitions
Opportunity to disrupt competition by directly aligning solutions and strategy to key IT trends and emerging customer needs
Leverage size and financing resources to continue to acquire key companies and technologies
Potential benefit from corporate PC refresh cycle
Continue to rationalize cost base
Re-entry into the tablet market with Windows 8-based device provides opportunity for upside
Focus on solutions for mid-market that scale to large and small customers
Opportunity to leverage Denali’s strong brand
Successful transition from PC to Enterprise could drive meaningful improvement in growth and margin profile
Creation of new Software Solutions Group provides opportunity for growth and margin expansion
Differentiated ability to serve mid-market customers
Significant organic and inorganic opportunities across Enterprise and Services
Ability to target meaningful offshore M&A opportunities
INITIAL PERSPECTIVES ON DENALI
DENALI
13
J.P.Morgan
For Discussion Purposes Only
Strictly Private and Confidential
Agenda
Situation overview
Initial perspectives on Denali
Due diligence considerations and update
Initial observations on transaction feasibility
Process and next steps
Appendix
Page
3
6
14
18
32
38
PRESENTATION TO THE DENALI SPECIAL COMMITTEE
DENALI
14
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J.P. Morgan due diligence process to date
Submitted an initial list of questions on August 29th
Diligence focus areas
Business strategy
Financial plan
Separation alternatives
Cash
Denali Financial Services
Capital structure
Met Denali management in Austin on September 5th for a preliminary review of the business and discussion of due diligence scope
Ongoing receipt of information, conference calls, diligence review and compilation of a dataroom
Initial discussion of process and timing for revised forecast scenarios with management on September 13th
In the process of scheduling meetings with CFO / management to cover
Re-forecast scenarios, sales re-organization and client business strategy
Structuring and cash repatriation
Denali Financial Services
DUE DILIGENCE CONSIDERATIONS AND UPDATE
DENALI
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Initial observations and considerations
Observations
Lack of visibility into business performance and difficulty in effectively forecasting the business
Reinvestment plans are largely based on cost savings initiative
Challenges facing the PC business from both a competitive and secular perspective
Considerations on workstream
Timing of revised business plan scenarios / detailed operating models
Ability to limit tax leakage in repatriation of cash
Feasibility and assessment of the financial impact of various separation considerations
DFS business and working capital movements could be significant drivers of value
DUE DILIGENCE CONSIDERATIONS AND UPDATE
DENALI
16
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Observations and challenges of fiscal 2013
Key observations
Q2 fiscal 2013 - Aug 2012
Management presented Q2 mid-quarter update and plan to the Board on July 12th
Revenue and gross margin both trending behind with strong close required to meet plan
Q2 results came in significantly lower than July 12th plan with less than three weeks left in the quarter
Revenue: $14.5bn vs. $15.3bn (-5.3%)
EPS: $0.50 vs. $0.52 (-3.8%)
Street guidance for Q3 and fiscal 2013 were lowered
Q3 revenue: 2-5% q-o-q decline, below normal seasonality
Fiscal 2013 EPS: Lowered to $1.70 from $2.13
Key challenges
Persisting macroeconomic challenges and weakness in Western Europe
Understanding if growth and visibility challenges are cyclical or secular
Unfavorable PC market and competitive dynamics in emerging markets, particularly India and China
Linear growth from seasonal education and federal budgets did not materialize
Channel inventory drawdown in advance of Windows 8 transition
Q1 fiscal 2013 - May 2012
Q1 results came in below Street consensus
Revenue: $14.4bn vs. $14.9bn (-3.2%)
EPS: $0.43 vs. $0.46 (-6.5%)
Street guidance for Q2 and fiscal 2013 were in-line
Q2 revenue: 2-4% q-o-q growth, in-line with historical rates
Fiscal 2013 EPS: Unchanged at $2.13
Sales execution issues
Ongoing pricing pressure in Client business
Continuing shift to tablets and smartphones
Source: Company filings and plan Financial Framework presentation to the Board of Directors on July 12, 2012 with company plan
DUE DILIGENCE CONSIDERATIONS AND UPDATE
DENALI
17
J.P.Morgan
For Discussion Purposes Only
Strictly Private and Confidential
Agenda
Situation overview
Initial perspectives on Denali
Due diligence considerations and update
Initial observations on transaction feasibility
Process and next steps
Appendix
Page
3
6
14
18
32
38
PRESENTATION TO THE DENALI SPECIAL COMMITTEE
DENALI
18
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For Discussion Purposes Only
Strictly Private and Confidential
Anatomy of an LBO - structure
In an LBO transaction an acquirer (“financial buyer” or “sponsor”) purchases a company with a relatively small amount of equity and significant use of debt
Debt is typically funded from 2 or more sources:
1st tranche of bank / senior debt and will also include an unfunded revolving credit facility for working capital needs
2nd tranche of high yield debt
Occasionally a mezzanine debt tranche is introduced in place of high yield
Sponsors seek to generate returns on their equity investment and use financial leverage to increase potential returns
A sponsor typically would expect to realize a return within 3 to 5 years via an outright sale, public offering or recapitalization
Financial buyers evaluate investments with an internal rate of return (IRR) analysis, which measures return on equity
Multiple of cash invested (e.g. 2.0x) is also a key parameter, particularly for larger transactions
IRR will be used as the primary means to determine the appropriate purchase price by a sponsor and will be impacted by:
Financial projections
Debt capacity / amount of sponsor equity
Realistic exit opportunity and assumptions
INITIAL OBSERVATIONS ON TRANSACTION FEASIBILITY
DENALI
19
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Anatomy of an LBO - value creation
A financial sponsor has 4 primary levers with which to create value:
1 Use of an efficient capital structure
2 Operational enhancement
3 Extraction of value from non-operating assets
4 Multiple expansion
1 Efficient capital structure: This is the primary way in which value is created and is achieved through the low cost of debt to finance the acquisition and minimize the higher cost of capital
Value of equity grows as debt is paid down
2 Operational enhancement: Can also create value by enhancing profitability of the business through organic growth, working capital enhancements, cost-cutting and realizing synergies from add-on acquisitions
3 Extraction of value from non-operating assets: In conjunction with the base levers, financial buyers occasionally put in place aggressive structures with respect to real estate, IP and ability to access / transfer cash in a more tax-efficient manner (e.g. re-domiciling in a foreign jurisdiction)
4 Multiple expansion: In addition, expansion in potential market valuation multiples (i.e. buy low, sell high) can create value, albeit not controlled by the sponsor
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Key considerations for a leveraged buyout of Denali
Efficient structuring to limit tax leakage in repatriating cash to effect a transaction, as well as to efficiently fund debt pay-down over time
Potential negative sales impact within government customer base if redomiciled
Effect of a change-of-control transaction on outstanding debt
~65% of existing debt does not contain change of control provisions, thereby materially reducing the debt commitments and inherent cost of capital
Although untested post credit crisis, J.P. Morgan believes $10 billion of new debt capacity exists for a benchmark BB rated LBO
Denali debt capacity will be governed by the credit story and trends, achieving a BB rating profile and maximum leverage consistent with current enterprise value
Roll-over of existing debt will help with the capital structure and cost of capital
Quantum of equity and potential number of sponsor participants required
Depending on founding shareholder equity contribution, may require largest equity check in LBO history
Typically would not see a single sponsor commit more than $2 billion in a single transaction
Limited post-crisis history of multi-party “club” consortium deals due to governance complexity
The terms of an initial proposal from the founding shareholder will inform us substantially on next steps and will dictate amount of debt as well as potential number of participants per consortium
Post buy-out funding strategy for DFS
Management’s business plan / projected financial performance
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High yield market observations
High yield market overview
2012 Global High Yield New Issuance Stats ($
equivalent):
1Q:
$119.6bn - busiest quarter ever
2Q:
$46.4bn
10.5% 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5%
12/31/11: 8.44%
Irish referendum on EU fiscal pact: May 31st
Greek elections: June 17th
EU Summit: June 28th - 29th
FOMC decision: August 1st
ECB rate decision: August 2nd
U.S. Employment: August 3rd
Republican Convention: August 27th - 30th
Democratic Convention: September 3rd - 6th
All-time tight
9/11/12: 6.69%
U.S. Presidential election: November 6th
U.S. Fiscal cliff: December 31st
Event Risks
$20.0 $18.0 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Improved technicals in the high yield market coupled with a more settled macroeconomic picture have created favorable new issue conditions in the primary market
The high yield and leveraged loan markets are very strong and are at the lowest yields since the indexes have been tracked. However there are event risks in coming months, ranging from Europe to fiscal policy in the United States, which can impact the yield in and depth of the market
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Precedent large go-private transactions
Transaction value ($ in millions)
Pre-crisis
Equity check
New funded debt
Post-crisis
$25,404 20,438 4,966
$16,550 9,450 7,100
$29,692 22,399 7,293
$38,150 29,850 8,300
$26,300 21,700 4,600
$17,708 14,025 3,683
$5,793 3,000 2,793
$3,379 1,992 1,387
$3,950 2,350 1,600
$4,207 2,650 1,557
$4,315 2,715 1,600 $5,700
4,100 1,600
$3,312 2,390 922 $6,406 4,718 1,688
$3,655
2,025
1,630
HCA
Hospital Corporation of America
freescale
FIRST DATA
TXU
alltel
Harrahs
ims
INTELLIGENCE.
APPLIED
Interactive Data
NBTY
BURGER KING
COMMSCOPE
Del Monte
Quality
EMERGENCY
MEDICAL SERVICES
KCI
The Clinical Advantage
PPD
Date
Oct-06 Nov-06 Sep-07 Oct-07 Nov-07 Jan-08 Feb-10 Jul-10 Sep-10 Oct-10 Jan-11 Feb-11 Mar-11 Oct-11 Nov-11
New funded debt
20,438 9,450 22,399 29,850 21,700 14,025 3,000 1,992 2,350 2,650 2,715 4,100 2,390 4,718 2,025
Total leverage
6.4x 5.2x 8.7x 6.7x 7.9x 8.9x 5.3x 6.5x 4.9x 5.9x 5.2x 6.5x 6.2x 6.3x 5.8x
Equity 4,966 7,100 7,293 8,300 4,600 3,683 2,793 1,387 1,600 1,557 1,600 1,600 922 1,688 1,630 % equity 15.0% 42.7%
24.6% 19.1% 16.1% 16.9% 48.2% 41.0% 40.5% 36.4% 37.0% 28.0% 27.8% 26.4% 44.6% Total capitalization 33,106
16,613 29,692 43,474 28,600 21,738 5,793 3,379 3,950 4,278 4,323 5,706 3,312 6,406 3,655
# of sponsors 4 4 1 2 2 2 2 2 1 1 1 3 1 1 2
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Precedent large high yield bonds and leveraged loans
Largest High Yield Offerings Post-Crisis ($mm)
$3,000 04/08/10 $3,250 12/07/10 $3,750 04/29/11 $3,000 05/04/11 $3,470 05/12/11 $2,750 07/14/11
$4,000 11/04/11 $3,167 03/21/12 $4,000 05/14/12
Issuer Amount Issue Ratings
AGFC $3,000 CCC/Caa1
Intelsat $3,250 BB-/B1
Springleaf $3,750 B+/B2
Chrysler $3,000 BB-/Ba2
Asurion $3,470 B-/NR
Royalty Pharma $2,750 BBB-/Baa2
Sprint $4,000 Ba3 / BB-
Infor $3,167 B+/Ba3
Chesapeake Energy $4,000 BB-/Ba3
Largest Loan Offerings Post-Crisis ($mm) $3,643 07/01/09
$3,869 11/17/09 $2,755 03/24/10 $3,000 10/25/10 $3,660 11/18/10 $3,000 07/26/11 $3,250 02/02/12 $2,750 04/10/12
$3,000 07/31/12 ow
Issuer Amount Corp Ratings
Wind Telecom $3,643 B2 / BB-
Unitymedia Hessen $3,869 B1 / BB-
Lyondell Chemical $2,755 Ba2 / BB+
Petroleos de Venezuela SA $3,000 B2/ B+
Wind Acquisition Finance S.A. $3,660 Ba2 / BB-
HCA $3,000 Ba3 / BB
CIT Group $3,250 B2 / B+
EP Energy $2,750 B2 / B
CIT Group $3,000 B1 / BB-
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Putting the equity check in historical context
$ in millions
Estimated
equity
Sponsor Investment commitment¹ Commentary
Sponsor A
Sponsor B
$1,500 $5,500 $1,750 $1,000
$1,000
Depending on the size of the investment from the founding shareholder’s private investment fund, an LBO would require a consortium of financial sponsors
Sponsors may be able to increase equity commitments through co-investment by LPs (e.g. pensions, sovereign wealth, etc.)
Sponsors are often wary of equity investments greater than ~10% of current fund size
Funds typically have limitations on the percentage of fund assets that can be committed to a single investment
I N IT IA L O B S E R VA T ION S O N T R ANS A CTI O N F E AS IB IL IT Y
Note: Based on publicly available information
¹ Includes LP co-investment, if any
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Illustrative financing structure of a potential take-private
3.5x leverage, 35%1 premium to current ($14.36 / share)
Sources and uses ($ in millions)
Sources Amount Uses Amount Balance sheet cash $14,500 Current equity value
$18,929 OpCo - New guaranteed secured debt $1,580 Control premium $6,646 OpCo - New guaranteed unsecured debt $8,355
Existing debt $9,150 HoldCo - Unguaranteed rolled debt $5,900 Minimum cash $4,500 Founding shareholder equity $3,947
Restricted cash $1,500 Southeastern AM equity $1,905 Repatriation taxes $2,817
New equity $7,705 Fees and expenses $350 Total sources $43,892 Total uses $43,892
Pro forma capitalization ($ in millions) Amount % cap Pricing
xLTM EBITDA2 Cash $6,000 OpCo - New guaranteed secured debt B$1,580 5% L+350 0.35x
OpCo - New guaranteed unsecured debt $8,355 28% 7.00% 1.85x Total OpCo debt $9,935
34% 2.20x HoldCo - Unguaranteed rolled debt
A$5,900 20% 4.23% 1.30x
Total pro forma debt
$15,835
54%
D 3.50x
Founding shareholder equity
$3,947
Southeastern AM equity
$1,905
New equity
$7,705
C
Total equity
$13,557
46%
Total capitalization
$29,392
6.50x
Key commentary
A $5.9 billion of existing debt, with attractive cost of capital, do not contain change of control provisions, can remain in the pro forma capital structure and will become junior to all new debt
B The amount of new secured debt will be based on capacity within the existing bonds that can be secured3
C The minimum equity check, including rolled common equity, could be in the 40-50% range
D Lenders will require public ratings on Denali - would be previewed prior to a public launch - likely BB / BB- rating
Note: Assumes transaction date of 1/31/13. Debt and cash as of 1/31/13
1 Purely illustrative
2 EBITDA multiple based on FY2013 PF EBITDA of $4,524mm
3 New Secured debt is limited to 10% of Consolidated Net Tangible Assets
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Illustrative LBO analysis
3.5x leverage, 35%1 premium to current ($14.36 / share) A B C
Low Mid High Benchmarking vs. Historical Denali 1-year 3-year
FY13 FY10-13 CAGR FY13E-FY19E Revenue CAGR
0.0% 3.0% 5.0% (6.9%) 3.0% FY13 AVG. FY11-13
FY16E Revenue $57.8bn $63.2bn $66.9bn $57.8bn $60.5bn
FY16E EBIT margin FY13 AVG. FY11-13 (steady state)
6.8% 8.1% 9.4% 7.0% 7.4%
Implied FY14E NTM average EV / EBITDA
4.5x 4.1x 3.8x 3.7x 4.2x
FY18E Debt / LTM
LTM
LTM average
EBITDA
0.7x
0.4x
0.3x
2.0x
1.6x
3-year IRR2
8.7%
20.5%
29.4%
NA
5-year IRR2
10.9%
19.6%
25.7%
NA
Note: Any potential cost synergies implied in achieving steady state EBIT margin
1 Purely illustrative
2 Assumes exit multiple equals entry multiple
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Potential financial sponsor investor universe
Financial sponsor buyer selection criteria considered
Established IT and technology expertise and funding capability
Direct and indirect IT investment experience Appetite for significant operations restructuring Fund size and capability to invest
Tier 1 sponsors
Fund size Selected investments: Selected investments: Selected investments: Selected investments:
Sponsor ($mm) Computer Hardware Enterprise Software IT Services Co-location / Data Center
Sponsor A
Sponsor B
GOME Electrical Appliances Applied Systems, MYOB, HCA InfoTech,
10,000 FleetCor Technologies,
Holdings Siemens Product* SunGard, WorldPay
Gemini Voice Solutions*, Aveo*,
16,200 Retail Pro*,
StorageApps* CMS Info,
ARINC, BDM*,
Blackboard, Arsys Internet,
Cirrascale*, Booz Allen,
13,700 Broadleaf, DBC, NextRound, CoreSite,
Calypso Open Solutions,
Open Solutions, SS&C Equinix*
Vivid, Syniverse*
GFI Informatique*, NetDesigns,
Genesys Telecom, Informiam,
12,200 Kleindienst Group* TDC, Teleca*
NDS Group*
Avaya Communication, Interactive Data Corp, Burton,
9,400 Octel Communication., Gartner, Mercury Payment, Network Computing
Acer Siemens Product* SunGard, Xoriant
Source: Capital IQ, Preqin, company websites
Note: All funds in USD, Assumes conversion of $1.27 USD / EUR as of 09/10/12
* Denotes past investment
I N IT IA L O B S E R VA T ION S O N T R ANS A CTI O N F E AS IB IL IT Y
DE N A L I 28
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Potential financial sponsor investor universe (cont’d)
Tier 2 sponsors
Sponsor
Fund size ($mm)
Selected investments: Computer Hardware
Selected investments: Enterprise Software
Selected investments: IT Services
Selected investments: Co-location / Data Center
Advent International
GLOBAL PRIVATE EQUITY 8,400
Acer, Gateway*, GES, Huntington Holdings
Aspen Technology, Aspentech, Manna, Sophis*, TransUnion
AllStar, Gemini, Hyprotech, Synergon*, Vantiv, VeriFone Systems* - APOLLO 14,500
Avaya Communication, Concurrent Computer*
Hansen Info Tech, Infor Global Sol., Kronos, SSA Global Tech
First Data*, Booz Allen, Expert Global, SRA International* - Apax PARTNERS 11,400
GE Fanuc Intelligent Platforms*, Crescendo Networks*
Autonomy Corp*, Epicor Software, I-impact, RealPage
iGate, Computacenter*, Network Insight, TesCom Software*, TIVIT -
BC Partners
6,500
-
Northgate Information Solutions*
Amadeus IT Holdings*
-
Service Canada
(Canada Pension Plan)
165,800
Acer, Apple, ASUSTek, Hewlett-Packard, Lenovo
Adobe Systems, Autodesk, BMC Software, CA, Microsoft, Oracle, SAP
Accenture, Xerox
Cisco, Citrix, EMC, IBM, NetApp
CVC
Capital Partners
13,700
SMTS Goupil*
Certipost, PT Link, Raet,
HP Customer Delivery*, LSF network*, Speos, Volker Wessels
-
HELLMAN & FRIEDMAN LLC
8,800
-
Care Business Sol., Epicor Software, Kronos, OpenLink Financial
FutureVision Technologies, Pinnacle Computer Systems
-
Source: Capital IQ, Preqin, company websites
Note: All funds in USD, Assumes conversion of $1.27 USD / EUR as of 09/10/12
* Denotes past investment
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Potential financial sponsor investor universe (cont’d)
Tier 2 sponsors (cont’d)
Sponsor
Fund size ($mm)
Selected investments: Computer Hardware
Selected investments: Enterprise Software
Selected investments: IT Services
Selected investments: Co-location / Data Center
TEACHERS’
PENSION PLAN
117,100
Apple, Hewlett-Packard, Intel
Microsoft
-
Cisco
PROVIDENCEEQUITY
12,100
Calypso, CDW
Blackboard, Liberty FiTech, Open Solutions, SunGard Capital
NetDesign, Open Solutions, Survey Sampling, SunGard, SRA Int’l
-
THL
PARTNERS
8,100
-
eFunds, Metavante Technologies, Penley, SunGard Capital
Fidelity N.I.S., eFunds, Metavante, MoneyGram, SunGard Capital
-
WARBURG PINCUS
15,000
Industrial Vision Systems, Kontron AG, Nuance Communications
Interactive Data Corp, Intuit*, Ness Technology*, Siemens Product
Firstsource Solutions*, Fidelity N.I.S., Metavante, ULS Group
1&1 Internet, Fasthosts, InterNet, IPOWER, Spectranet
Other equity sponsors
Kuwait Investment Authority
QIA
QATAR INVESTMENT AUTHORITY
MUBADALA
TEMASEK
HOLDINGS
Source: Capital IQ, Preqin, company websites
Note: All funds in USD, Assumes conversion of $1.27 USD / EUR as of 09/10/12
* Denotes past investment
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Potential strategic buyers
Potential strategic buyers
CISCO
Intel
ORACLE
EMC2
IBM
Microsoft
SAP
Rationale
Growing Enterprise and Software assets that can drive value into the future
Attractive Services business, particularly in health care and public sectors
Potential for revenue and cost synergies
Attractive valuation relative to historical levels
Increase scale meaningfully while preventing Denali from trading away to a competitor
Considerations
Strategic rationale to enter PC market
Size of transaction despite recent decline in valuation
Lower relative growth and margin profile
Overlap with business and products
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Agenda
Situation overview
Initial perspectives on Denali
Due diligence considerations and update
Initial observations on transaction feasibility
Process and next steps
Appendix
Page
3
6
14
18
32
38
PRESENTATION TO THE DENALI SPECIAL COMMITTEE
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Process alternatives
A
Wait for an offer to materialize / evaluate / do not approach others pre-signing
B
Wait for an offer to materialize / evaluate / approach others
C
Reach out to other 3rd parties now
Merits
Highest degree of confidentiality
Ability to most effectively control process / information
Protect management bandwidth
Does not jump the gun if offer does not materialize
Offer will inform us substantially on how to carry the process
Ability to control process / information
Speed
Brings all parties to same timetable
Accelerates path to “creating” competitive tension
Considerations
Forced to rely on “go shop” for entire market check
Lack of competition for “Signing” group
Other parties’ ability to come up to speed on business and partnership dynamic and effectively compete during go-shop
Perception initial group has preferential treatment
Potentially results in a longer process if decision is made to pursue a transaction
Other parties’ ability to quickly come up to speed on business and partnership dynamic
Risk of leak significantly increases
Perception of full sale process enhances business risk if transaction doesn’t crystallize
Broader sharing of confidential information
Management bandwidth
Will be reaching out prior to determination of value
PROCESS AND NEXT STEPS
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J.P. Morgan’s recommended process
Prepare for third-party diligence and decide with the Committee what information to share with the founding shareholder and other parties currently under NDA
In parallel J.P. Morgan to fully evaluate other strategic alternatives and also affirm feasibility / capital structure analysis of an LBO
Review initial findings with the Special Committee and arrive at a view on floor valuation necessary to engage
Provide view on market and capital structure guidance
If a concrete proposal materializes, evaluate vs. potential alternatives including stand alone strategy
If the Board decides to proceed / negotiate, consider contacting other parties and engaging in a process to maximize shareholder value
Maintain the founding shareholder as a neutral party, accessible to all potential buyers
Limit to a handful of the most logical, financially capable and motivated buyers to protect management bandwidth and confidentiality as well as ensure timing and pricing discipline
Evaluate the pros and cons of approaching potential strategics
PROCESS AND NEXT STEPS
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Decision framework
Initial approach
Offer received
Internal due diligence, valuation and feasibility assessment
No offer received
Determine action, if any
Reject
Negotiate initial offer
Explore various alternatives
Accept
Reject
Sale process
Other alternatives (Recap, divestitures etc.)
Status Quo
“Go shop”
Negotiate initial offer
Negotiate with third party
Execute other alternative
Status Quo
Accept/ reject
Accept/ reject
J.P. Morgan will help frame the issues and provide the Special Committee with the context and tools to determine a course of action
Represents current phase of the process
PROCESS AND NEXT STEPS
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Near–term process B roadmap for the Special Committee
We believe that a 3-4 week process will appropriately balance the competing priorities of speed / minimizing corporate distraction with thoughtful and deliberate exploration of alternatives
Phase I organize Phase II engage Phase III analyze and optimize
Form Special Committee
Hire legal advisors
Hire financial advisors
Obtain access to critical
information including
business plan
Develop timetable and
agree on objectives
Determine other sponsors
to potentially approach
Determine if and which
strategic parties to
potentially approach
Prepare data room for in-
person diligence sessions
Status
Underway
Underway
Underway
Underway
Underway
Separately engage with founding shareholder, Sponsor A and SLP and share information
Evaluate the potential alternatives including stand alone strategy or other possible transactions
Receive formal terms of proposal –price, structure, etc.
Assess proposal thoroughly
Allocate adequate time to review analysis while keeping in mind potential disclosure obligations
Develop a response
Potential outcomes:
Rejection of proposal Broaden scope of process Negotiate with bidding group, or Pursue an alternative transaction / corporate action
PR OC E S S A N D N EXT STE P S
3 weeks 1 week
Week of 9/17 10/15 10/19
DE N A L I 36
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Detailed timeline – process B
Illustrative timeline
September September September
October
October
October
10 11 12 13 14 17 18 19 20 21 24 25 26 27 28 1
2 3 4
5
8 9 10 11
12 15 16 17 18 19
1. Finalize timetable and objectives
2. Prepare data room and forecasts
3. J.P. Morgan ongoing review and evaluation of all potential alternatives
4. Prepare for in-person diligence sessions between management and sponsors
5. Share information with Sponsor A and SLP
6. Host management meetings with Sponsor A and SLP
7. Convey views on market leverage and process guidance to founding shareholder, Sponsor A and SLP
8. Tentative Board Meeting to review strategic alternatives and update on process
9. Receive formal proposal
10. Board Meeting to evaluate proposal
P R O C E S S A N D N E X T S T E P S
= Columbus Day
D E N A L I
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Agenda
Situation overview
Initial perspectives on Denali
Due diligence considerations and update Initial observations on transaction feasibility Process and next steps
Appendix
Page
3
6
14
18
32
38
PRESENTATION TO THE DENALI SPECIAL COMMITTEE
DENALI
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Trading metrics
$ in millions, except per share data
Company name
Share price (09/12/12)
% 52-wk high
Market cap
Firm value
FV / Revenue
FV / EBITDA
P / E P / E / G
LT EPS Growth
CY12E CY13E CY12E CY13E CY12E CY13E CY12E CY13E
Denali
$10.64 58% $18,929 $15,033 0.3x 0.3x 3.3x
3.2x 6.0x 5.9x 1.5x 1.5x 4.0%
Hewlett-Packard
$17.99 60% $36,301 $56,945 0.5x 0.5x 3.6x 3.6x 4.4x 4.2x 1.1x 1.1x 4.0%
PC
Apple
$669.79 98% $642,276 $525,055 3.2x 2.6x 8.5x 7.0x 14.5x 12.3x 0.7x 0.6x 20.0% Lenovo $0.79 80% $8,228
$4,503 0.1x 0.1x 5.0x 4.1x 14.8x 12.0x 1.1x 0.9x 14.0% ASUSTek $10.32 93% $7,770 $5,032 0.4x
0.3x 6.0x 5.5x 11.1x 10.5x 1.2x 1.1x 9.6% Acer $0.91 59% $2,577 $1,195 0.1x 0.1x 6.5x 4.0x 32.6x 15.5x nm nm (1.0%)
Mean 0.9x 0.8x 6.5x 5.2x 18.3x 12.6x 1.0x 0.9x 10.7% Median
0.2x 0.2x 6.3x 4.8x 14.7x 12.2x 1.1x 0.9x 11.8%
Enterprise
Microsoft $30.78 94% $266,956 $215,860 2.8x 2.6x 6.6x 6.1x 10.7x 9.7x 1.1x 1.0x 10.0%
IBM $203.77 97% $238,450 $258,990 2.5x 2.4x 9.6x 8.9x 13.5x 12.2x 1.3x 1.2x 10.0%
Oracle $32.26 96% $161,658 $147,855 3.9x 3.7x 7.9x 7.3x 12.5x 11.5x 1.0x 1.0x 12.0%
Cisco $19.08 90% $109,078 $76,711 1.6x 1.5x 5.1x 4.8x 10.1x 9.5x 1.2x 1.1x 8.5%
EMC $27.31 91% $60,763 $52,788 2.4x 2.2x 8.2x 7.7x 15.9x 14.0x 1.1x 0.9x 15.0%
NetApp $35.20 76% $13,517 $9,390 1.5x 1.4x 7.4x 7.3x 15.9x 15.0x 1.1x 1.0x 15.0%
Mean 2.4x 2.3x 7.5x 7.0x 13.1x 12.0x 1.1x 1.0x 11.8%
Median 2.4x 2.3x 7.7x 7.3x 13.0x 11.9x 1.1x 1.0x 11.0% Services Xerox $7.66 87% $10,381 $18,863 0.8x 0.8x 5.8x 5.6x 7.1x 6.6x
5.8x 5.4x 1.2% CSC $33.06 99% $5,201 $6,969 0.4x 0.4x 3.9x 3.7x 13.4x 12.3x 1.7x 1.5x 8.0%
Mean 0.6x 0.6x 4.8x 4.6x 10.3x 9.4x 3.8x 3.5x 4.6%
Median 0.6x 0.6x 4.8x 4.6x 10.3x 9.4x 3.8x 3.5x 4.6%
Software Symantec $19.06 100% $13,754 $12,771 1.9x 1.8x 5.8x 5.7x 11.7x 10.9x 1.3x 1.2x 9.0% CA $27.20 97% $12,969
$11,726 2.5x 2.4x 6.5x 6.4x 11.2x 10.4x 1.1x 1.0x 10.0% BMC $42.67 96% $7,189 $6,383 2.9x 2.7x 7.3x 7.1x 12.4x 11.5x 1.4x 1.3x 8.8% Mean 2.4x 2.3x 6.5x 6.4x 11.8x 11.0x 1.3x 1.2x 9.3% Median 2.5x 2.4x 6.5x 6.4x 11.7x 10.9x 1.3x 1.2x 9.0%
Source: Company filings, Wall Street research, FactSet (market data as of 09/12/12) Note: Denali January FYE shown as calendar year
APPENDIX
DENALI
39
J.P.Morgan
For Discussion Purposes Only
Strictly Private and Confidential
Operating metrics
$ in millions
Revenue
Revenue growth
Gross margin
EBITDA margin
Net margin
Company name
CY12E CY13E ‘11-‘12E ‘12-‘13E CY12E CY13E CY12E CY13E CY12E CY13E
Denali $57,792 $57,992 (6.9%) 0.3% 22.2% 22.6% 7.8% 8.1% 5.4% 5.5%
Hewlett-Packard
$121,055 $120,089 (4.1%) (0.8%) 23.2% 23.2% 13.1% 13.1% 6.7% 6.9%
PC Apple $164,605 $199,121 37.1% 21.0% 43.7% 42.7% 37.4% 37.5% 26.5% 26.0%
Lenovo $33,044 $37,683 19.8% 14.0% 11.3% 11.7% 2.7% 2.9% 1.7% 1.8%
ASUSTek $14,018 $15,708 8.4% 12.1% 13.8%
13.6% 6.0% 5.9%
5.0% 4.7%
Acer $15,863 $17,199 (0.9%) 8.4% 9.9% 10.1% 1.2% 1.7% 0.5% 1.0%
Mean 16.1% 13.9% 19.6% 19.5% 11.8% 12.0% 8.4% 8.4%
Median 14.1% 13.0% 12.5% 12.6% 4.4% 4.4% 3.3% 3.3%
Enterprise Microsoft $76,982 $82,887 7.2% 7.7% 76.4% 76.3% 42.4% 42.7% 31.3% 31.4%
IBM $105,203 $108,020 (1.6%) 2.7% 48.1% 48.7% 25.7% 27.0% 16.6% 17.0%
Oracle $38,248 $40,498 4.4% 5.9% 79.0% 79.9% 48.7% 50.2% 34.0% 34.6%
Cisco $47,257 $50,100 6.4% 6.0% 62.1% 61.5% 31.8% 31.8% 21.5% 21.3%
EMC $22,032 $24,357 10.1% 10.6% 63.7% 63.9% 29.2% 28.2% 17.2% 17.8%
NetApp $6,334 $6,777 8.0% 7.0% 60.6% 60.8% 20.0% 19.0% 13.1% 13.1%
Mean 5.8% 6.6% 65.0% 65.2% 33.0% 33.1% 22.3% 22.5%
Median 6.8% 6.5% 62.9% 62.7% 30.5% 30.0% 19.3% 19.5%
Services Xerox $22,574 $23,005 (0.2%) 1.9% 31.9% 32.2% 14.4% 14.7% 6.4% 6.4% CSC $15,735 $15,681 (1.2%) (0.3%)
17.7% 18.7% 11.4% 12.2% 2.4% 2.7%
Mean (0.7%) 0.8% 24.8% 25.5% 12.9% 13.4% 4.4% 4.5%
Median (0.7%) 0.8% 24.8% 25.5% 12.9% 13.4% 4.4% 4.5%
Software Symantec $6,763 $6,939 2.6% 2.6% 84.1% 84.7% 32.3% 32.4% 17.3% 17.5% CA $4,774 $4,869 1.2% 2.0% 85.4% 85.2% 37.9% 37.8% 23.8% 24.4% BMC $2,236 $2,353 4.2% 5.3% 75.6% 76.1% 39.2% 38.2% 25.4% 25.3% Mean 2.7% 3.3%
81.7% 82.0%
36.5%
36.1%
22.2%
22.4%
Median
2.6%
2.6%
84.1%
84.7%
37.9%
37.8%
23.8%
24.4%
Source: Company filings, Wall Street research, FactSet (market data as of 09/12/12)
Note: Denali January FYE shown as calendar year
APPENDIX
DENALI
40
J.P.Morgan
For Discussion Purposes Only
Strictly Private and Confidential
Denali credit profile relative to peers
Debt / LTM EBITDA
PC
Enterprise
Services
Software
1.7x 2.2x 0.3x
Median: 0.0x
0.0x 0.0x N/M
Median: 1.1x
1.3x 1.3x 1.2x 1.0x 0.4x 0.3x 3.3x
N/M
Median: 1.1x 1.7x 1.1x 0.7x
Denali
hp
ASUS
lenovo
acer
NetApp
CISCO
IBM
ORACLE
Microsoft
EMC2
xerox
csc
symantec
bmcsoftware
ca
Rating:
A2/A- A3/BBB+
NR
NR
NR
NR
NR
A1/A+
Aa3/AA-
A1/A+
Aaa/AAA
NR/A
Baa2/BBB-
Baa2/BBB
Baa2/BBB
Baa2/BBB+
Baa2/BBB+
Source: FactSet
Credit highlights
Large scale business with strong liquidity profile and cash flow generation
Strong brand name and market position
Diverse revenue streams - products and geographies
Successful ongoing business model transition towards more stable and higher margin Enterprise business
Founder-led management team with deep industry experience and strong execution track record
Significant organic and inorganic growth opportunities within Enterprise Solutions and Services
APPENDIX
DENALI
41
J.P.Morgan
For Discussion Purposes Only
Strictly Private and Confidential
Key LBO assumptions
Assumes transaction date of 1/31/13
Debt and cash as of 1/31/13 based on Management estimates pro forma for Quest Software net acquisition costs
Assumes $14.5 billion of cash and $9.2 billion of debt
35% premium to current share price of $10.64 as of 9/12/12
Minimum cash of $4.5 billion and additional restricted cash of $1.5 billion
35% repatriation tax rate on available off-shore cash of $8.0 billion
Taxes based on Street estimates through FY14E
Assumes linear step-up thereafter to 23% per management guidance
Management promote of 1%
Preliminary estimates for financing and advisory fees
Existing notes / debentures roll into new capital structure, whereas structured financing and commercial paper are repaid
APPENDIX
DENALI
42
J.P.Morgan