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Q.: Global pharmaceutical sector has been consolidating especially over the last three years. Do you foresee a continuation of this trend?
Mr. Chase: Many large pharma companies are facing patent expirations for sizable products and need new products to offset the future loss of revenue. At the same time, R&D productivity has dropped, and there's a greater willingness to augment internal R&D with externally sourced innovation. Would-be acquirers' balance sheets remain strong, with significant access to financing. Given these dynamics, I expect that we'll see heightened levels of activity for the foreseeable future.
Q.: How important is it to have an in-house M&A team for multinational corporations such as Abbott?
Mr. Chase: An in-house M&A expertise is critical for large multinational corporations. A successful M&A function allows a company to augment its organic R&D with external innovation and offers the potential to enter new markets with a potential leadership position. We've had a consistent approach to M&A since Abbott's CEO, Miles White, assumed leadership of the company more than a decade ago. His plan to reshape the company through targeted transactions played a big part in the realization of Abbott's growth strategy and made it the diversified healthcare leader it is today. We take pride in our M&A structure and ensure that we are a strategic partner for the leaders of each of our businesses.
Q.: How does the Abbott team evaluate acquisition targets and manage deal source process?
Mr. Chase: Our M&A teams are deeply embedded in the businesses and play a key role in the execution of each business' strategy. Target identification and evaluation is a big part of this. We have a uniform process for evaluating targets across the company that relies on objective criteria: strategic fit, opportunity for market leadership and financial performance. Our executive management team maintains a high involvement in deals - analyzing strategic rationale, assessing options and deal structure. Post-deal completion, we have a dedicated, experienced team to oversee business integration and help the business realize the deal's strategic benefits.
Q.: Is it important to assess the financial potential of an acquisition in delivering value to the shareholder?
Mr. Chase: Absolutely. A potential deal must meet a number of objective criteria - strategic fit, leadership potential, innovation - however, the most important criteria is ensuring that any potential deal increases shareholder value. Abbott is a very strong, financially-driven company - the deal needs to make sense for our shareholders. As a case in point, we've completed several significant strategic acquisitions over the last two years. These transactions have enhanced our long-term growth prospects and geographic presence without dilution.
Q.: Does the deal structure make a difference in achieving financial outcomes, and what structures minimize risk?
Mr. Chase: Deal structure absolutely impacts the likely financial outcome of a given transaction. Let's take a small company with one exciting product in development: purchasing the entire company for an up-front consideration is essentially placing a bet that the product will ultimately receive marketing approval from the regulatory authorities. In our business this can be a pretty sizable risk -- and it's a binary event. An alternate structure which mitigates risk would involve a smaller up-front payment for a portion of the company or rights to the product, followed on by a larger payment contingent on the product meeting approval or hitting a desired sales level. In most cases, we'd prefer the deal involving a structured contingent payment stream as it offers us greater protection in the event that the product doesn't come to market.
Q.: When should a corporation walk away from a potential acquisition? When would Abbott walk away from a deal?
Mr. Chase: Our criteria for evaluating a transaction provides clear guidance on when its time to walk away from a deal. Whenever there is reason to doubt strategic fit, the potential of the transaction to deliver market objectives, or the ability to deliver an acceptable financial return - then its clear its time to walk away. It's critical to listen to what your due diligence is finding as well. The due diligence process is paramount at Abbott and has ensured that we do the right deals.
Q.: Given that due diligence is "paramount," what is on your checklist beyond the financials information? Also, what in on your list that is a deal breaker?
Mr. Chase: We tackle the due diligence comprehensively with input from all functional groups. We bring in teams from Legal, Manufacturing, Scientific Assessment, R&D, Tax, Regulatory, HR, Commercial, Patents, Quality, etc -- we take this part of the process very seriously. As one would expect, there can be several deal breakers: a firm's business practices, for example, have to meet the high expectations we place on our own operations. Intellectual Property/Patents is another area where deals can fall apart. And then, of course, sometimes the science around a new product doesn't turn out to be as robust as our initial expectations. There are a lot of items that can pop up in due diligence that would give us pause on a given transaction.
Q.: How do bolt-in acquisitions factor into Abbott's corporate growth strategy? Are these decisions made by business unit heads or your team?
Mr. Chase: When moving into a new market or white space opportunity, Abbott has historically relied on a "builder strategy" rather than the pursuit of a mega deal. As a result, bolt-on acquisitions factor into these strategies often. Our vascular business, for example, has benefited from a number of these transactions, most recently our acquisition of E-Valve in 2009. We've seen similar trends with our ophthalmologic business.

Decisions to pursue a bolt-on target are subject to the same centralized review process that any other M&A activity at Abbott would enjoy. The projects are brought forward jointly by the business and Corporate Licensing and Acquisition, subjected to the same objective criteria, and enjoy the same level of oversight by the Corporate leadership.
Q.: What emerging markets are priorities for Abbott over the next 15 months?
Mr. Chase: Emerging markets, as a whole, are estimated to comprise 40 percent of the world's GDP over the next 10 years. In pharmaceuticals alone, emerging markets are expected to account for 70 percent of the industry's global growth over the next several years. There is no denying their importance to a growth-oriented multinational company.

We saw emerging markets as a growth opportunity a decade ago and initiated a strategy that began with a significant transaction (Knoll) in 2001. In 2010, we built on this foundation with two more transformative deals - Solvay Pharmaceuticals and Piramal Healthcare Solutions. These provided critical mass and secured leadership positions in multiple markets, most notably market leadership in India. However, we're not done and we'll continue to look to grow our presence in Brazil, Russia, Turkey, SE Asia, and China. The integration of these two companies is progressing well and has provided a great base to build off of as we focus on enhancing our business in these markets.
Q.: In terms of emerging markets, how are transactions different in these markets?
Mr. Chase: Emerging markets are increasing in prominence and are a key growth opportunity for many companies, but these opportunities are not without risk. We're seeing increased competition for the most favorable assets in the most attractive markets, which can potentially push valuations higher and returns lower. Also, each market is unique: you can't compete effectively in a country like India or China with a developed market mentality. An enormous amount of time must be dedicated to understanding how these markets work and how to successfully run a business in them. Abbott has been very successful in this fashion. We've studied the markets that we're interested in for a very long time, and in the case of both Solvay and Piramal we've placed a high importance on retention of key employees and business leaders in these markets in order to ensure that we take the best of what these companies offered and augmented with Abbott's offerings.
Q.: In your experience, how was the acquisition of pharma unit from Solvay SA in Europe similar or different than the acquisition of generic drug unit from Piramal Healthcare Solutions in India?
Mr. Chase: These two transactions had very unique characteristics, however, strategically, they were very complementary. Both transactions entailed buying the pharma assets of a foreign diversified parent. In the case of Solvay the business had significant international scale and complexity with a proprietary pharma presence, while Piramal was a rapidly growing branded generics business limited to India. Combined, these two acquisitions have significantly expanded our pharma presence in the emerging markets.
Q.: While the strategic rationale was the same for these acquisitions, were there any differences in either the negotiation or in the integration process?
Mr. Chase: Every negotiation is unique. Relative to Solvay, Piramal was a smaller, much younger company that enjoyed strong involvement from the founding family, the Piramals. Solvay, on the other hand, was much larger and established with operations that spanned the globe. It would have been impossible for these differences not to color the respective negotiations -- however both experiences were very positive and efficient.

The integration processes are very different. In the case of the Solvay transaction, we needed to rapidly integrate their worldwide footprint with Abbott in order to ensure business continuity as the business transferred hands and realize the available business synergies. The Piramal business, on the other hand, is being run separately from Abbott's other businesses in India. We recognize that much of the value of Piramal lies in the unique operating model that the Piramal family created, and we're happy to let this business thrive as a distinct entity.
Q.: Moving to integration, should there be an integration plan in place pre-negotiation process? In your experience, how relevant is it to have an integration plan in realizing synergistic value?
Mr. Chase: The importance of having a rigorous integration plan as a component of a successful transaction can't be understated. At Abbott we have created a centralized integration function that leads this effort on all of our transactions. We start our integration planning during due diligence and make sure that our businesses and Corporate support groups are dialed into the process. After the transaction closes, the integration team takes over and applies disciplined project oversight to the integration. It's the reason why integration efforts have been very smooth at Abbott.
Q.: Finally, what book are you currently reading?
Mr. Chase: I'm alternating between two books. Life by Keith Richards and Collapse: How Societies Choose to Fail or Succeed by Jared Diamond. The first is a great entertaining read that really lets one get inside the head of one of the greatest musicians of our age. The second is a fascinating study of what causes some civilizations to fail. I recognize that the two books couldn't be further apart in content, but they are entertaining to flip back and forth between depending on my mood.

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