Additional Information
Note 37 Business Combinations (continued)
Step-up to
CHF million Book value fair value Fair value
Assets
Property and equipment 97 14 111
Deferred tax assets 0 2 2
Goodwill 0 4 4
All other assets 15 0 15
Total assets 112 20 132
Liabilities
Provisions 1 0 1
Deferred tax liabilities 6 5 11
All other liabilities 6 (4 ) 2
Total liabilities 13 1 14
Net assets 99 19 118
Financial Statements
Notes to the Financial Statements
Business combinations completed in 2004
During 2004, UBS completed several acquisitions that were accounted for as business combinations. Except Motor- Columbus, which is discussed separately, none of the acqui- sitions was individually significant to the financial statements, and therefore, they are presented in aggregate per business group.
Wealth Management
In the first quarter of 2004, UBS acquired the private banking operations of Lloyds Bank S.A., France, and the private client business of Merrill Lynch in Germany and Austria. The two businesses together had invested assets of approximately CHF 3.3 billion at the date of acquisition. Both businesses have been integrated into the local UBS Wealth Management op- erations and have helped to significantly increase the client base in France and Germany.
In the second quarter of 2004, UBS acquired Laing & Cruickshank and Scott Goodman Harris, both British firms. Laing & Cruickshank, acquired for a consideration of approx- imately CHF 363 million, provides comprehensive wealth management services to high net worth investors and chari- ties. 75 client advisors looked after invested assets of approx- imately CHF 11.4 billion, which doubled the size of UBS’s
wealth management operations in the United Kingdom. Scott Goodman Harris, with 28 employees, provides advice on pen- sion and retirement benefit products, serving primarily exec- utives and company directors. Subsequent to the acquisition both firms have been integrated into the UBS wealth man- agement operations in the UK.
In fourth quarter 2004, UBS acquired Sauerborn Trust AG (Sauerborn), an independent German firm providing financial advisory services to individuals in the ultra-high net worth seg- ment. Sauerborn has approximately CHF 9.4 billion of assets under management. UBS has merged its ultra-high net worth segment within the German wealth management business with the operations of Sauerborn to provide an expanded range of services and products to its clients and reap the ben- efits of synergies. UBS paid a cash consideration of approxi- mately CHF 140 million (EUR 91 million) at closing, and will pay a further CHF 65 million (EUR 42 million) in three equal installments over two years.
The aggregate purchase price for the five acquisitions is approximately CHF 696 million and has been allocated to ac- quired net assets at fair value of CHF 175 million. The differ- ence of CHF 521 million from the purchase price has been rec- ognized as goodwill.
Details of assets and liabilities recognized are as follows: Step-up to
CHF million Book value fair value Fair value
Assets
Intangible assets 0 162 162
Property and equipment 3 (1 ) 2
Financial investments 5 0 5
Goodwill 0 521 521
All other assets 260 2 262
Total assets 268 684 952
Liabilities
Provisions 5 19 24
Deferred tax liabilities 0 54 54
All other liabilities 178 0 178
Total liabilities 183 73 256
Net assets 85 611 696
Total liabilities and equity 268 684 952
Intangible assets recognized relate to the existing customer relationships of the businesses and have been assigned useful lives of twenty years, over which they will be amortized.
lion, of which UBS paid at closing a cash consideration to the sellers of CHF 113 million (USD 99 million), while the balance, which includes 20% of Brunswick UBS’s net profits for 2005, is payable in 2005 and 2006. Formed in 1997, Brunswick UBS has developed a significant franchise in the Russian securities market, employing 120 people in Moscow. UBS already con- solidated Brunswick, so that the effects of this acquisition on the financial statements are minor.
The aggregate purchase price for the two businesses is ap- proximately CHF 507 million, a portion of which includes a de- ferred component linked to future results of operations. Accordingly, a revision of the current purchase price estimate will be made, if necessary, once final payments have been de- termined. The purchase price has been allocated to net assets acquired of CHF 198 million, which includes a revaluation of CHF 27 million related to UBS’s existing interest in Brunswick. The difference of CHF 336 million from the purchase price has been recognized as goodwill.
Details of assets and liabilities recognized are as follows: Investment Bank
In fourth quarter 2004, UBS acquired Charles Schwab SoundView Capital Markets, the Capital Markets Division of Charles Schwab Corp. (Schwab), for an aggregate cash con- sideration of approximately CHF 304 million. The business comprises equities trading and sales, including a third-party execution business, along with Schwab’s NASDAQ trading system. This business handles over 200 million shares a day in trade volume and makes a market in over 11,000 stocks. As part of the acquisition, UBS and Schwab have entered into multi-year execution service agreements for the hand- ling of Schwab’s equities and listed options orders. The busi- ness was integrated in the Equities business of the Investment Bank.
Also in fourth quarter 2004, UBS acquired from Brunswick Capital their 50% stake in the equal partnership joint venture Brunswick UBS, an equity brokerage and trading, investment banking and custody joint venture in Russia. The total pur- chase price has been estimated at approximately CHF 203 mil-
Step-up to
CHF million Book value fair value Fair value
Assets
Intangible assets 21 133 154
Property and equipment 20 (13 ) 7
Financial investments 99 (2 ) 97
Deferred tax assets 37 (37 ) 0
Goodwill 0 336 336
All other assets 361 (1 ) 360
Total assets 538 416 954
Liabilities
Deferred tax liabilities 0 23 23
All other liabilities 364 32 396
Total liabilities 364 55 419
Equity attributable to minority interests 40 (39 ) 1
Equity attributable to shareholders 134 400 534
Total liabilities and equity 538 416 954
Intangible assets recognized relate to the businesses’ existing customer relationships and have been assigned useful lives of five years, in the case of Brunswick, and eight years, in the case of Schwab, over which they will be amortized.
Financial Statements
Notes to the Financial Statements
Notz Stucki
In first quarter 2004, Ferrier Lullin, one of UBS’s private label banks, acquired Notz Stucki & Co., a small private bank in Geneva. The activities have been integrated into the opera- tions of Ferrier Lullin. The purchase price of CHF 42 million was allocated to net tangible assets of CHF 22 million, and Notz Stucki’s customer base of CHF 21 million, less deferred taxes of CHF 5 million. The difference of CHF 4 million from the purchase price was recognized as goodwill. On 2 December 2005, the business was sold as part of Private Banks & GAM to Julius Baer.
Motor-Columbus
On 1 July 2004, UBS acquired from RWE, a German utilities company, its 20% ownership interest in Motor-Columbus AG (Motor-Columbus) for a cash consideration, including inci- dental acquisition costs, of approximately CHF 379 million. UBS now holds a 55.6% majority interest in Motor- Columbus, a Swiss holding company whose most significant
asset is an approximate 59.3% ownership interest in Aare- Tessin AG für Elektrizität (Atel), a Swiss group engaged in the production, distribution and trading of electricity.
UBS now consolidates Motor-Columbus and treated the ac- quisition of the 20% ownership interest as a business combi- nation. The purchase price was allocated to acquired net as- sets of approximately CHF 260 million and the difference of CHF 119 million from the purchase price was recognized as goodwill. In accordance with IFRS 3, the existing 35.6% in- terest in Motor-Columbus was revalued to the valuation basis established at 1 July 2004, resulting in a revaluation amount of approximately CHF 81 million (CHF 63 million net of de- ferred tax liabilities), which was recorded directly in equity. The minority interests were also revalued to the new valua- tion basis, so that assets acquired and liabilities assumed are carried at full fair value. Details of assets, liabilities and minor- ity interests, for which a step-up to fair value was recognized in purchase accounting, and all other assets and liabilities rec- ognized at carryover basis are as follows:
Note 37 Business Combinations (continued)
Step-up to
CHF million Book value fair value Fair value
Assets
Intangible assets 444 750 1,194
Property and equipment 1,939 144 2,083
Investments in associates 655 367 1,022
Financial investments 621 19 640
Deferred tax assets 113 67 180
All other assets 2,629 0 2,629
Total assets 6,401 1,347 7,748
Liabilities
Provisions 835 75 910
Debt issued 700 27 727
Deferred tax liabilities 293 308 601
All other liabilities 3,045 0 3,045
Total liabilities 4,873 410 5,283
Equity attributable to minority interests 784 382 1,166
Equity attributable to shareholders 744 555 1,299
Total liabilities and equity 6,401 1,347 7,748
The CHF 75 million step-up to fair value of provision relates to contingent liabilities arising from guarantees and certain contractual obligations. UBS’s share in the equity at fair value of CHF 1,299 million is CHF 723 million, while the remaining CHF 576 million is additional minority interests, bringing the total minority interest as of the acquisition date to CHF 1,742 million.
Useful economic lives of between 4 and 25 years have been assigned to amortizable and depreciable assets based on contractual lives, where applicable, or estimates of the pe- riod during which the assets will benefit the operations.
Pro-forma information (unaudited)
The following pro-forma information shows UBS’s total operating income, net profit and basic earnings per share as if all of the acquisitions completed in 2005 had been made as at 1 January 2005 and 2004, and all acquisitions completed
For the year ended
CHF million, except where indicated 31.12.05 31.12.04 31.12.03
Total operating income 51,069 46,336 39,536
Net profit 14,043 8,044 6,277
Basic earnings per share (CHF) 13.95 7.81 5.62
Private Banks & GAM
On 2 December 2005, UBS sold its Private Banks & GAM unit to Julius Baer for an aggregate consideration of CHF 5,683 mil- lion, of which CHF 3,375 million was received in cash, CHF 225 million in the form of hybrid Tier 1 instruments, and the re- maining CHF 2,083 million representing a 21.5% stake in the enlarged Julius Baer. As part of the sales agreement, CHF 200 million of cash was retained within UBS. The gain on sale after taxes from this transaction amounts to CHF 3,705 million. As part of the agreement, UBS agreed to a lock-up period of 18 months for 19.9% of the stake and of three months for the remaining 1.6%. The value of the Julius Baer stake is based on a price of CHF 86.20 per share at the date of clos- ing, which is a discount of 8.4% to the market price to take into account the 18-month lock-up period to which 19.9% of the stake is subject. Shortly after closing, UBS reduced its 21.5% stake to approximately 20.7% by settling call options that were outstanding on the shares of the former holding company of the Private Banks & GAM businesses.
UBS has agreed not to take a seat on Julius Baer’s board of directors or exercise any control or influence on its strategy or on its operational business decisions, and has no right to reg- ister its shares with voting rights for a period of 3 years, un- less specifically defined events occur that could materially di- lute or otherwise affect UBS’s position as an investor in Julius
Baer. In such an event, UBS has the option to register its shares with voting rights and thus obtain the possibility to vote them at shareholders’ meetings. Given the fact that the shares are not entered into Julius Baer’s share register with voting rights, UBS classified the stake as a financial investment available-for- sale.
Private Banks & GAM is presented as a discontinued oper- ation in these financial statements. Private Banks & GAM comprised the three private banks Banco di Lugano, Ehinger & Armand von Ernst and Ferrier Lullin as well as specialist asset manager GAM and was presented as a separate busi- ness segment.
Industrial Holdings
In 2005, UBS sold four of its consolidated private equity in- vestments for an aggregate cash consideration of CHF 179 million. In 2004, UBS sold five of its consolidated private eq- uity investments for an aggregate cash consideration of CHF 141 million, while in 2003 one consolidated private equity in- vestment was sold for an aggregate cash consideration of CHF 456 million. These private equity investments were all held within the Industrial Holdings segment and were sold in line with UBS’s strategy to exit the private equity business. These investments are presented as discontinued operations in these Financial Statements.
in 2004 had been made as at 1 January 2004 and 2003. Adjustments have been made to reflect additional amortiza- tion and depreciation of assets and liabilities, which have been assigned fair values different from their carryover basis in purchase accounting.
Note 37 Business Combinations (continued)