Jones Partner Leadership Series Bob Hoskisson Jim Hackett Rice University Chairman & CEO

1. Jones Partner Leadership Series Bob Hoskisson Jim Hackett Rice University Chairman & CEO Anadarko Petroleum Corporation January 20, 2011

2. Acquisition Decision Making and Business Integration 1

3. Reasons for Acquisitions 2 Reduce Costs Gain Market Power Increase Growth Learn to Build Capabilities Manage Risk and Other Financial Objectives

4. Integration Success • More likely when an integration team, including employees from the acquiring firm and the acquired firm, is formed and charged with full responsibility to integrate the two companies to create value • Opportunities for increased growth as learning occurs • Leverage the capabilities of both firms to create value

5. Pitfalls and Prevention • Because combined firms often lose key target firm managers, it is important to retain valuable human capital • Overconfidence and paying too much • Managerial escalation of commitment • Need governance checks and balances • Excessive debt • Over-diversification

6. The Six Determinants of Merger Success Source: The Determinants and Evaluation of Merger Success (Epstein)

7. Leadership in M&A • Have a good strategic sense of business environment • Be willing to do M&A when weak or strong • Be ready to give up your job for the right cause

8. Leadership in M&A • Expect that every deal will be different and difficult • Be adaptable but also willing to walk away • Practiced at negotiating/due diligence/selling a deal – don’t learn as CEO • Good CFO and attorneys essential • Relationships and building trust with counterparts, industry, investors, and Board

9. Leadership in M&A • Get right people in charge at top right away – within six months • Take integration very seriously: conflict management, quick decisions • Courage of convictions • Candor at almost any cost with employees (handy with counterparties as well) • Over-communication is impossible

10. Leadership in M&A: The Role of Authenticity during Integration • One way firms uphold and violate psychological contracts with employees is the level of organizational authenticity demonstrated • That is, does the firm live up to the values it espouses during the merger integration process

11. An Employee View of Leadership Authenticity: consistency between what the firm says and what it does Stock Performance M&A Integration Psychological Contract Employee Productivity • Change • Upheaval • Politics • Uncertainty • P&L pressure Opportunities to honor or breach

12. Some Examples

13. Authenticity: Effects on Productivity • Productivity is high when espoused values ≈ realized values • Either strong or weak • Trust is reinforced • Minimized when espoused are misaligned with realized • Worst when espoused > realized • Also low when espoused < realized • It is the joint effects that drive employee productivity Espoused Values Weak Strong Runner Up Worst Realized Values Strong Weak Best Third

14. Shareholder Value • Employee productivity is positively related to shareholder value • Employee attitudes and behavior affect post-merger integration performance • Productivity • Shareholder value • Managers may be well-advised to match reality to rhetoric

15. Leadership in M&A • “Sixth” of six determinants of success plays a huge role • Economy, competition, etc. • Duke/PanEnergy • SGO/OEI • APC/KMG/WGR • DCX • Use scenario planningso you don’t rely on luck! • Customers and shareholdersdon’t listen to excuses

16. Jones Partner Leadership Series