S+B deliberations

All,

Thoughts following another call with the company and with Liwet:

1) All is of course subject to the regulator’s decision to be communicated before Monday morning.

2) Haefner and the company calculate that only approx. half the bonds might tender following a CoC trigger and this is the reason he upsized the RI in the first place. In his pledge to secure a bridge financing for the bonds Haefner is supported by the banks, who would extend the size of short term facilities available if needed.

3) Liwet have bought shares recently and now own 29.67%.

4) Haefner is fully intent on breaking the covenant if it gets him to his 37.5%. The free float is at 42.74%.

5) The 35% max. joint holding of the KG and Liwet together did not yet trigger a reduction in target size from Mr. Haefner.

6) The company anticipates having to issue the shares at 0.20 CHF, i.e. a discount to current market price.

7) The deal as currently structured makes sense until a free float participation of just over half at a price of 0.30 CHF or 2/3 at a price of 0.20 CHF (assuming the family do not take up their rights - each 10% lower if they do). If participation is higher, then the current shareholder agreement does not provide for a solution, as Haefner won’t achieve his target shareholding within the now reduced RI of CHF 325m (down from CHF 614m).

Holding the rights issue itself should remove significant fear of insolvency in the market. We would therefore assume that shares rise as a result and that take-up would be strong, in which case there may not be a CoC in the end, depending on how the negotiation continues between the main shareholders.

Given the mere 6 points of upside vs the steep downside if for whatever reason the rights issue fails or can’t even go ahead, or fails to trigger the bonds (less downside), we re not fans of the bonds at current prices.

Wolfgang