ADECCO SA'S ACQUISITION OF OLSTEN CORP

Harvard Business School Case 201-068

Case Software 202-740

Copyright © 2002 by the President and Fellows of Harvard College

This case was prepared solely as the basis for class discussion. Cases are not intended
to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
management.
Exhibit 2 Global Staffing Market Share, 1998

Industry size Adecco Share Olsten Share

(Billions $) (%) (%)
US 72 5.5 4.2
UK 17 4.5 0.9
France 12 29.4 3
Japan 12 8 0
Netherlands 7 6 0
Switzerland 2 3 0
Other European* 7 39.8 20.6

*Includes Belgium, Germany, Spain, and Scandinavia.

Exhibit 3 Global Market Shares Based on 1998 Revenues

Global No. of No. of Offices

Market Share Countries
(%)
Adecco 8.2 52 3000
Manpower 8.1 50 3000
Olsten 3.9 14 1500
Randstand 3.4 11 1616
Kelly 3.1 19 1800
Vedior 3 8 1301
Interim Service 2.5 12 1350
 Exhibit 6 Growth Rates for US Staffing Industry and Selected Segments, 1993-1998

Annual Growth Rates (Year over Year percentages)

Industry Segment 1993 1994 1995 1996 1997 1998
Total Temporary Help 17 24 16 14 16 15
Medical 3 6 9 5 10 11
Professional/Special 33 33 25 25 26 25
Technical/IT 12 25 30 27 27 25
Office/Clerical 13 22 12 9 10 9
Industrial 32 29 11 7 10 10
Exhibit 7A Adecco Income Statement (CHF millions)*

28-Dec-97 3-Jan-99**
Net service revenues 11,432 15,308
Direct cost of services 9,304 12,664
Gross profits 2,128 2,644
Selling, general and administrative expenses 1,647 1,997
Amortization of goodwill*** 507 601
Interest Income 23 23
Interest Expense 52 91
Other income (expense) 10 3
Income (loss) from operations before taxes -45 -19
and minority interests
Provision for income taxes 160 174
Income applicable to minority interest 1 2
Net income (loss) -206 -195
Net Income before amortization of goodwill 301 406

* On December 28, 1997, 1 Swiss Franc (CHF) = $0.69 (USD). On January 3, 1999, the exchange rate was 1 CHF = 0.7323 USD.
** Adecco's fiscal year ends on the Sunday nearest to December 31. FY 1998 contained 53 weeks and ended on January 3, 1999. FY 1997 contained 52 weeks and ended on December 28, 1997.
*** Goodwill was not deductible for tax purposes.
December 28, 1997.
Exhibit 7B Adecco Balance Sheet (CHF millions, except number of shares)

28-Dec-97 3-Jan-99
ASSETS
Current Assets
Cash and cash equivalents 439 540
Trade accounts receivables 2,357 2,611
Other current assets 272 342
Total current assets 3,068 3,493
Plant, property, equipment and leasehold improvement, net 257 248
Goodwill, net 2,302 1,730
Other assets 104 136
Total Assets 5,731 5,607

LIABILITIES
Current Liabilities
Short term debt and current maturities of long term debt 843 303
Accounts payable and accrued expenses 2,003 2,399
Total current liabilities 2,846 2,702
Long term debt 663 688
Other liabilities 194 144
Minority interests 8 5

SHAREHOLDERS’ EQUITY
Common stock, CHF 10 and CHF 2 par value 165 171
Additional paid in capital 1,611 1,904
Retained earnings (deficit) 306 20
Accumulated other comprehensive income -8 3
Treasury stock -54 -30
Total Liabilities and Shareholder's Equity 5,731 5,607

Shares Common stock authorized 19,783,019 17,764,182

Common stock issued 17,830,928 17,084,347
Common stock outstanding 17,812,031 17,024,909
Exhibit 7C Adecco Statement of Cash Flows (CHF millions)

28-Dec-97 3-Jan-99
OPERATING ACTIVITIES:
Net Loss -206 -195
Depreciation and amortization 571 683
Net (increase) decrease in working capital -188 192
Other adjustments, net 11 -9
Net cash provided (used) by operations 188 671

INVESTING ACTIVITIES:
(Increase) decrease in plant, property and equipment -76 -122
(Acquisitions) disposal of subsidiaries and business -632 NA
Other cash from investments, net -78 -72
Net cash provided (used) by investments -786 -194

FINANCING ACTIVITIES:
Net increase (decrease) in short-term debt 379 -517
Net increase (decrease) in long-term debt 359 2
Dividends paid to shareholders -82 -91
Issuance of common stock, net -39 323
Other financing activities -19 -18
Net cash provided (used) by financing activities 598 -301

Net effect of exchange rates on cash -175 -75

Net change in cash or equivalents -175 101

Cash or equivalent at the beginning of the year 614 439

Cash or equivalent at the end of the year 439 540
Exhibit 10 1998 Pro Forma Segment Shares for Adecco and Targeted Olsten Staffing Business

% of Adecco Sales % of Olsten Sales

General staffing 88.3 82.6
IT 5.2 13.4
Other Specialties 6.5 3.9
Exhibit 11A Olsten Consolidated Income Statement ($ millions)

1996 1997 1998 July 4, 1999**

Revenue 3,378 4,113 4,603 2,447
Cost of services sold 2,422 3,017 3,501 1,848
Gross Profit 956 1,096 1,102 598
Selling general and administrative expenses 768 915 1,050 639
Net interest expense 12 21 30 20
Merger and other non-recurring charges 80 0 0 0
Income before taxes and minority interest 95 160 21 -60
Taxes 39 63 8 -16
Income before minority interest 56 98 13 -44
Minority interest* 2 5 9 4
Net income 55 93 4 -49

* Olsten did not own 100% of all its subsidiaries. Minority interest was the income attributable to the other (minority) shareholders in these businesses.
** The numbers are for the six months ending July 4, 1999.
Exhibit 11B Olsten Consolidated Balance Sheet ($ millions, except number of shares)

1997 1998 4-Jul-99

ASSETS
Current assets
Cash 85 54 15
Receivables, less allowance for doubtful accounts 847 1,006 1,147
Prepaid expenses and other current assets 91 134 141
Total current assets 1,023 1,194 1,303
Fixed assets, net 186 233 238
Net intangibles, principally goodwill 534 614 596
Other assets 7 18 10
Total assets 1,750 2,059 2,146

LIABILITIES
Current liabilities
Accrued expenses 152 196 198
Payroll and related taxes 86 144 155
Accounts payable 56 143 135
Insurance costs 41 36 42
Total current liabilities 335 519 529
Long term debt 461 606 746
Other liabilities 112 111 105

SHAREHOLDERS’ EQUITY
Class A Common Stock $0.10 par values 7 7 7
Class B Common Stock $0.10 par value 1 1 1
Additional paid in capital 447 447 448
Retained earning 391 377 322
Accumulated other comprehensive income -4 -10 -11
Total Shareholders’ Equity 842 823 767

Total Liabilities plus Shareholder Equity 1,750 2,059 2,146

Class A Shares Outstanding (110,000,000 authorized) 68,151,708 68,253,080 68,276,817

Class B Shares Outstanding (50,000,000 authorized) 13,157,617 13,071,560 13,066,003
Exhibit 11C Olsten’s Consolidated Statement of Cash Flows ($ millions)

1996 1997 1998 July 4, 1999*

OPERATING ACTIVITIES:
Net income 55 93 4 -49
Depreciation and amortization 44 56 69 40
(Increase) decrease in net operating assets -113 -63 -15 -126
Net cash provided (used) by operations -14 85 59 -135

INVESTING ACTIVITIES:
(Increase) decrease in plant, property and equipment -41 -71 -90 -40
(Acquisitions) disposal of subsidiaries and businesses -136 -150 -107 -15
(Increase) decrease in other investments 0 9 0 0
Net cash provided (used) by investments -177 -211 -197 -54

FINANCING ACTIVITIES:
Net increase (decrease) in debt 188 128 124 160
Dividends paid to shareholders -20 -23 -18 -7
Issuance of common stock, net 21 2 0 0
Net Cash Provided (Used)by Financing 189 108 106 154
Effect of Exchange Rate on Cash 0 -3 0 -3
Net Change in Cash or Equivalents -2 -21 -31 -39

Cash Payments for Interest Expense 15 24 29 21

*The numbers are for the six months ending July 4, 1999.
Exhibit 13 Selected Pro Forma Financial Statement Items for Olsten's Staffing Business, 1998-2009 ($ millions)

1998A 1999 2000 2001 2002 2003

Revenues 3,097 3,506 3,607 3,979 4,393 4,779
Cost of goods sold 2,417 2,766 2,825 3,096 3,409 3,694
SG&A 517 611 593 616 671 737
Depreciation expense 25 37 40 42 45 49
Operating income 138 91 149 224 267 299
0.326087 0.3296703 0.32885906 0.3303571429 0.329588015 0.3277591973
Income taxes* 45 30 49 74 88 98
EBIAT* 93 61 100 150 179 201

Amortization of goodwill 13 13 15 15 16 16

SELECTED ASSETS
Operating cash*** 53 35 36 40 44 48
Accounts receivable 553 554 590 651 718 781
Other current assets 30 27 30 35 41 48
Other operating assets**** 16 29 42 58 77 97
Gross PPE 198 249 305 364 426 493
Net property plant and 173 188 203 220 238 255
equipment

Total current liabilities 359 331 341 376 415 452

Other non-interest liabilitiesd 113 107 110 121 134 95

* Income taxes have been calculated as 33% of operating income, assuming no interest expense.
** EBIAT was earning before interest and after taxes. It was calculated as operating earnings less taxes. These earnings were consolidated earnings for Olsten's staffing business a
interest.
*** Operating cash was the cash that was required to operate the business.
**** The category "non-interest liabilities" is not included in "total current liabilities." Similarly, the category "other operating assets" is not included in "other current assets"
8-2009 ($ millions)

2004 2005 2006 2007 2008 2009

5,196 5,653 6,156 6,709 7,317 7,981
4,004 4,354 4,738 5,159 5,623 6,133
803 875 954 1,042 1,138 1,241
54 58 63 68 74 83
335 367 401 440 482 523
0.328358209 0.3324250681 0.3291770574 0.3295454545 0.3298755187 0.3307839388
110 122 132 145 159 173
225 246 269 295 323 351

16 15 15 14 14 14

52 57 62 67 73 80
850 924 1,007 1,097 1,196 1,305
52 57 62 67 74 80
106 115 125 137 149 163
568 649 737 833 938 1,053
276 299 325 353 384 415

491 534 582 634 691 754

103 112 122 133 145 158

ated earnings for Olsten's staffing business and included minority

t included in "other current assets"

Exhibit 14 Securities Market Data for Selected US Staffing Companies ($ millions)

Year End Book Value of Market Value Equity Beta*

Debt of Equity
Kelly** 1996 42 1,028
1997 55 1,145
1998 48 1,137 0.58
Manpower** 1996 128 2,668
1997 261 2,832
1998 258 1,988 0.88
Olsten 1996 330 1,201
1997 461 1,220
1998 606 599 0.98

* Equity betas were calculated over the period 1996 to 1998.

** Kelly and Manpower were large US firms which operated exclusively in the staffing business.
Exhibit 15 Ten-Year Interest Rates as of July 14, 1999

Interest Rate
US Treasury coupon bonds 5.76%
AA rated bonds 6.56%
BBB rated bonds 7.14%
Selected Pro Forma Financial Statement Items for Olsten's Staffing Business, 1998-2009 ($ millions)

1998A 1999 2000 2001 2002 2003 2004 2005

Revenues 3,097 3,506 3,607 3,979 4,393 4,779 5,196 5,653

Cost of goods sold 2,417 2,766 2,825 3,096 3,409 3,694 4,004 4,354
SG&A 517 611 593 616 671 737 803 875
Depreciation
25 37 40 42 45 49 54 58
expense
Operating income 138 91 149 224 267 299 335 367
Amortization of
13 13 15 15 16 16 16 15
goodwill
EBIT 125 78 134 209 251 283 319 352
TAX 41.25 25.74 44.22 68.97 82.83 93.39 105.27 116.16

NOPAT 83.75 52.26 89.78 140.03 168.17 189.61 213.73 235.84

DEP & AM 38 50 55 57 61 65 70 73
CAPEX 51 56 59 62 67 75 81
WC 224 250 279 310 344 377 411 447
CHANGE IN WC 26 29 31 34 33 34 36

FCFF 25.26 59.78 107.03 133.17 154.61 174.73 191.84

TV
25.26 59.78 107.03 133.17 154.61 174.73 191.84
NPV 2187.92

VALUE/SHARE 13.67
 MRP 0.075
RISK FREE
2006 2007 2008 2009 0.0576
RATE
6,156 6,709 7,317 7,981 BETA LEV 0.98
4,738 5,159 5,623 6,133 Ke 0.1311
954 1,042 1,138 1,241 Kd 0.0476
63 68 74 83 WACC 11.44%
401 440 482 523
15 14 14 14

386 426 468 509

127.38 140.58 154.44 167.97

258.62 285.42 313.56 341.03

78 82 88 97
88 96 105 115
487 530 579 631
40 43 49 52

208.62 228.42 247.56 271.03

4,418.97
208.62 228.42 247.56 4,690.00