Note 37 Business Combinations

Business combinations completed in 2006

During 2006, UBS completed several acquisitions that were accounted for as business combinations. The acquisition of Banco Pactual S.A. was individually significant to the Financial Statements and is therefore presented separately in this note. The other acquisitions are presented in aggregate per business group.

Banco Pactual S.A.

On 1 December 2006, UBS completed the acquisition of Brazilian bank Banco Pactual S.A. The bank was merged with UBS's Brazilian business, and both are now operating under the name UBS Pactual. The cost of the business combination is estimated at USD 2,194 million (CHF 2,677 million) but is still subject to final determination. Of the total consideration, USD 971 million (CHF 1,164 million) was paid on 1 December 2006 in cash. The residual payment of up to USD 1.6 billion (CHF 1.9 billion) is subject to certain performance conditions and is due on 30 June 2011. The purchase price allocation is preliminary and will be finalized in 2007. The preliminary allocation shows the booking of net assets of USD 376 million (CHF 459 million), intangible assets of USD 830 million (CHF 1,013 million) and goodwill of USD 988 million (CHF 1,205 million). Identified intangible assets include client relationships, non-compete agreements, favorable contracts, investment banking pipeline, proprietary software, trademarks and trade names, with an economic useful life from 1 to 20 years. UBS Pactual offers a broad range of services in investment banking, asset management and wealth management. It has offices in São Paolo, Rio de Janeiro, Belo Horizonte and Recife.

The residual payment obligation is reflected on UBS's balance sheet in Other liabilities and is measured at its present value (USD 1,223 million on acquisition date). It had no effect on the Statement of Cash Flows for the year ended 31 December 2006.

On the acquisition date, intangible assets and goodwill were allocated to the Business Groups as follows:

Since the acquisition date, UBS Pactual contributed revenues of CHF 102 million to UBS's results, and an after-tax profit of CHF 28 million after acquisition costs (retention payments and amortization of intangible assets) but excluding finance costs.

Investment Bank

ABN AMRO's Global Futures and Options Business
On 30 September 2006, UBS acquired the global futures and options business of ABN AMRO for USD 704 million (CHF 880 million) in cash. The ABN AMRO futures and options business provides clearing and execution services on a global basis. The acquired business has been integrated into the Prime Services business within the Equities business of the Investment Bank. The purchase price was allocated to net assets of USD 362 million (CHF 452 million) and intangible assets of USD 108 million (CHF 134 million). The difference of USD 234 million (CHF 294 million) from the purchase price was recognized as goodwill. The acquired business contributed CHF 7 million to UBS's net profit since the date of acquisition.

Global Wealth Management & Business Banking

Piper Jaffray Companies' Private Client Services Branch Network
On 11 August 2006, UBS completed the acquisition of Piper Jaffray Companies' Private Client Services branch network. The cost of the business combination consisted of USD 500 million (CHF 616 million) for the business operations and of USD 227 million (CHF 280 million) for the loans to customers portfolio, resulting in a total cash consideration paid of USD 727 million (CHF 896 million). The purchase price was allocated to net assets of USD 236 million (CHF 291 million) and intangible assets of USD 120 million (CHF 148 million) representing client relationships. The difference of USD 371 million (CHF 457 million) from the purchase price was recognized as goodwill. The purchase price allocation and cost of the business combination is in the process of being finalized. Approximately 90 Piper Jaffray wealth management offices, mainly located in the Midwest and Western United States, serving 190,000 households, will be renamed and integrated into Wealth Management US. UBS has retained approximately 700 of Piper Jaffray's financial advisors, which corresponds to approximately 80% of the advisors before the acquisition. The acquisition is expected to benefit Wealth Management US's existing business by expanding the presence in the regions where the acquired branches are located.

Dolfi
On 2 March 2006, UBS acquired Dolfi Finance SAS, a small wealth management firm based in Strasbourg, France, as well as certain assets from Mr Dolfi. The company, established 18 years ago, serves clients in the North Eastern part of France and had more than EUR 600 million of invested assets on the acquisition date. The acquisition complements UBS's existing wealth management business in France.

Acquisitions of minority interests of subsidiaries in 2006

UBS Bunting Limited
On 28 March 2006, UBS acquired the 50% minority interest in its Canadian institutional securities subsidiary, UBS Bunting Limited. The purchase price consists of a combination of cash and UBS shares and has been estimated at CAD 163 million (approximately CHF 182 million). Approximately CAD 23 million (CHF 26 million) of the consideration is linked to the performance of the acquired business in 2006 and 2007 and may be reduced if agreed revenue targets are not achieved. The difference between the purchase price and the carrying value of the acquired minority interest of CAD 116 million (CHF 129 million) was reflected in Equity. Through this transaction UBS now wholly owns the Investment Bank's operations in Canada, which continue to operate under the same leadership team as before this transaction.

Business combinations announced but not yet completed

Beijing Securities Ltd.
In April 2006 UBS entered into a commitment to acquire the restructured activities of Beijing Securities, a Chinese brokerage and securities firm. Under the terms of the transaction, a new company, UBS Securities Co. Limited emerges, in which UBS is expected to have a 20% capital stake and obtain management and operational control. The cost of the business combination including capital contributions and transaction costs is expected to be approximately CHF 278 million (RMB 1.8 billion).

UBS Securities Co. Limited will operate in China on the basis of a comprehensive set of domestic securities licences offering corporate finance, equities, fixed income, wealth management and asset management service.

On 11 December 2006, UBS Securities Co. Limited was officially established following the registration of the business. The closing of the transaction, which is subject to final regulatory approval, is expected during first half 2007.

Business combinations completed in 2005

During 2005, UBS completed several acquisitions that were accounted for as business combinations. None of the acquisitions was individually significant to the Financial Statements, and therefore they are presented in aggregate by Business Group for Financial Businesses and Industrial Holdings.

Financial Businesses

In 2005, Wealth Management completed the acquisitions of Julius Baer North America, Etra SIM S.p.A. (Etra) and Dresdner Bank Lateinamerika (DBLA).

Julius Baer North America
On 1 April 2005, UBS acquired the assets of Julius Baer's wealth management operations in North America, which also include certain related assets in Switzerland, for an aggregate consideration of approximately CHF 76 million. The business manages over USD 4 billion of client assets, including custodial assets, and employs approximately 50 staff in four locations. These operations have been integrated to further strengthen UBS's wealth management operations.

Etra
Effective 31 May 2005, UBS acquired Etra, an independent Italian financial intermediary firm, for an aggregate consideration of approximately CHF 26 million. Etra serves wealthy private and institutional clients in Italy and manages approximately EUR 400 million of client assets with 20 staff. The operations were subsequently integrated into UBS's Italian wealth management unit.

Dresdner Bank Lateinamerika
On 29 April 2005, UBS acquired wealth management operations from Dresdner Bank Lateinamerika (DBLA) located in Hamburg, New York, Miami, Zurich and the Bahamas. The Hamburg activities represent approximately two thirds of DBLA's acquired business, while the remainder is spread over the other four locations. On 31 December 2005, the cost of the acquisition was approximately CHF 136 million, and resulted in the recognition of goodwill of approximately CHF 133 million. In 2006, additional goodwill of CHF 39 million resulted from an adjustment to the purchase price. The acquired business covers all important Latin American markets and strengthens UBS's position as a provider of wealth management services for clients in that region.

Global Asset Management – Siemens Real Estate Funds
Effective 1 April 2005, UBS expanded its asset management activities in Germany by acquiring a 51% stake in the real estate investment management business of Siemens Kapitalanlagegesellschaft mbH (SKAG), a subsidiary of Siemens AG, the German engineering conglomerate. The purchase price was CHF 67 million, allocated to identified net assets at fair value of approximately CHF 10 million and goodwill of approximately CHF 57 million. The business comprises three open-end real estate funds with a total fund volume of approximately EUR 2 billion (as of 31 December 2004) and has been integrated into the global real estate business, giving it access to Global Asset Management's established distribution network. The business was renamed UBS Real Estate Kapitalanlagegesellschaft mbH.

Investment Bank – Prediction
On 11 November 2005, UBS acquired the remaining 68.3% of Prediction LLC (Prediction), a financial engineering and trading software company located in Santa Fe, New Mexico, USA. UBS has owned a 31.7% minority stake in the company since 2000. The purchase is in line with UBS's focus on technology and allows continuous operation and development of Prediction's automated trading systems. Furthermore, UBS ­secures the know-how available at Prediction and the opportunity to leverage it across UBS. The purchase price of approximately CHF 84 million was primarily allocated to intangible assets valued at approximately CHF 26 million and goodwill of approximately CHF 51 million. Details of assets and liabilities recognized from the acquisitions made by the Financial Businesses in 2005 are as follows:

Industrial Holdings

On 1 July 2005, Motor-Columbus acquired Elektroline a.s., a service company active in the electricity business in the Czech Republic.

On 20 December 2005, Motor-Columbus also acquired Moravske Teplarny a.s., a power generator in the Czech Republic, for approximately CHF 108 million. The purchase price was predominantly allocated to the power station and fair value of net assets acquired was equal to the purchase price. No goodwill was recognized in this acquisition. Motor-Columbus was sold on 23 March 2006. See Note 38 Discontinued Operations for details.

Details of assets and liabilities recognized from these two acquisitions in 2005 are as follows (on the next page):

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 2006 had been made as of 1 January 2005 and all acquisitions completed in 2005, had been made as of 1 January 2004. Adjustments have been made to reflect additional amortization and depreciation of assets and liabilities, which have been assigned fair values different from their carryover basis in purchase ­accounting.

Business combinations completed in 2007

McDonald Investments' Branch Network
On 9 February 2007, UBS announced the completion of the acquisition of the branch network of McDonald Investments, a unit of KeyCorp. The cost of the business combination consisted of USD 219 million (CHF 267 million) for the business operations and of USD 57 million (CHF 70 million) for certain assets of McDonald investments, resulting in a total cash consideration paid of USD 276 million (CHF 337 million). The total consideration paid remains subject to adjustment. Based in Cleveland, Ohio, US, McDonald Investments comprised 51 branch offices throughout the Northeast, Midwest, Rocky Mountain and Northwest states, including the offices of Gradison and Gradison Asset Management, which will be integrated into Wealth Management US. The unit provides comprehensive wealth management services to affluent and high net worth individuals, including estate planning, retirement planning and asset management.

Business combinations announced in 2007

Standard Chartered's mutual funds management business in India
On 26 January 2007, UBS announced the acquisition of Standard Chartered's mutual funds management business in India. The cost of the business combination is estimated to be USD 126 million, and the business will be integrated into Global Asset Management. The transaction is expected to close in third quarter 2007.