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Keycorp Cash Offer from Archer Capital

Keycorp Limited (KYC) has entered into a binding agreement with Archer Capital VCLP GF 1, LP (‘ Archer’) for the proposed acquisition by an Archer wholly-owned subsidiary of all the shares in Keycorp. Under the recommended offer, Keycorp shareholders will receive $0.58 cash per share. This offer is over and above the $0.02 per share dividend that was announced by the company on 27 August 2010. The proposed acquisition will be implemented via a Scheme of Arrangement and is subject to a number of conditions, including Keycorp shareholder approval and court approval. Each Keycorp Director recommends that shareholders vote in favour of the scheme in the absence of a superior proposal and subject to the independent expert’s report concluding the scheme is in the best interests of Keycorp shareholders. Subject to those same qualifications, each Director of Keycorp intends to vote in favour of the scheme with respect to their eligible individual shareholdings. Archer is one of Australia’s leading private equity investment houses with funds under management or advisement in excess of $2 billion and has the longest track record of any leveraged buyout manager in Australia. Archer has a longstanding interest in the payments sector and is attracted to Keycorp’s leading position in the Australian EFTPOS market, its high quality management team and its considerable potential for future organic and investment driven growth. Archer will guarantee and indemnify Keycorp in respect of the obligations and liabilities of its subsidiary under each of the relevant transaction documents. The acquisition will be entirely funded by Archer from its Growth Fund 1. The cash consideration of $0.58 per Keycorp share represents a substantial premium of: ı 42% to the underlying Enterprise Value1 of Keycorp of $0.19 per share on 7 September 2010, representing the market capitalisation of Keycorp less net cash; ı 14.9% to the closing price of $0.505 per share on 7 September 2010, being the last trading day prior to this announcement (an 18.8% premium, including the dividend payable); ı 14.4% to the three month volume weighted average price to 7 September 2010 of $0.507 per share (an 18.3% premium, including the dividend payable). ı 20.8% to the 12 month volume weighted average price to 7 September 2010 of $0.48 per share (a 25% premium, including the dividend payable). Keycorp Chairman Robert Bishop said: “The Board believes that Keycorp’s next phase of growth is best executed in a private context by a well-capitalised and supportive investor such as Archer. The offer represents a very good opportunity for Keycorp shareholders to immediately realise the value of the various business actions implemented recently. The team at Keycorp has delivered solid results over the past two years, however, it needs to be acknowledged that the company’s recently stated earnings guidance and growth strategy, particularly via complementary acquisitions, is not without risk. As a Board, in the absence of a superior proposal and subject to the conclusions of the independent expert’s report, we are unanimously of the view that Archer’s proposal is in the best interests of all shareholders.” Keycorp Chief Executive Officer Joe Bonin said: “Over the past eighteen months, we have examined numerous options to better address the requirements of significant business growth and preservation of shareholder value within the current capital structure. We believe Archer’s strong financial position and longer term view provides a more appropriate capital structure to support growth via acquisition that will benefit Keycorp’s customers, employees and partners more than is achievable under the current capital structure and small market capitalisation.” Grant Thornton has been engaged to prepare an independent expert’s report and to provide an opinion as to whether the proposed transaction is in the best interests of Keycorp shareholders. A scheme booklet with full details of the transaction, including the Independent Expert’s report, is expected to be dispatched to Keycorp shareholders in October 2010. The shareholder meeting to approve the scheme is expected to be held in November 2010. A more detailed timetable for the approval and implementation of the transaction, as well as voting procedures will be included in the scheme booklet. Ironbark Corporate Advisory and SLM Corporate are acting as corporate advisors and Middleton’s Lawyers is acting as legal adviser to Keycorp. Keycorp shareholders will also be able to receive information and ask questions on the proposed transaction through a dedicated information line accessed by calling 1800 648 622 (toll free for shareholders calling from within Australia) and +61 2 8256 3377 (for shareholders calling from overseas). This information line will commence from 9.00am September 13, and will be updated as the transaction progresses.