2. We look upon the aluminum business as a core business that has enormous growth potential in revenues and earnings,' 'Our vision is to be a premium metals major, global in size and reach .... The acquisition of Novelis is a step in this direction -Kumar Mangalam Birla, Chairman, Hindalco Industries Hindalco Novelis http://www.slideshare.net/gagan3211/merger-acquisition-hindalco-novelis
11. Commenced its operations in 1962 and today it has grown to become the country’s largest integrated aluminum producer.
12. Annual revenue of US $14 billion. market capitalization in excess of US $ 23 billion.
13. The aluminum division's product range includes alumina chemicals, primary aluminum ingots, and billets, wire rods, rolled products, extrusions, foils and alloy.
14. The company reduced has SG&A costs from 4.15% to 2.96% and led to a bottom line growth from 15.8B to 26.9BHindalco
15.
16. The US and European anti-trust proceedings ruled that the rolled products business of either Alcan or Pechiney had to be divested from the merged entity.
17. World leader in aluminium rolling - producing an estimated 19 percent of the world's flat-rolled aluminium products.
33. Novelis ended up inheriting a debt mountain of almost $2.9 billion on a capital base of less than $500 millionStrategic Perspective : Novelis
34.
35. Novelis had a capacity to produce 3 million tonne while Hindalco has a capacity of 2,20,000 tonne.
36. It would have taken a minimum of 8-10 years for Hindalco for building these facilities.
37. Hindalco got the fusion technology of Novelis which increased the formability of aluminium.
38. As per company details, the replacement value of the Novelis was $12 billion, so considering the time required and replacement value; the deal was worth for Hindalco.
39. The immediate effect of the merger is that Hindalco would achieve its target of doubling its turnover to $ 20 billion three years in advance Rationale for Acquisition
40. Future Outlook http://www.iitk.ac.in/infocell/announce/convention/papers/Colloquium-04-Aman%20Srivastava,Rakesh%20Gupta%20final.pdf
44. Novelis expects transport and electronics sectors to be global demand drivers and clock 20-25 per cent growth in 2011, as developed markets revive.
45. Rolled product shipments are up eight per cent year-on-year (y-o-y) in North America due to growth in can, automotive and industrial products.
46. Europe has seen y-o-y volume growth of 10 per cent. Post Deal analysis http://www.hindalco.com/investors/downloads/Hindalco_Annual_Report_Notice2011%20.pdf
47.
48.
49. Disruption in production due to external factors.T O http://hindalcoindustrieslimited.blogspot.com/2010/12/swot-analysis-of-hindalco.html
50. Post Deal analysis http://www.moneycontrol.com/india/stockpricequote/aluminium/hindalcoindustries/HI
57. Net profit of 25,643 crore as per 2007 balance sheet.Hindalco Financial – pre acquisition
58.
59. If the 66.66% approval was not obtained, Birla had the right to walk away from the deal
60. Hindalco made the Novelis board sign a $100- million break fee, the price Novelis had to pay if it finds another buyer.
61. There was also a clause of ‘new buyer premium ’of a $5dollars a share’ over the 44.93$ per price- only at that price could Novelis entertain a fresh rival bid..Rules of the deal
66. Hindalco paid $44.93 in cash for each outstanding common share of Novelis, around 15% premium to the market price
67. Hindalco planned to replace existing $2.4bn loan by term loan of US $1bn and high yield bonds of US $1.4bn
68.
69. 2008: $1-billion loan was taken on Hindalco’s books, and the banks that participated in the exercise included ABN Amro, Barclays Capital, Bank of Tokyo-Mitsubishi UFJ, Calyon, Citigroup, Deutsche Bank, HSBC, Mizuho Financial and Sumitomo Mitsui Financial.
70. 2009:Hindalco took a syndicated loan of $982 million (Rs 4,910 crore at current rate) from 11 foreign banks to repay the bridge loan taken two years ago for the Novelis acquisition. Banks involved
75. At a total enterprise value of US $ 6 billion. Novelis was nearly 50% larger than Hindalco’s current market capitalization.
76. At Novelis long term annual free cash flow target of US $400m (using a real WACC of 9%), it was estimated that acquisition would destroy value by INR60/share.
77. Hindalco would need to improve annual free cash flow by 35% to US $540m for the acquisition to be value (NPV) neutral.Valuation for acquisition
80. Acquisition was going to increase revenue but was going to increase debt burden and erode profitabilityFinancial Challenges
81.
82. Adverse changes in currency exchange rates or aluminium prices could negatively affect the financial results and competitiveness of company’s aluminium rolled products relative to other materials
83. The end-use markets for certain products of Novelis products were highly competitive and customers are willing to accept substitutes for the company productsRisk Factors
90. In the first six months after the take over Hindalco deputed just two of its own executives to Novelis: it sent an expert from its copper division to institutionalize a risk-management process and installed a senior executive in Novelis ’logistics department to help improve its global supply chain
91. No Layoffs ,however hiring activities were kept on hold for sometime.Organisational Integration
92.
93. It set up a company to manage IT functions of Novelis due to availability of inexpensive engineers.
94. Hindalco had set Novelis a target of seven to 12 stock turns per year by 2010,which could free around $300 million in working capitalBusiness Process Integration
95.
96. Half of the increase would be for the kind of flat-rolled products Novelis produces. Thus, India could absorb a third of the North American company’s output in three years’ timeMarket Integration
99. On 20 October 2006 the board of directors of Anglo-Dutch steelmaker Corus accepted a $7.6 billion takeover bid from Tata Steel, the Indian steel company.
100. Tata Steel purchased a 100% stake in the Corus Group at 608 pence per share in an all cash deal, cumulatively valued at USD 12.04 Billion.
101. The deal is the largest Indian takeover of a foreign company and made Tata Steel the world's fifth-largest steel group.
109. In the event the public shareholding in the Indian Company falls below the specified 10%, then
110. The acquirer has to make an offer to buy out the outstanding shares remaining with the shareholders, resulting in de-listing of the Company, or for delisting the company process prescribed under delisting guidelines needs to be followed .
111. The acquirer has to divest, through an offer for sale or by a fresh issue of capital to the public, to keep the public holding at the prescribed levels and prevent a delistingSEBI Guidelines (Takeover code)
In a bid to win more business from soft drink manufacturers, it promised four customers not to increase product prices even if raw material aluminium prices went up beyond a point. A few months after Novelis signed those contracts, aluminium prices shot up 39 per cent (between 30 September 2005 and 2006). To these four customers, Novelis was forced to sell its products at prices that were lower than raw material costs. These four account for 20 per cent of Novelis’s $9-billion revenues. But the management’s wrong judgement led to losses of $350 million (in 2006)
