HINDALCO – NOVELIS (AN ALUMINIUM GLOBAL GAINT)

HINDALCO - NOVELIS ACQUISITION: CREATING AN ALUMINIUM GLOBAL GIANT

'We look upon the aluminium 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

N Gopi Anand S-40GRN Reddy S-46

HINDALCO – NOVELIS (AN ALUMINIUM GLOBAL GAINT)

CONTENTS• INTRODUCTION

• BACKROUND– NOVELIS– HINDALCO – BIRLA COMPANY

• THEORY AND M & A– PRE MERGER PHASE– INTEGRATION/CONSOLIDATION PHASE– POST MERGER PHASE

• PRESENT SITUATION

• M & A : May 2007

• Hindalco acquired Novelis : Inorganic growth strategy

• Cost of $ 6 Billon USD (Rs 25,740 Cr) @ US $44.93

• Hindalco became world leader in aluminium rolling and flat-rolled aluminium products

• Novelis continues to operate as a subsidiary of Hindalco

Background

NOVELIS• Created in 2005 Alcan Inc.

($23.6 B USD)

• 90 Yr of History in aluminium rolling business

• 1916 first Alcan rolling operation: Toronto, Ontario,

(84-inch hot mill & 3 finishing mills)• Novelis operations:-

Oswego, United States (1963)

Norf, Germany (1967) Pindamonhangaba, Brazil (1977)

NOVELIS• World leader in Al rolling (3M

Tons/Yr)

• Produces ~20% world's flat-rolled aluminium products

No.1 Europe, South America & Asia

No 2 in North America• Industry leader -

Assets & Technology

• Net Worth $322 million

Debt $2.33 billion 7.23

HINDALCO• Aditya Birla’s most

profitable Co.

• Hindalco established in 1958 & Ops in 1962

• India’s Leader : Cu • Asia Leader : Raw Al• Annual Rev =$ 2.6 B USD• Market Cap = $ 28 B USD

• A global integrated Al producer with low-cost alumina and Al production facilities combined with high end-Al rolled product capabilities.

5th largest integrated Al manufacturer in world

KEY TIME LINES : JAN – MAY 2007

Strategic Rationale for Acquisition• Higher profitability

• To gain access to global aluminium market and expand production capacity to keep pace with growing demand for aluminium

• Merger of Novelis into Hindalco will establish a global integrated aluminium producer with low-cost alumina

• Aluminium production facilities combined with high-end aluminium rolled product capabilities

• After merger Hindalco will emerge as the biggest rolled aluminium products maker

• Fifth - largest integrated aluminium manufacturer in the world

• Hindalco's position as one of the lowest cost producers of primary aluminium in the world was the leverage in helping it become a globally strong player

• Novelis acquisition will give the company immediate scale and a strong global footprint

• Cost of Acquisition lower than setting up a green field plant and marketing and distribution channel

Strategic Rationale for Acquisition

• Negotiation between Hindalco and Novelis lasted for 18 months

• Cost of Acquisition lower than setting up a green field plant

PRE MERGER PHASE

Evaluation/Negotiation

PRE MERGER PHASEDue Diligence : Financials Hindalco

• Hindalco had over $800 million (Rs 3,520 crore) in cash and equivalents• Debt to Equity Ratio almost Zero

Novelis• After spinoff (Alcan and Pechiney) Novelis inherited a debt mountain of almost

$2.9 billion on a capital base of less than $500 million.• On a net worth of $322 million, Novelis has a debt of $2.33 billion (most of it

high cost). Debt/Equity =7.23:1

• Novelis made a loss of $170 million for the first nine months of 2006 and it could take a while to turn the company around

• Novelis for the first nine months of 2006, had a loss of $170 million (Rs 765 crore) on revenues of $7.4 billion (Rs 33,300 crore).

PRE MERGER PHASEDue Diligence : Commercials

HINDALCO NOVELIS

SIZE & GROWTH

Asia’s largest Al company World leader in Al rolling

Operating in lower end of value chain

Operating in higher end of value chain

PRODUCT MIXPrimary Al ingots, Billets, Wire rods, Alloy wheels

Flat rolled Al products, Recycling Al, Al Sheet & Foil for Auto, Packaging Construction

CUSTOMER BASENo recog international brand customer

Coca-cola, Ford, GM, Audi, BMW

COMPETITIVE POSITION

Cheap raw materials Economies of scale and process skills

PRE MERGER PHASEDue Diligence : Organisation

HINDALCO NOVELIS

Upstream Player Downstream Player

Low cost producer State of art technology

Bayer-Hall-Heroult Technology Novelis FusionTM Technology

Lower end products Value Added Products

Aura - Alloy wheels Freshwrapp - Kitchen foil Ever last - Roofing sheets

Cans for Beverages, Automotive parts

PRE MERGER PHASE

Due Diligence : Regulatory Clearance• Check MoA (change accordingly). • Draft Scheme of Arrangement  • Consider it in Board Meeting. • Apply to Court direction to call General Meeting. • Send copy of application made to High Court to Central

Govt & send notices of General Meeting to with scheme• Notice Period shall not be less than 21 days  • At General Meeting approve scheme, increase

authorized share capital, issue further shares, as required.  

PRE MERGER PHASE

Due Diligence : Price & Terms• $2.4 billion raised on the balance sheet of Novelis• AV Minerals (Netherlands) a indirect subsidiary of

Hindalco raised bridge loans of $2.13 billion & 900 million • Hindalco raised a debt of $2.8 billion and $450 million

from its cash reserves • Essel Mining, another AV Birla group company, chipped in

with $300 million from its reserves.• Tied up with ABN Amro Bank, Bank of America and UBS

for the Asian leg of the transaction,• The non-recourse debt raised on Novelis' books funded

through ABN Amro and UBS

INTEGRATION/CONSOLIDATION PHASE

Financials• Same Financial Language.• Standardization : Prior to June 2007 , Hindalco’s financial

year ended on March, 31st, whereas Novelis’ period ended on December, 31st

• Guidelines of SEBI & SEC were met.• Plan to optimize tax bills of both countries.• Sharing best practices.

INTEGRATION/CONSOLIDATION PHASE

Organizational• Existing management structure, system, people (Job

Roles) left undisturbed.• 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

• No Layoffs, however hiring activities were kept on hold for sometime.

INTEGRATION/CONSOLIDATION PHASE

Business Process

• Plain and simple techniques to manage business.• It set up a company to manage IT functions of Novelis due

to availability of inexpensive engineers.• Hindalco has set Novelis a target of seven to 12 stock turns

per year by 2010, which could free around $300 million in working capital.

INTEGRATION/CONSOLIDATION PHASE

Markets• India’s demand for aluminium products was projected to

double from 1 million tones in 2007 to almost 1.9 million tones in 2012

• Half of this increase in demand will be in the form of flat-rolled products Novelis produces. Thus, India could absorb a third of the North American company’s output in three years’ time

MARKET DATA TRENDS

POST MERGER PHASE

One of the world's leading low cost producers of aluminium

One of the world's largest custom copper smelters at a single location

Operations in 5 continents. Reaching customers in more than 50

countries

PRESENT SITUATION• HQ: Atlanta, Georgia, USA, • Aditya Birla Group: $40 billion multinational conglomerate• 25 operating facilities on 4 continents.• World’s premier producer of rolled aluminum• Global leader in aluminum recycling • automobiles, beverage cans, architecture & consumer electronics.

FUTURE

• 2020 : 80% recycled metal input across products • To save natural resources and create consumer products with

lower environmental footprint.• VISION: ‘To be a premium metals major, global in size and reach,

excelling in everything we do, and creating value for its stakeholders’

• MISSION: ‘To relentlessly pursue the creation of superior shareholder value, by exceeding customer expectation profitably, unleashing employee potential, while being a responsible corporate citizen, adhering to our values’

THANK YOU