Hindalco’s Acquisition of Novelis

Group 3:Satyaweer AgarwalPriyanka ZopeSudeshna SarkarSumit ChawlaVaishnav Dayanand

Indian Aluminum IndustryHighly Concentrated Industry Main Players1. HINDALCO – almost 39% market share2. Sterlite Industries3. NALCO4. BALCO5. MALCO Very strangely the per capita consumption of

the aluminium metal in India is less than 1kg, whereas the same is estimated at 25 to 30 kgs in US & Europe, 15 kgs in Japan, 10 kgs in Taiwan and 3 kgs in China.

Introduction : CaseMay 16, 2007: Hindalco acquired Novelis2nd biggest acquisition valued at $6

billionBiggest being Tata acquiring Corus for

$7.6 billionNovelis will work as a subsidiary of

HindalcoChairman will be Kumar Mangalam BirlaMartha Finn Brooks: COO & PresidentWorld Leader: United Company Rusal

(Moscow, Russia)

Brief about HindalcoEstablished in 1958A flagship company of Aditya Birla GroupCommenced its operations in 1962 with an

aluminium facility at Renukoot in U.P.Leading company in aluminium and copper

industry in the worldGenerated high revenues in 2006-07Significant Market Share

Brief about NovelisFormed in January 2005Was a result of ‘forced’ spin-off from its

parent, aluminium giant and Canada-based Alcan Inc.

Leading producer of aluminium sheet and light guage (thin) rolled production for the construction & industrial markets

Operated in 11 countriesGlobal Market Share

AcquisitionAnalysts believed that the acquisition will

have both pros and cons:Pros: Global Presence, Production

Capacity will Increase, one of the top aluminium manufacturing Co’s

Cons: Huge amount and Novelis was incurring losses, no short term and medium term benefits, Debt was also there in the B/S of Novelis (This in-turn will effect the Debt-Equity Ratio of Hindalco) & Interest on the loan will affect Hindalco’s profit

N O V E L I S Formed in January 2005.

Was a result of a ‘forced’ spin-off from its parent,

aluminium giant and Canada-based Alcan Inc.

World leader in aluminium rolling, producing an

estimated 19 % of the world's flat-rolled aluminium

products.

World leader in the recycling of used aluminium

beverage cans.

The company had 36 operating facilities in 11 countries.

T H E A C Q U I S I T I O N

In 2003, Alcan won a hostile takeover of

French aluminium company Pechiney.

Result : NOVELIS

Novelis : Always a problem child

In 2007, Hindalco acquired Novelis, making it

a wholly owned subsidiary of the company.

ACQUSITION

An acquisition, also known as a takeover or a

buyout, is the buying of one company (the

‘target’) by another.

An acquisition may be friendly or hostile.

Acquisition usually refers to a purchase of a

smaller firm by a larger one.

Increased market power

Learning and Developing new capabilities

Overcoming the new entrants into the industry.

Cost of new product development

To avoid excessive competition

REASO NS FO R ACQ UI SITIO N

The acquisition of Novelis by Hindalco was in a cash

transaction.

Global integrated aluminium producer with low-cost alumina

and aluminium production facilities.

Biggest rolled aluminium products maker and fifth largest

integrated aluminium manufacturer in the world.

Globally positioned organization.

Hindalco is the lowest cost producers of primary aluminium in

the world.

FACTS ABOUT DEAL

The debt component of Novelis stood at US $2.4

billion and additional US $2.8 billion taken by

Hindalco to finance the deal.

Debt and interest burden of the company has

increased.

FACTS ABOUT DEAL

Thank You!!