Indian aluminium giant Hindalco’s acquisition of Atlanta based company Novelis Inc, a world leader in aluminium rolling and flat-rolled aluminium products

1. Overview of both companies 2. Problems in Novelis 3. Opportunities for Hindalco 4. Pre Negotiation Stage 5. Negotiation Climate 6. Timeline of the events 7. BATNA 8. ZOPA 9. Negotiation Style 10. Phases of Negotiation 11. Various tactics and counter tactics 12. International Negotiation context 13. Expert opinion and present Situation

billets.• • • • Hindalco Industries Limited. commenced its operations in 1962 Two strategic businesses aluminium and copper with annual revenue of US $14 billion and a market capitalization in excess of US $ 23 billion The country's largest integrated aluminium producer with a domestic market share of 42 per cent in primary aluminium Products:primary aluminium ingots. foils and alloy wheels . extrusions. rolled products. a flagship company of the Aditya Birla Group. wire rods.

• Customers: Audi. 1 rolled products producer in Europe. Mercedes. Ford. Hyundai. and the No.South America and Asia. producing an estimated 19 percent of the world's flat-rolled aluminium products • Novelis is the world leader in the recycling of Used aluminium beverage cans • The company is No.BenZ. packaging. construction and printing automotive. Coca cola • Presence in in 11 countries and four continents .• Novelis is the world leader in aluminium rolling. 2 producer in North America • Customers in high -value markets including transportation.

• Novelis was a new company.9 billion • • . as a result of a ‘forced’ spin-off from its parent. the $ 23.6-billion aluminium giant and Canada-based Alcan Because of merger of Alcan and French aluminium company Pechiney • • • US and European anti-trust proceedings But 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 Alcan cast out its rolled products business to form Novelis Spin-off process Resulted in the debt of $2. formed in January 2005.

Ford etc Technological Expertise . GM.• • Hindalco will be the world's largest aluminium rolling company “The acquisition of Novelis is in line with our long-term strategy of expanding our global presence across our various businesses and is consistent with our vision of taking India to the world.“-Kumar Mangalam Birla Global Precence: Novelis has 38 plants in 12 countries Scalability: primary aluminium capacity of approximately 1 million tonne Downstream expansion in value chain • • • • • Access to customers like Cocacola.

Reasons for Hindalco to enter into deal • • Increase presence in high end downstream market Enhancing global presence • • Increase in scale of Operations Access to superior technology • Insulation from price fluctuation of LME Aluminium prices .

• • • Bad liquidity situation Contractual Obligations Confusion about its own business model • • Excess work force and expensive plants Recession had worsened the liquidity situation • Decentralized Company made no sense .

Birla was ready to buy Novelis for past six months .Time • Hindalco offered to buy Novelis in August 2006 over a lunch meeting between officials of Hindalco and Novelis • Proper homework had been done by Hindalco before popping up the question • Mr.

"It was a subtle. including Hindalco. TPG and a few others. had completed the due-diligence process • With only a week to go before the bids had to be submitted." recalls Mr Birla with a smile • Novelis employees wanted Hindalco to win the deal as it was evident during various plant visits . yet loud message. all bidders.• Interest was shown at a lunch meeting at JW Marriott in Atlanta • By early 2007. employees at Novelis' Atlanta headquarters organised a highprofile Indian food festival.

Birla was very optimistic about the deal he immediately sensed this could define his career • Consultants termed Mr. expand globally and increase presence in high end downstream market • Novelis was considered to be in a mess • Mr.• Hindalco viewed the deal as a strategic move to scale up operations. Birla as stubborn and overconfident • Analysts believe the Birlas are paying too high a price for Novelis .

2006 • Hindalco started thinking of transforming themselves into a fully integrated global player • Decision was to acquire a downstream aluminium company with cutting-edge technology that could then be replicated at home June.May.2006 • UBS Securities India Pvt Ltd headed by Manisha Girotra . 2006 • Project Red Sox • Team of 30 • Shortlists Novelis • Kumar Mangalam Birla and Debu Bhattacharya decided to acquire Novelis August.

2007 • Bid took under the guidance of Morgan Stanley • Hindalco put a one time bid @ $44.• Novelis management had decided to go for a competitive bidding to get the best price • Six foreign banks lined up funds and even gave confidential December. 2007 • Share holders of Novelis approved the deal .2006 comfort letters to Hindalco for up to $5 billion February.93 per share and was accepted by Novelis May.

– Novelis • They delayed the bid to attract more bidders • Russian Company Rusal was ready for the counter bid – Hindalco • They kept acquisition of ‘Hydro’ as a back up plan .

5 billion. But they had an outer limit of $7 billion Buyer’s Minimum Price • They were willing to pay a minimum of the average price for few months ZOPA Range: $30 .$38 per share . Around $38 per share Buyer’s Reservation Price • They were ready to invest around $5.Seller’s Reservation Price • • The price during the time period They were trading on an average around $30 per share Seller’s Maximum Demand • Little above the highest price during that period.

$45  Were paid a market premium of 15% extra per share in spite of heavy debt Hindalco: • Accommodative • • They brought Novelis in spite of its promise to can manufacturers In the end they changed competitive by quoting high bid (in terms of winning the deal) .Novelis:  collaborative to competitive  They were trading on an average around $30 per share and finally the deal was closed at approx.

.

Hindalco was into upstream aluminum business(raw materials) and Novelis was into downstream business(can manufacturing) • Novelis CEO Brian W Sturgell was not utterly shocked with the proposal and he took the proposal to the board even though Hindalco was 1/4th the size of Novelis . Hindalco chairman Kumar Mangalam Birla and MD Debnarayan Bhattacharya put forward the proposal to acquire Novellis before its MD and CEO Brian W Sturgell at the JW Marriott hotel in Atlanta • The common ground was that both the companies were into aluminium business.• In August 2006.

• Novelis share prices were floating at around $33 per share and Hindalco offered an offer of $35 per share • Novelis discussed and its existing contracts with its customers post the acquisition • Hindalco wanted to centralize Novelis’s decentralized business that operated across the 4 regions • Conflict among employees of Novelis regarding job cuts post acquisition was discussed with Hindalco .

• Novelis capitalized on the keen interest of Hindalco’s interest in this deal and appointed Morgan Stanley to invite more prospective buyers to make it a competitive bidding process • This increased the share price of Novelis and Mr. Birla’s hope to seal the deal quickly and quietly was not successful • Hindalco at present was into upstream aluminum business but post this deal the future saw it entering into downstream aluminum business • Employees of Novelis realized Hindalco was their best offer and the employees at Novelis‘s Atlanta headquarters organized a high-profile Indian food festival .

4 Billion in debt .93 per share (18% higher) • More than 99% of Novelis shareholders voted in favor of the deal • It was an all cash deal with the net valuation of Novelis at $6 Billion including $2.• The takeover was finalized on 12th February 2007 • With the share price of Novelis at an all time high of $38 per share Hindalco sealed the offer by offering a higher price of $44.

not a volume filler . liquidity situation was bad and proper accounts not filed • Two Novelis plants in Britain had to be shut down by Hindalco and the technology brought into India • Hindalco couldn’t live up to its promise and decided to cut the Novelis workforce by 9% • The approach was to establish Novelis as a value creator.• Hindalco realized that Novelis was in a mess – contracted to sell cans lower than its raw material cost.

they decided to take advantage of the situation • They decided to go for an open bid and put pressure on Hindalco in terms of time • They also conducted one high-profile Indian food festival at Atlanta headquarters to show their employee support to Hindalco .• Initially both parties started in a collaborative style • When Novelis realized that public interest was growing on this matter.

but Hindalco hurried the process and ensured that no other counter bid will be accepted .• This increased the belief of Hindalco on Novelis employees • They were caught at this moment and quoted a high price to ensure a successful bid • By this time Russian company Rusal tried to enter the bid.

• Many experts criticized Aditya Birla group chairman Kumar Mangalam Birla for bidding so highly for the deal • They commented that Novelis was highly overvalued • They commented that the leverage position was pretty risky • Investors were worried about the high debt carried forward from Novelis .

Environmental Context • Political and legal pluralism • International Economics • Foreign Government and Bureaucracies • Instability • Ideology • Culture • External stakeholders .

• Relative bargaining power • Conflict Situation • Relationship between negotiators • Desired Outcome • Immediate stakeholders .

as it has consistently generated cash • In 2009-10.000 crore) of the parent’s cash flow • In 2011-12. it generated even more at 72 per cent (Rs 5. it generated 65 per cent (Rs 3.000 crore) .• Over the years. Kumar Mangalam Birla proved that his decision was right • Hindalco capitalized on the technological capability of Novelis • Now Novelis is a short in the arm for Hindalco • The Novelis acquisition has done quite well for the fortunes of Hindalco.

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