HINDALCO-NOVELIS DEAL

Presented By:
Kaushik Jena – 23
R. Radhika – 30
Satyajit Rath – 39
Dipti Pandya – 74
T.P.Preeti – 172
Tania Ghosh - 174
Contents
 Global Aluminium Scenario.
 Background – HINDALCO, NOVELIS.
 Why NOVELIS.
 Future synergy.
 Purchase consideration & financing.
 Concerns.
 Reactions of Shareholders.
 Defensive mechanism.
 Conclusion.
GLOBAL ALUMINIUM INDUSTRY
 The aluminum industry remains one of the most
significant success stories nationally as well as
internationally.
 Global consumption of aluminum products, both
upstream and downstream, is expected to double by
2020 annually.
 The main players
 The aluminium price factor
HINDALCO
 It was established on December 15, 1958
 It is an industry leader in aluminium and copper
 It is the world's largest aluminium rolling company
and one of the biggest producers of primary
aluminium in Asia
 It was formed as collaboration between Kaiser
Aluminum & Chemicals Corporation (KACC), US, and
the Birla Group.
NOVELIS
 It was split from its parent company, Alcan Inc. (Alcan),
the Canada-based aluminum giant and set up as its
subsidiary in January 2005.
 It is No. 1 rolled products producer in Europe, South
America and Asia, and the No. 2 producer in North
America.
 It is also the world leader in the recycling of used
aluminum beverage cans. The company recycles more
than 35 billion used beverage cans annually.
WHY NOVELIS??
 The combination of Hindalco and Novelis establishes an
integrated producer with low-cost alumina and aluminum
facilities combined with high-end rolling capabilities and a
global footprint.
 The deal will give Hindalco a strong presence in recycling
of aluminium business.
 Novelis has a very strong technology for value added
products and its latest technology ‘Novelis Fusion’ is very
unique one
 It would have taken a minimum 8-10 years to Hindalco for
building these facilities,if Hindalco takes organically route
 the replacement value of the Novelis is $12 billion, so
considering the time required and replacement value; the
deal is worth for Hindalco.
 The acquisition will catapult the group into the Fortune
500 league, three years ahead of the target.
FUTURE SYNERGY
 After 3-4 years Hindalco would start the operation of new
plants. Then it can source excess capacity to the Novelis
plants locate south east asian countries.

 Synergy due to consolidation & integration

 PURCHASE CONSIDERATION
 Hindalco is acquiring Novelis in an all-cash transaction,
which values Novelis at enterprise value of approximately
$6 billion, includes a cash payment worth US$ 3.6 bn to
Novelis’ shareholders and debt worth US$ 2.4 bn.

 Mumbai-based Hindalco will pay US$ 44.93 per share in

cash for all Novelis stock
 FINANCING THE DEAL
 The total enterprise value of the acquisition is about $6 billion.
 Out of this $450 million will come from Hindalco's treasury,
while Aditya Birla group Company Essel Mining will pay about
$300 million.
 Hindalco plans to raise $2.8 billion of debt through two special
purpose vehicles for the residual financing.
 AV Metals — the A V Birla group's Canada-based special purpose
vehicle (SPV) - will infuse US$ 3.5 billion to finance Hindalco's
proposed acquisition.
 AV Metals will take loans worth US$ 2.8 billion from three
financial institutions, namely UBS, ABN Amro and Bank of
America.
 These three institutions have underwritten the debt amount
with UBS taking care of the majority portion. UBS is the
financial advisor to Hindalco.
Major Concerns
 The price Hindalco is paying for Novelis.
 The manner in which the deal is being funded may
harm Hindalco.
Other Concerns
 The deal will create value only after the Hindalco’s
expansion completion
 The Company’s agreement not to compete with Alcan
in certain end-use markets may hinder Novelis ability
to take advantage of new business opportunities
 High bargaining power of customers
 Reactions of shareholders
Hindalco:
 Shareholders sold 7.3 million shares on the very next day of
announcement of deal as:
- Merill lynch report said the deal to be overvalued & EPS
dilutive.
- Consolidated EPS was expected to fall by 25 %.
- HINDALCO acquired NOVELIS in an all cash deal that was
expected to wipe out almost 1/4th of HINDALCO’s earnings.
 Lost Rs. 2,759 crore in market capitalisation.

Post-merger:

- The EPS of HINDALCO was at Rs. 25.52/share before merger &

was expected to fall to Rs. 10.1/share post merger.
NOVELIS:
 Novelis shareholders approved the transaction by an
overwhelming majority (99.8%) in a special meeting.

 Novelis shareholders will receive US$44.93 in cash for each

outstanding common share on merger while the maximum
price they could fetch even while the company was doing
was exceptionally good was US$30/share.
Pre-emptive measures taken
by Hindalco
 ‘Ring-fence’ to ward off any last minute
competitive bidders,
 Made Novelis board sign a $100-million break fee,
the price Novelis has to pay if it finds another
buyer.
 It also made the board agree on a ‘new buyer
premium’ of a ‘few dollars a share’ over the $44.93
per price —. That rules out last minute surprises
and almost inevitably seals the Hindalco-Novelis
marriage.
 Analysis of the deal
 Complete due diligence done by Hindalco
 Novelis unprofitable in short term but reaps benefit in
the long run and acts as natural hedge.
 Leverage operational efficiency with technological
efficiency
 Help Hindalco to integrate the value chain
Thank U