Hindalco Novelis Case

Group 3: Satyaweer Agarwal Priyanka Zope Sudeshna Sarkar Sumit Chawla  Vaishna  Vaishnav v Dayanand Dayanand

Indian Aluminum Industry Highly Concentrated Industry  Main Players 1. HINDALCO – almost 39% market share 2. Sterlite Industries 3. NALCO 4. BALCO 5. MALCO  Very  V ery strang strangely ely the per capita consumption 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 Taiwan and 3 kgs kg s in China.

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Introduction : Case   

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May 16, 2007: Hindalco acquired acquired Novelis 2nd biggest acquisiti acquisition on valued at $6 billion bil lion Biggest being Tata acquiring Corus for $7.6 billion Novelis Novelis will work as a subsidiary subsidiar y of Hindalco Chairman will be b e Kumar Mangalam Mangalam Birla Bi rla Martha Finn Brooks: COO & President  World  World Leader: Leader: United United Compan Companyy Rusal Rusal (Mosco (Moscow w, Russia)

Brief about Hindalco   

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Established in 1958 A flagship company of Aditya Birla Group Commenced its operations in 1962 with an aluminium facility at Renukoot in U.P. Leading company in aluminium and copper industry in the world Generated high revenues in 2006-07 Significant Market Share

Brief about Novelis  

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Formed in January 2005  Was  Was a result of ‘forced’ spin-off from its parent, aluminium giant and Canada-based Alcan Inc. Leading Leading producer of aluminium aluminium sheet and light li ght guage (thin) rolled production for the construction construction & industrial markets Operated in 11 countries Global Market Share

Acquisition 

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 Analysts  Analysts believed believed that the acquisition acquisition will have have both pros and cons: Pros: Global Presence, Production Capacity will Increase, one of the top aluminium manufacturing Co’s Cons: Huge Huge amount and Novelis was incurring losses, no short term and medium term benefits, benefi ts, Debt was also there in the B/S of Novelis Novelis (This in-turn will effect the Debt-Equity Debt-Equit y Ratio of  Hindalco) & Interest on the loan will affect Hindalco’s profit

NOVELIS 

Formed in January 2005.

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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.

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World leader in the recycling of used aluminium beverage cans.

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The company had 36 operating facilities in 11 countries.

THE ACQUISITION  In

2003, Alcan won a hostile takeover of 

French aluminium company Pechiney.  Result

: NOVELIS

 Novelis  In

: Always a problem child

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 ano ther..  An

acquisition may be friendly or hostile.

 Acquisition

usually refers to a purchase of a

smaller firm by a larger one.

REASONS FO R ACQUISITION

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Increased market power

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Learning and Developing new capabilities capabilities

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Overcoming the new entrants into the industry.

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Cost of new product development

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To avoid excessive competition

FACTS ABOU T DE AL 

The acquisition of Novelis by Hindalco was in a cash transaction.

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Global integrated aluminium producer with low-cost alumina and aluminium production facilities.

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Biggest rolled aluminium products maker and fifth largest integrated aluminium manufacturer in the world.

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Globally positioned organization. organization.

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Hindalco is the lowest cost producers of primary aluminium in the world.

FACTS ABOU T DE AL  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.