Hindalco Novelis Merger

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  • Topic: Aluminium, Aditya Birla Group, Stock
  • Pages : 22 (6783 words )
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  • Published : February 19, 2013
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GROUP PROJECT IN MERGER, ACQUISTION & CORPORATE RESTRUCTURING

“HINDALCO’S NOVELIS ACQUISITION”

Submitted By:

1) Rakesh Ranjan (PGEXP/2011/19)
2) Subash Ch. Das (PGEXP/2011/56)
3) Kumud Anand (PGEXP/2011/21)
4) Abinash Kumar Sahu (PGEXP/2011/26)
5) Anupam Sinha (PGEXP/2011/53)
6) Rajeev Kumar Gupta (PGEXP/2011/10)

← “If we earn $10 for every $100 of aluminum we sell, we will now be able to earn another $10 for every $100 worth of aluminum that Novelis processes into rolled products.”

--Debu Bhattacharya. MD

← "Acquisitions are not geography dependent. They depend on value-creation and will have to be in sync with existing businesses”

Kumar Mangalam Birla, 2007

1. Abstract

Last decade witnessed growing appetite for takeovers by Indian corporate across the globe as a part of their inorganic growth strategy. In this chain Indian aluminium giant Hindalco acquired Atlanta based company Novelis Inc, a world leader in aluminium rolling and flat-rolled aluminium products. Hindalco Industries Ltd., acquired Novelis Inc. to gain sheet mills that supply can makers and car companies. Strategically, the acquisition of Novelis takes Hindalco onto the global stage as the leader in downstream aluminium rolled products. The transaction makes Hindalco the world's largest aluminium rolling company and one of the biggest producers of primary aluminium in Asia, as well as being India's leading copper producer.

The report attempts to analyze the financial and strategic implications of this acquisition for the shareholders of HINDALCO. In the first place the case explains the acquisition deal in detail and highlights the benefits of the deal for both the companies. Then the followings main issues are to be discussed for critical review of this case:

What is the strategic rationale for this acquisition?

Were the valuation for this acquisition was correct? Did Birlas overpay for acquiring Novelis?

What are financial challenges for this Acquisition? Will Hindalco’s acquisition of Novelis be viable in the long-term? What indications lead us to that conclusion?

What cross-cultural issues have been of concern in the Hindalco’s acquisition of Novelis? Whether the post acquisition integration issues have been properly addressed?

What is the future outlook of this acquisition vis-à-vis the emerging trends in the worldwide aluminum industry?

2. Introduction

Mergers and Acquisitions have been the part of inorganic growth strategy of corporate worldwide. Post 1991 era witnessed growing appetite for takeovers by Indian corporate also across the globe as a part of their growth strategy. This series of acquisitions in metal industry was initiated by acquisition of Arcelor by Mittal followed by Corus by Tata’s. Indian aluminium giant Hindalco extended this process by acquiring Atlanta based company Novelis Inc, a world leader in aluminium rolling and flat-rolled aluminium products. Hindalco Industries Ltd., acquired Novelis Inc. to gain sheet mills that supply can makers and car companies. Strategically, the acquisition of Novelis takes Hindalco onto the global stage as the leader in downstream aluminium rolled products. The acquisition of Novelis by Hindalco bodes well for both the entities. Novelis, processes primary aluminium to sell downstream high value added products. This is exactly what Hindalco manufactures. This makes the marriage a perfect fit. Before acquisition Hindalco, an integrated player, focuses largely on manufacturing alumina and primary aluminium. It has downstream rolling, extruding and foil making capacities as well, but they are far from global scale. Novelis processes around 3 million tonnes of aluminium a year and has sales centers all over the world. In fact, it commands a 19% global market share in the flat rolled products segment, making it a leader.

The deal made Hindalco the world's largest...
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