Case study Merger

Topics: Aditya Birla Group, Birla family, Kumar Mangalam Birla Pages: 6 (1422 words) Published: October 5, 2014
The case discusses the acquisition of US-Canadian aluminum company Novelis by India-based Hindalco Industries Limited (Hindalco), a part of Aditya Vikram Birla Group of Companies, in May 2007. The case explains the acquisition deal in detail and highlights the benefits of the deal for both the companies.

It also examines the valuation of the acquisition deal and how the deal was financed. The case concludes by describing the challenges that Hindalco would face in integrating the operations of Novelis and analyzing if the deal was overvalued as opined by some industry experts.

bstract:
Issues:
» Study the synergies of the merger between Hindalco and Novelis » Study the rationale behind Hindalco acquiring a loss making aluminum company » Examine the way the acquisition deal was financed
» Analyze whether the deal was overvalued or not
» Analyze the trends in the global aluminum industry

Keywords:
Hindalco Industries Limited, Novelis Inc., Merger and Acquisition, Deal Valuation, Debt-equity Ratio, EV/EBITDA Ratio, Indian Aluminum Industry, Merger Integration, Consolidation, Downstream Business, Upstream Business

"The acquisition will catapult the group into the Fortune 500 league, three years ahead of the target. The combination of Hindalco and Novelis will establish a global integrated aluminium producer."1 - Kumar Mangalam Birla, Chairman of Hindalco, in February 2007. "The combination of Novelis's world-class rolling assets with Hindalco's growing primary aluminum operations and its downstream fabricating assets in the rapidly growing Asian market is an exciting prospect."2 - Ed Blechschmidt, Acting Chief Executive of Novelis, in February 2007.

Introduction

On May 16, 2007, India-based Hindalco Industries Limited (Hindalco), a subsidiary of the AV (Aditya Vikram) Birla Group of Companies (Aditya Birla Group), acquired the US-Canadian aluminum giant Novelis Inc. (Novelis).

The acquisition was the result of an agreement arrived at between Hindalco and Novelis on February 10, 2007. Hindalco was to buy Novelis for US$ 6 billion in cash, making it the second biggest acquisition3 by an Indian company till then. Novelis was to operate as a subsidiary of Hindalco, and was to have Kumar Mangalam Birla (Kumar Mangalam) as Chairman who was also the Chairman of Hindalco and the Aditya Birla Group. Martha Finn Brooks, from Novelis would continue as Chief Operating Officer and was also appointed as the President of the merged entity. Hindalco was among the leading companies in the aluminum and copper industry in the world. (Refer to Exhibit I for leading aluminum companies in the world based on EBITDA figures).

In the financial year 2006-07, Hindalco generated revenues of US$ 14 billion and the company had a market capitalization of more than US$ 4.5 billion. It had a significant market share in all the segments in which it operated and enjoyed a domestic market share of 42 percent in primary aluminum, 63 percent in rolled products, 20 percent in extrusions, 44 percent in foils, and 31 percent in wheels (Refer to Exhibit II for Hindalco's revenues and net income for the year 2006 and 2005). Novelis had a three million ton capacity for manufacturing value added aluminum rolled products4 and was a leading producer of aluminum sheet and light gauge (thin) rolled products for the construction and industrial markets.

The company operated in 11 countries and supplied high quality aluminum sheet and foil products to various industries including automotive, transportation, packaging, construction, industrial products, and printing. Novelis'customers included companies like Coca-Cola, Kodak, Ford, General Motors, and other leading Fortune 500 companies. Novelis sold rolled aluminum products in Asia, Europe, North America, and South America (Refer to Exhibit III for performance of Novelis in different regions).

Industry analysts opined that the acquisition would benefit Hindalco by strengthening the...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Cisco case study Research Paper
  • Essay about A Comparative Study of Mergers and Acquisitions Within the Eu Aviation Sector: a Case Study of British Airways and Iberia.
  • Case Study: United Technologies Gathers Competitive Intelligence Research Paper
  • case study Essay
  • case study Essay
  • case study Essay
  • Case Study Essay
  • CASE STUDY Essay

Become a StudyMode Member

Sign Up - It's Free